Costs of Iraq, Afghan campaigns still piling up

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THE vast majority of economists ignore the consequences of the Iraq and Afghanistan campaigns. Human and financial costs of the conflicts continue to grow even though the US and UK have been withdrawing, and are leaving the countries in an unstable state.

Linda Bilmes, public policy professor at Harvard University and former assistant secretary and chief financial officer of the US Department of Commerce under president Bill Clinton, spells out the implications in no uncertain terms. Updating the 2008 book The Three Trillion Dollar War, which she co-authored with Nobel prize-winning economist Joseph Stiglitz, Prof Bilmes estimates that the US war costs have escalated to between $4 trillion and $6 trillion.

UK dead, wounded and other military casualties are some 24,000 so far, but disclosures of financial costs have been totally inadequate. The last official estimate published in 2010 estimated around £20 billion ($33 bn) in direct military costs.

Frustration is evident as four years after his enquiry into the Iraq war began, chairman John Chilcot has still not received a response to a request for communication records between former UK premier Tony Blair and president George W Bush. The evidence is vital as both leaders need to answer charges that they drove their nations into war on false information. Whether this allegation proves to be true or false, the wars have wrought suffering for soldiers, Iraqis and Afghans and widespread destruction. ( see anti-war children’s novel: Butterfly Battle )    

Direct costs of the wars are estimated in Prof Bilmes’ paper The Financial Legacy of Iraq and Afghanistan. “By the most conservative reckoning, the Iraq and Afghanistan conflicts will cost US$4 trillion,” she says. “The US costs include operations to 2013, accrued veterans medical and disability costs; indirect costs to the Defense Department, social costs for veterans’ families and interest already paid.”

The legacy of decisions made during both conflicts will impose significant long-term costs on the federal government, and in particular, on the consolidated national security budget. These decisions extend far beyond the initial choices made to invade Afghanistan and Iraq and to expand US military involvement in both countries. They include, for example, the decisions to expand medical care and disability benefits for war veterans, growth of the Department of Defesce medical system and an increase in military pay.

War costs a substantial proportion of $9 trillion debt

The US has already borrowed around $2 trillion to finance both wars and the associated rise in the defence budget, estimates the paper. These loans were a major component of the US$9 trillion debt accrued since 2001. Most of the funding came from foreign lenders and interest to the first quarter of 2013 amounted to US$260 billion. Considering that interest on the loans will continue and there will be more borrowings to service the debt, the potential interest could eventually multiply to more than a trillion, according to the paper.

Economic apologists claim that defence industry contracts, employment in armaments businesses and the multiplier effect helped boost the US economy. Despite that, the costs were an economic waste. About US$87 billion was spent on reconstruction in Afghanistan, and US$61 billion in Iraq. That money could have gone into job creating infrastructure in the US and UK.

Indirect macro economic effects of the wars include:

• a surge in oil prices from US$23 per barrel prior to the invasion of Iraq to a peak of US$140 in 2008 and since then a range of US$90 to US$110. Higher oil and other energy costs have been an effective tax on businesses and consumers;
• the wars brought in their wake reckless monetary policies. To be sure, the US Federal Reserve Board’s quantitative easing (QE) programme of purchasing treasury bonds is a monetisation of debt. This policy caused a credit and asset price bubble that ended in the crash of 2008 and 2009 recession. Accelerated QE has created further global real estate, equity, art and other asset inflation in developed and emerging markets. The ultimate result could be a repeat bust and recession at some future date;
• excessive borrowing has forced governments to cut back expenditure on vital infrastructure, health, education, among others. Taxation has increased;
• the result, despite monetary ease, has been stagflation, notably slack growth, continual inflation and high unemployment.
Instead of the so called “peace dividend” claimed ahead of the wars, the US faces a perilous international security situation and the geo-political risks are clouds on fragile economies.

 Neil Behrmann is author of anti-war children’s novel Butterfly Battle- The Story of The Great Insect War

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