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Trying to Make Sense of the Cost of War

Author: Amity Shlaes, Former Hayek Senior Fellow for Political Economy
March 20, 2008
Chicago Tribune

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Three trillion dollars is the amount that Nobel Prize winner Joseph Stiglitz and Linda Bilmes put as the cost of the Iraq war in their new book “The Three Trillion Dollar War.” The book makes some good points, including that Washington has underestimated war costs from the beginning. But Stiglitz and Bilmes are off the mark in arguing that the current conflict darkens the nation’s financial future.

To the math: To arrive at their $3 trillion, Stiglitz and Bilmes start with oil. They carefully note that a good share of the quadrupling of oil prices is a result of non-war reasons such as Chinese and U.S. demand.

The war, they determine, accounted for $5 or $10 of the per-barrel rise from $25 just after the war started to $100 today, a share they deem “significant.” They also argue that Washington is vastly underestimating medical care for veterans, and that over their lifetimes we will spend as much on the veterans as we have on the war to date.

In their best-case scenario, under which the U.S. presence in Iraq drops to 55,000 non-combat troops by 2012, the total budgetary costs for the conflict add up to $1.7 trillion. They posit that a more realistic figure would be $2.65 trillion.

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