The Ultimate Cost of War

January 15, 2006
Economic View
When Talk of Guns and Butter Includes Lives Lost
By LOUIS UCHITELLE
AS the toll of American dead and wounded mounts in Iraq, some economists are arguing that the war's costs, broadly measured, far outweigh its benefits.

Studies of previous wars focused on the huge outlays for military operations. That is still a big concern, along with the collateral impact on such things as oil prices, economic growth and interest on the debt run up to pay for the war. Now some economists have added in the dollar value of a life lost in combat, and that has fed antiwar sentiment.

"The economics profession in general is paying more attention to the cost of lives cut short or curtailed by injury and illness," said David Gold, an economist at the New School. "The whole tobacco issue has encouraged this research."

The economics of war is a subject that goes back centuries. But in the cost-benefit analyses of past American wars, a soldier killed or wounded in battle was typically thought of not as a cost but as a sacrifice, an inevitable and sad consequence in achieving a victory that protected and enhanced the country. The victory was a benefit that offset the cost of death.

That halo still applies to World War II, which sits in the American psyche as a defensive war in response to attack. The lives lost in combat helped preserve the nation, and that is a considerable and perhaps immeasurable benefit.

Through the cold war, economists generally avoided calculations of the cost of a human life. Even during Vietnam, the focus of economic studies was on guns and butter - the misguided insistence of the Johnson administration that America could afford a full-blown war and uncurtailed civilian spending. The inflation in the 1970's was partly a result of the Vietnam era.

Cost-benefit analysis, applied to war, all but ceased after Vietnam and did not pick up again until the fall of 2002 as President Bush moved the nation toward war in Iraq. "We are doing this research again," said William D. Nordhaus, a Yale economist, "because the Iraq war is so contentious."

Mr. Nordhaus is the economist who put the subject back on the table with the publication of a prescient prewar paper that compared the coming conflict to a "giant role of the dice." He warned that "if the United States had a string of bad luck or misjudgments during or after the war, the outcome could reach $1.9 trillion," once all the secondary costs over many years were included.

So far, the string of bad luck has materialized, and Mr. Nordhaus's forecast has been partially fulfilled. In recent studies by other economists, the high-end estimates of the war's actual cost, broadly measured, are already moving into the $1 trillion range. For starters, the outlay just for military operations totaled $251 billion through December, and that number is expected to double if the war runs a few more years.

The researchers add to this the cost of disability payments and of lifelong care in Veterans Administration hospitals for the most severely injured - those with brain and spinal injuries, roughly 20 percent of the 16,000 wounded so far. Even before the Iraq war, these outlays were rising to compensate the aging veterans of World War II and Korea. But those wars were accepted by the public, and the costs escape public notice.

Not so Iraq. In a war that has lost much public support, the costs stand out and the benefits - offsetting the costs and justifying the war - are harder to pinpoint. In a paper last September, for example, Scott Wallsten, a resident scholar at the conservative American Enterprise Institute, and Katrina Kosec, a research assistant, listed as benefits "no longer enforcing U.N. sanctions such as the 'no-fly zone' in northern and southern Iraq and people no longer being murdered by Saddam Hussein's regime."

Such benefits, they found, fall well short of the costs. "Another possible impact of the conflict, is a change in the probability of future major terrorist attacks," they wrote. "Unfortunately, experts do not agree on whether the war has increased or decreased this probability. Clearly, whether the direct benefits of the war exceed the costs ultimately relies at least in part on the answer to that question."

The newest research was a paper posted last week on the Web (www2.gsb.columbia.edu/faculty/jstiglitz/cost_of_war_in_iraq.pdf) by two antiwar Democrats from the Clinton administration: Joseph E. Stiglitz of Columbia University and Linda Bilmes, now at the Kennedy School of Government at Harvard. Their upper-end, long-term cost estimate tops $1 trillion, based on the death and damage caused by the war to date. They assumed an American presence in Iraq through at least 2010, and their estimate includes the war's contribution to higher domestic petroleum prices. They also argue that while military spending has contributed to economic growth, that growth would have been greater if the outlays had gone instead to highways, schools, civilian research and other more productive investment.

The war has raised the cost of Army recruiting, they argue, and has subtracted from income the wages given up by thousands of reservists who left civilian jobs to fight in Iraq at lower pay.

JUST as Mr. Wallsten and Ms. Kosec calculated the value of life lost in battle or impaired by injury, so did Mr. Stiglitz and Ms. Bilmes - putting the loss at upwards of $100 billion. That is more than double the Wallsten-Kosec estimate. Both studies draw on research undertaken since Vietnam by W. Kip Viscusi, a Harvard law professor.

The old way of valuing life calculated the present value of lost earnings, a standard still used by the courts to compensate accident victims, generally awarding $500,000 a victim, at most. Mr. Viscusi, however, found that Americans tend to value risk differently. He found that society pays people an additional $700 a year, on average, to take on risky work in hazardous occupations. Given one death per 10,000 risk-takers, on average, the cost to society adds up to $7 million for each life lost, according to Mr. Viscusi's calculation. Mr. Stiglitz and Ms. Bilmes reduced this number to about $6 million, keeping their estimate on the conservative side, as they put it.

None of the heroism or sacrifice for country shows up in the recent research, and for a reason.

"We did not have to fight this war, and we did not have to go to war when we did," Mr. Stiglitz said. "We could have waited until we had more safe body armor and we chose not to wait."



Copyright 2006The New York Times