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Nebraskans’ Bill for the Iraq War:
$21,450 per Household (and growing)

Hendrik van den Berg
UNL Professor of Economics

The Bush/Cheney Administration has intentionally kept the costs of the Iraq War hidden from public view. There has been no tax increase to cover the $500 billion that the government will spend on the war through the end of this year. The administration has indicated it will request another $200 billion for the war through the end of 2008, but most Americans will pay no attention since they will not be asked to pay any additional taxes. Some simple math shows that this full amount comes down to an average of more than $6,000 for each of the 113 million American households. While this number is large, more thorough analysis suggests that the Iraq War’s full costs will be at least four times that large.

The Budgeted Costs

Obviously, if the Iraq occupation continues into 2009 and beyond with 130,000 troops and 50,000 contractors, expenditures will continue at about $10 billion per month — or about $100 per household. We cannot predict how much longer the occupation of Iraq will continue, but it is safe to say that the $700 billion in military expenditures through the end of 2008 are as low as we can realistically hope for.

But, even under the assumption that the occupation ends by the end of next year, there are many costs beyond the budgeted direct military expenditures. For example, conservative estimates suggest that about $25 billion of airplanes, helicopters, tanks, rifles, drones and other equipment is being used up each year the war continues. Hence, to the costs of occupation through 2008 we must add $125 billion for ‘depreciation.’ The military will have to budget for this sooner or later, and American households will eventually be asked to pay.

The biggest costs of the U.S. invasion and occupation of Iraq are not shown in the military budget, however. The costs of the military and civilian casualties, the cost of the destruction, the costs of the economic disruption and the widespread social costs in the U.S. (not to mention Iraq) dwarf the budgeted military expenses. Precise estimates of these costs are difficult to make, but economists can provide some ballpark figures. .

The Value of Life, Medical Costs, & the Cost of Disability

To put a value on a human life, economists observe human choices. After all, people make decisions every day that reflect how they value health and risk. Many of these choices involve market decisions, such as working a risky job, purchasing a hazardous product or choosing among alternative medical procedures. Suppose, for example, that a worker in a dangerous job demands $10,000 more per year than in a less dangerous job. Suppose the more dangerous job increases the probability of dying from 0.005 percent to 0.01 percent, or an increase in the probability of death of 0.005 percent. Under the assumption that workers make their choices rationally, we can conclude that the difference in pay implies that a worker values his or her life at 1/.005 x $10,000, or $5,000,000. Obviously, there may be many other reasons why wages differ across jobs, and people may not

make rational decisions. However, by looking at a very large number of such differences in wages across jobs with clear differences in levels of danger and risk, it becomes possible to estimate a range within which we value our lives and those of people close to us. According to a well-known review of these studies by Kip Viscusi and Joseph Aldy (2003), the median estimate of an American life is about $7 million. This number is often used as a guide for court decisions and insurance payments. A conservative assumption would be that casualties among U.S. troops and contractors will slow but still reach 5,000 at the end of 2008. Hence, multiplying 5,000 deaths by $7 million gives us a total value of American lives lost of $35 billion.

At current rates, there will also be 35,000 serious casualties through 2008. Most of the casualties are young men and women, who will need years of care, assistance and financial support from families and government programs. Past experience with Gulf War and Vietnam War veterans provides some guidance, but future medical and other costs for Iraq casualties will be much higher because of the higher survival rate of seriously injured soldiers. These costs of medical procedures, physical therapy, counseling, social assistance and aid may exceed $200 billion. These costs will be borne by the government, families and society over the next half century. Many seriously injured soldiers will never live normal lives. A detailed study by Bilmes and Stiglitz (2006) values the future loss of earnings, life options and diminished capabilities for seriously injured veterans at about $100 billion.

The Macroeconomic Costs

Often left out of the calculations of the costs of war are the indirect costs to our economy. First of all, future interest payments on government debt incurred to finance the war and future medical and veterans’ expenses are estimated by Bilmes and Stiglitz (2006) to exceed $400 billion. There is also the obvious waste of resources from destructive military activity, resources that could have been used to produce, innovate and invest. Also, the added borrowing by the U.S. government will raise interest rates, further reducing private borrowing for investment and research as well as government investment in education, infrastructure and research. I again follow Bilmes and Stiglitz and estimate the current value of lost future economic growth at about $700 billion over the next 50 years.

The Total Bill for the U.S.

With these indirect costs added to the direct budgeted military expenses, the Iraq War’s cost to the U.S. adds up to well over $2 trillion. The estimated $2.34 trillion comes to over $21,000 per U.S. household. Obviously, if the occupation of Iraq continues beyond 2008, the bill will rise further. The U.S. faces many other costs from its foolish decision to invade Iraq. How do we put a value on our country’s lost reputation? How much U.S. business has been lost by the increased anti-American sentiment? How long will it take to restore our military to what is once was? And how much will it cost to deal with future conflicts that may erupt from the chaos in Iraq and our aggressive foreign policy over the past five years?

It will be a long time before we know the full tally for the Iraq War, particularly as the numbers shown here assume that we will soon end our occupation, and that may not be a very realistic assumption. Further, these calculations only examine the U.S. side of the expense ledger for the war. In a future issue, I will calculate the war’s cost to the Iraqis, which — between expenditures for reconstruction and reparations — could drive the American taxpayer’s burden for this disastrous political blunder even higher.