The Economics of the War

In the Becker-Posner Blog, Gary Becker has a nice piece on the economics of the War in Iraq. (March 19th, 2006). Drawing on estimates made by other economists (Steven J. Davis, Kevin M. Murphy and Robert H. Topel and Bilmes and Stiglitz), he suggests that the "cost of the war will amount to somewhere between $500 and $850 billion". He suggests that this is perhaps several hundred billions of US dollars greater than the cost of the alternative of containment of Saddam Hussein. Their estimate does not seem to include costs incurred by other nations in the Coalition. (I am not sure that the estimate counts the psychological cost to our returning soldiers, and we read that fully one-third have alread sought psychological help to deal with the after effects.)

I quote the following paragraph completely:

I have not mentioned anything about the costs or benefits to the Iraqi people. Much property has been destroyed and many Iraqis killed during the insurgency, but can anyone doubt that practically all Kurds and Shiites (about 75 per cent of the total population), and some Sunnis, consider themselves better off now than under the brutal regime of Saddam? This brutality includes not only the enormous devastation to the Iraqi economy, but also the many thousands of deaths that he caused, a number that would be well in the hundreds of thousands if deaths due to the Iran invasion are included. Since Democrats as well as Republicans often mention spreading democracy, I do not see how the effects on Iraqis can be ignored.

Currently, IraqBodyCount lists the number of civilians deaths caused by military intervention in Iraq as between 33679 and 37795. That number includes "civilian deaths caused by coalition military action and by military or paramilitary responses to the coalition presence (e.g. insurgent and terrorist attacks). It also includes excess civilian deaths caused by criminal action resulting from the breakdown in law and order which followed the coalition invasion." However, a paper published in The Lancet in October, 2004 estimated that the excess of deaths in Iraq in the 17.8 months following the invasion was 100,000 as compared with the death rate in the 14.6 months prior to March 2003. (In war conditions, I would expect that a lot of the excess civilian mortality would result from disease and malnutrition, as well as from a deterioration in access to medical attention, rather than as a result of direct violence. I would also expect that these impacts of the disruption in civil society since March 2003 would still be increasing, as the Iraqi economy continues in crisis and as the infrastructure continues to be damaged and inadequate.) The Lancet study did not consider the number of Iraqi soldiers killed.

If indeed more than 100,000 Iraqi's have died as a result of the war, I suggest that, contrary to Becker's assumption, there are a lot of Iraqis (the families and loved ones of the dead) who don't consider themselves better off overall since Saddam was deposed. Moreover, if one applies the US$7 million per military death mentioned by Becker to the 100,000 Iraqi civilians conservatively estimated as having died, you get another US$700 billion in costs of the war. (Do you want to say than an Iraqi child is worth less than an American soldier? I don't!)

One of the problems of cost-benefit analysis is how to account for externalities. In this case, how does one account for the costs of the war not only to the United States, and to Iraqis, but to the rest of the world? We are now 6.5 billion people inhabiting the planet, and I would suggest all are affected by the war. Who is calculating the costs to all these stakeholders?

The war in Iraq and Afghanistan have had other repercussions for the United States that are I think impossible to quantify.

* Has it made security from attack with WMDs from Iran and North Korea worse, and/or diminshed U.S. ability to counter such threats? How are we to put value on such changes?
* Has it increased or decreased the threats of violence between Israel and its Arab neighbors, or among Pakistan, India and China? How can we even identify the stakeholders affected by such theats, much less quantify their cost and probability?
* Has the war directly or indirectly reduced action for the amelioration of global environmental problems? How should we evaluate such problems, or their changing likelihood.

When preparations for the war were under way in 2003, the White House reacted vigorously to deny the estimate made by White House Economic Advisor Larry Lindsey that it might cost US$200 billion, saying that that number was a gross overestimate. Bilnes and Stiglitz make the point that we now know that Lindsey's estimate was a gross underestimate. The cost estimates have certainly shown that in this, as in so many ways related to the war, the information given out by the Bush Administration was false, and was thought to be false by key officials of the government.

But I would add that in decisions of the complexity and gravity as that of going to war, the costs to all stakeholders should be considered. The government considering war or its moral counterpart should open international discussions to allow other stakeholders to participate in the decisions that affect them so deeply. The unquantifiable is not imponderable. The best way to take into account the costs to be borne by others is probably through dialog among the stakeholders.