Goin' Broke The Cost of War
 Goin' Broke Essay Winners
 Volunteer Speaking Our Peace "Remembering"
Merle Hansen
By Paul Olson, NFP President Global Warming Troubling Questions about ‘Cap and Trade’
By Professor Bruce E. Johansen Nebraska Peace Stratcom
The Most Dangerous Place on the Face of the Earth Whiteclay
Updates on Nebraska's tiny reservation border town. StratCom Conference Space Conference
 Visions for Peace Visions for Peace
 Checks On Power Use these online tools as resources for holding Obama to his campaign promises:

STATE OF CHANGE
CONGRESS MATTERS
FOCUS THE NATION
350
THE WHITE HOUSE
 NFP Sticker Get Your FREE
NFP Bumper Sticker!
Just send us an Email.

The Cost of War for Iraq – A Damage Report

Hendrik van den Berg
UNL Professor of Economics

In the November issue of the Nebraska Report, I estimated the full cost of the Iraq War for the average household here in the United States. The total cost came to about $21,500 per household. In my estimate, I included not only the direct budgetary expenditures that have been widely reported in the media, but also the indirect costs from diverting resources away from productive investment, the huge future costs of caring for the casualties and replacing worn out equipment, and the interest on the government bonds to finance the war. As large as my estimates were, however, they are still gross underestimates of the true costs of our invasion and occupation of Iraq. First of all, my estimates assumed that our occupation will end at the end of 2008. Under more a likely scenario that U.S. military forces will remain in Iraq at least five more years, the U.S. Congressional Budget Office estimates long-run U.S. costs of the Iraq occupation could grow to well over $4 trillion — or more than $40,000 per household. What has not yet been considered in these cost estimates for the Iraq War, however, is the cost of our military aggression on Iraq. Iraqis are no less important than we are, and an estimate of the damage we caused in that country is certainly in order.

The Iraqi Economy

According to Angus Maddison, a noted economic historian who has compiled complete historical estimates of economic growth, Iraq went from being the wealthiest area on earth 1,000 years ago to a poor country by the middle of the 20th Century (Maddison (2003), The World Economy: Historical Statistics, Paris: Organisation for Economic Co- Operation and Development). After 1950, however, petroleum exports accelerated Iraqi economic growth. Average per capita income in Iraq surpassed $6,000 by 1980, putting Iraq in the upper echelon of developing countries. Saddam Hussein’s war with Iran in the 1980s, though, caused substantial damage to Iraq’s petroleum infrastructure and the country’s economy began to decline dramatically. By 1990, the Iraqi economy operated at half its 1980 capacity.

Maddison shows per capita income in Iraq at around $2,500 by the time Saddam invaded Kuwait in 1991. The ensuing Gulf War and the economic sanctions imposed by the international community after the Gulf War gradually reduced per capita income in Iraq to an estimated $1,250 by 2000. Under the sanctions, oil production declined for lack of investment, and corruption — with the incentives for smuggling to evade the sanctions — increased. The United Nations also estimated that about half a million children did not grow to adulthood because of the lack of food, medicines, hospital equipment and sanitation due to the economic sanctions. In short, the Iraqi economy had already suffered a severe decline from its own corrupt leadership, its wars, and the Western countries’ economic sanctions before the U.S. unilaterally invaded and occupied the country in 2003.

The United Nations estimated recently that in 2007 the Iraqi economy was operating at half its pre-invasion level (BBC News Online, September 14, 2007). Over half the Iraqi population is now unemployed or underemployed. Half of the estimated $1,250 per capita income in 2000 would put Iraq’s current average per capita income at about $600-650 per year. Given that income distribution in Iraq is quite unequal, an average of $650 would explain the reported United Nations’ estimate last year that nearly half of all Iraqis were living in severe poverty. In the aggregate, a fall in per capita income from over $1,250 before 2003 to the current $600 for each of the 25 million Iraqis implies that total GDP for Iraq fell by about $15 billion per year since the invasion.

With the ethnic strife and lawlessness that our invasion set off, and the concrete walls we are now building to partition Baghdad and other cities into ethnic enclaves, it is unlikely that economic activity will recover soon. The total cost of lost economic output will easily surpass $100 billion before the economy recovers. If the partitioning of the country and the violence continues, and there is little or no economic growth to bring the economy back up to its modest pre-invasion level, the cost of the economic collapse caused by our invasion will continue to grow by the continuation of annual discrepancies between current and past per capita income levels.

These types of exercises in national cost-accounting are purely conjectural, of course. What would have happened had we not invaded Iraq? Would the economy have regained its 1990 per capita income of $2,500? For that to happen, at the very minimum we would have had to lift the economic sanctions that were politically popular here in the U.S., even as they were devastating to ordinary Iraqis. Was the departure of Saddam Hussein necessary for Iraq to recover its 1980 income level? What if, instead of invading Iraq, the U.S. had agreed to pay Saddam $1 billion to go into exile (which a member of the Spanish government claims was indeed on the table before the invasion but rejected by the U.S.)? The U.S. and the U.N. could have then suspended sanctions and let the country recover and grow back to its 1990 or even 1980 levels. Under this assumption, the decision to invade and foment the current chaos could be viewed as having an opportunity cost of $300-$600 billion!

The Loss of Iraqi Lives

The biggest loss to Iraq is obviously the overwhelming loss of life. Credible studies, such as the study reported in the British science journal Lancet in 2006, estimate that at least 500,000, and perhaps as many as 1 million, Iraqis have died from violence, lawlessness, crime and poverty since the U.S. invasion. How do we value these Iraqi lives?

A bit of simple logic can help us here. First of all, there is no reason to assume that Iraqis value the life of a family member or another Iraqi any differently than Americans would value their own lives or the lives of other Americans. In fact, there is much evidence showing that people value their lives about the same everywhere in the world. Therefore, we can use the studies used regularly in U.S. courts to settle civil cases, which suggest a human life in the U.S. is valued at about $7.5 million. This value of a human life is what I used to estimate the long-run cost of the invasion to the U.S. A case can be made that the value of an Iraqi life should be adjusted for the fact that even before the U.S. invasion, life expectancy was shorter in Iraq than in the U.S. I, therefore, adjust the value of an Iraqi life to four-fifths the value of an American life. This puts the value an Iraqi life in terms of U.S. dollars is about $6 million. Thus, if the U.S. invasion and occupation caused 500,000 deaths, the total value of lives lost in Iraq is $3 trillion. If more recent estimates of 1 million Iraqi dead are correct, then the cost of Iraqi lives lost is at least $6 trillion. This suggests that just in terms of the lives lost, the U.S. invasion and occupation has been much more costly to Iraq than to the U.S. Only the most ethnocentric American would find this result surprising.

Other Costs

Over half of the country’s medical doctors may have left the country, and hospitals and clinics are having trouble handling the increased workload from the violence and growing poverty. School and university attendance has declined, markedly so for women. The major universities have lost most of their foreign-educated faculty to emigration and assassination. With so many teachers killed or now living in other countries, it will take at least a generation to restore Iraq’s schools and universities. Infrastructure is in worse shape than it was before invasion, when it was already battered by ten years of economic sanctions. Oil exports are still lower than before the invasion. There will be permanent costs from the injuries, limbs lost, mental illness and other longlasting effects of war and violence. As in the case of the U.S., these costs will sum to tens of billions of dollars of lost income and productivity.

It will be a long time before we know the full tally for the Iraq War. Just the $3 to $6 trillion value of the loss of Iraqi lives falls between $25,000 and $50,000 per American household. The lost economic and social welfare of the Iraqis injured, disabled and economically depressed adds hundreds of billions more to the damage we have caused in Iraq. The total costs to Iraq and the U.S. of our invasion are, therefore, double or triple the $21,500 I calculated for the U.S., or $40,000-$60,000. And, if our occupation continues for years and our occupation provokes continued violence or a partitioning of the country that prevents an economic recovery, then the Congressional Budget Office estimates of over $40,000 must be multiplied by two or more to get the full cost of our aggression.

Time will tell exactly what the costs of the invasion will turn out to be. At this point, the numbers certainly suggest that future monetary compensation to Iraq by the U.S. is called for. It will be interesting to see whether the American government will deny its responsibility to fund future United Nations peacekeeping, multilateral reconstruction efforts, or to even allow vulnerable Iraqis immigrate to the U.S.