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Will the US Economy Become a Victim of the Iraq War?

Posted By Barry Ritholtz On July 21, 2005 @ 6:14 am In Economy,War/Defense | Comments Disabled

War is not only Hell — but Hellishly expensive:

"In September 2002, the Congressional Budget Office, a nonpartisan
research arm of Congress, estimated that the war would cost $1.5
billion to $4 billion per month. In fact, it costs between $5 billion
and $8 billion per month.

The Pentagon says the "burn rate" — the operating costs of the wars
– has averaged $5.6 billion per month in the current fiscal year, but
that does not include some costs for maintenance and replacement of
equipment and some training and reconstruction costs, experts say."

Recall our Pre-War Analysis from March 19, 2003 (Not-So-Hidden Agenda: Strategic and Economic Assessments of U.S. led Invasion in the Middle East [1]) — we predicted the War in Iraq would last up to 10 years and cost $1 trillion dollars over that decade. That length and expense was (at the time) considered an outlier, far beyond other expectations.   

Now, almost 2 1/2 years later, other analyses are (finally) catching up. A recent study from the Center for Strategic and Budgetary Assessments [2] upgrades the estimates of what the war will cost to ~3/4 of a trilllion dollars (so we are getting closer to my $ trillion dollar estimate).

"The wars in Iraq and Afghanistan have already cost taxpayers $314
billion, and the Congressional Budget Office projects additional
expenses of perhaps $450 billion over the next 10 years.

That could make the combined campaigns, especially the war in Iraq,
the most expensive military effort in the last 60 years, causing even
some conservative experts to criticize the open-ended commitment to an
elusive goal. The concern is that the soaring costs, given little
weight before now, could play a growing role in U.S. strategic
decisions because of the fiscal impact.

"Osama (bin Laden) doesn’t have to win; he will just bleed us to
death," said Michael Scheuer, a former counterterrorism official at the
CIA who led the pursuit of bin Laden and recently retired after writing
two books critical of the Clinton and Bush administrations. "He’s well
on his way to doing it."

The Center for Strategic and Budgetary Assessments, a nonpartisan
Washington think tank, has estimated that the Korean War cost about
$430 billion and the Vietnam War cost about $600 billion, in current
dollars. According to the latest estimates, the cost of the war in Iraq
could exceed $700 billion.

Put simply, critics say, the war is not making the United States
safer and is harming U.S. taxpayers by saddling them with an enormous
debt burden, since the war is being financed with deficit spending."

You can get a visual sense of how much the war(s) have been costing the United States per year below; These data points reflect budget allocations, and do not include the epxenditures for military men and material already budgeted.

Click for larger graph

Mn_casualty_of_war [3]

Chart courtesy of San Francisco Chronicle [4]

One of the few vocal critics of the cost the Iraq war has generated has been Nebraska Senator Chuck Hagel (R). He has pointed out (repeatedly) that the present expenses are many multiples greater than what the White House had promised in 2003; Future expenses threaten to make the war even more costly.

Long term deficit hawks (and that should include equity investors) should take note of Hagel’s obserervations regarding the ultimate impact of this spending: it is throwing U.S. fiscal priorities "out of balance," and "It’s dangerously irresponsible."





James Sterngold
Chronicle Staff Writer, Sunday, July 17, 2005


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2005/07/will-the-us-economy-become-a-victim-of-the-iraq-war/

URLs in this post:

[1] Not-So-Hidden Agenda: Strategic and Economic Assessments of U.S. led Invasion in the Middle East: http://bigpicture.typepad.com/comments/2003/03/notsohidden_age.html

[2] Center for Strategic and Budgetary Assessments: http://www.csbaonline.org/

[3] Image: http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/mn_casualty_of_war.jpg

[4] San Francisco Chronicle: http://www.sfgate.com/cgi-bin/object/article?f=/c/a/2005/07/17/MNG5GDPEK31.DTL&o=0

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