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The Language of “Costs” and “Benefits”


"The most important things in life—like life itself—are priceless," Linda Bilmes and Joseph Stiglitz acknowledge in The Economic Costs of the Iraq War, a paper they drafted for the annual meeting of the American Economic Association in Boston the first weekend of this new year. Aside from these eleven words, however, these are "cost – benefit" tacticians through and through. And it is their conclusion that the Americans' March, 2003 war over Iraq is a classic instance of the "penny wise – pound foolish" proverb. By this, strange as it sounds, Bilmes and Stiglitz mean to say that the Washington regime "tried to fight the war on the cheap…." Although I believe that the opposite is true, and that the warmaking institutions maximize costs while channeling the benefits to as few people as possible—the gist of the late Seymour Melman's critique of the "permanent war economy," let us not forget—still, permit me to quote three paragraphs from the Bilmes – Stiglitz paper, where they state their case quite clearly (pp. 33-34):

Though we have suggested that many of the costs were within the range of what could have been anticipated, we have not sought in this paper to ascertain whether on the basis of the information available the Administration could have made more reliable estimates. We do not address the question of whether the disparity between the predicted numbers and the actual numbers is the result of a deliberate attempt of the Administration to mislead the American people on the cost of the war, or of incompetence, going to war with information of low reliability and with best estimates that were far from the mark. In response to accusations about the existence of weapons of mass destruction and the connection with Al Qaeda, the Administration has been adamant that it did not intentionally deceive the American people; it prefers charges of incompetence to those of malevolence. We have not attempted to ascertain the relative role of each in the failure to provide the American people with an accurate cost of the venture. At the very least, though, honesty would have required laying out the various scenarios, even if it attached low probabilities to those that in fact turned out to be the case. Americans could, and should have asked, are there ways of spending that money that would have enhanced our long run well being—and perhaps even our security—more. Take the conservative estimate of a trillion dollars. Half that sum would have put social security on a firm grounding for the next seventy-five years. If we spent even a small fraction of the remainder on education and research, it is likely our economy would be in a far stronger position. If some of the money spent on research were devoted to alternative energy technologies, or to providing further incentives for conservation, we would be less dependent on oil, and thereby more secure; and the lower prices of oil that would result would have obvious implications for the financing of some of the current threats to America’s security. While we may not know what causes terrorism, clearly the desperation and despair that comes from the poverty that is rife in so much of the Third World has the potential of providing a fertile feeding ground. For sums less than the direct expenditure on the war, we could have fulfilled our commitment to provide 0.7% of our GDP to help developing countries—money that could have made and enormous difference, for the better, to the well being of billions today living in poverty. We could have had a Marshall Plan for the Middle East, or the developing countries, that might actually have succeeded in winning the hearts and minds of those in the Middle East. What is clear is that the Administration’s original estimates were strikingly low. Would the American people have had a different attitude towards going to war had they known total cost? Would they have thought that there might be better ways of advancing the cause of democracy or even protecting themselves against an attack, that would cost but a fraction of these amounts? In the end, we may have decided that a trillion dollars spent on the War in Iraq was better than all of these alternatives. But at least it would have been a more informed decision than the one that was made. And recognizing the risks, we might have conducted the War in a manner different from the way we did.

All of the Bilmes – Stiglitz paper's considerable strengths and weaknesses are evident here. To be so bold as to point out a couple of the latter: Where the authors decline to estimate whether incompetence or malevolence deserves greater weight in assessing the decision to launch the war, we can dispense with the incompetence-scenario once and for all. That the half-a-trillion dollars that Bilmes and Stiglitz note "would have put social security on a firm grounding for the next seventy-five years" either will not be there for the firmer grounding or will have to be found elsewhere hardly expresses incompetence in policymaking. Instead, what it expresses are the conscious, deliberate, highly competent and, last but not least, profoundly malevolent choices of policymakers for whom those hundreds of billions of dollars (just for starters) now diverted to military-related accounts had in effect been earmarked for the American imperial project for eternity. And for ensuring that elites are the primary beneficiaries of the expenditures. Rather than the masses who would have benefitted from spending on social account. On social security. Or national health care. Or education. Or research and development into alternative energy technologies. Conservation. Genuine aid to underdeveloped countries. And so on. And, in short, a more peaceful world. Incompetence, then, does not begin to explain why the regime in Washington decided in favor of war and the spiralling dynamic of violence and international tension that war causes. Nor does it help our understanding of the real costs of the decision for war and against peace to pussyfoot around this issue. Furthermore. Even the Bilmes – Stiglitz paper's "between $1 and $2 trillion" grossly underestimates—and by a truly incalculable margin—the real costs to the world of the various states' military-preparedness and warmaking complex, within which each new action serves only to expand and to deepen its strangulation of the world. But this follows from the paper's chosen focus on the so-called "economic costs of the Iraq war"—a very narrow focus indeed. And in terms of bias, one can't help but notice that its authors never call the "Iraq war" of their title by it proper name: Never the American invasion of Iraq. Never the American aggression against Iraq. Much less the American crime against the peace. Their intended audience was the 2006 meeting of the American Economic Association, after all. "Could we have fought the war in ways that would have protected our troops better and cost the country less?" was how Blimes and Stiglitz formulated what they regard as the issue in Tuesday's Los Angeles Times. As always, we need to look elsewhere for insight. Notwithstanding the fact that the regime in Washington clearly relishes the great financial costs that the warmaking institutions impose upon this and future generations, as it provides a sort of superficial rationale for taking milk out of the mouths of babies while corroding further any notion of a social contract binding on us all except fear, the threat of penury or prison, and private armies to guard the castles of the rich. Insight into this particular American war and its real costs to human lives, to international security, to hopes for a less violent, more peaceful world. Insight into its roots within the American way of life and the American project of ruling the world by force. Every last suicide bomber on the streets of Baghdad, Kabul, or riding the London subway and who knows where next is as much a cost of this horrific complex as the corpses of the American soldiers represented by those little white crosses of the traveling Arlingtons. Loving one while hating the other is not an option. Nor has it ever been. By the way, I think that the kind of "cost – benefit" analysis illustrated throughout all of these commentaries—but most succinctly by the New York Times's Louis Uchitelle—not only is perverted. But a sign that the academic disciplines that undertake them are either too civilized (in a bad sense of the term) or not yet civilized enough (in a good sense of term)—there being no in-between. For if it is only when the predators and the thieves and the killers themselves become the prey, the victims, the little white crosses among the traveling Arlingtons, that they suddenly find religion—the "giant role of the dice" in the quote attributed to the Yale economist William Nordhaus—then what, in the final analysis, are we really talking about? That when the killers meet with armed resistance, and lose their capacity to kill at will and "cost-free," without any risk to themselves, they like to play at killing a lot less than they did before? As best I can tell, none of these "cost – benefit" analyses comes close to estimating the loss of humanity and the sheer ugliness of the kind of people described in the preceding sentence. In the final analysis, doesn't it come down to how many human goods we are willing to sacrifice to the President's latest promise to secure the Homeland from Terror? How many human lives? (And I don't just mean American lives. Either.) How much of the livability of the United States of America? The international order (such as it is)? The world?

(Please note that I've included a link to the Wallsten – Kosec paper here only because it has been brought up in the context of the far more important Bilmes – Stiglitz paper. The Nordhaus paper from 2002 has interest in its own right.) The Economic Consequences of a War with Iraq, William D. Nordhaus, American Academy of Arts and Sciences, 2002. [Note that Nordhaus' paper runs on pp. 5 - 39 of this PDF.] The Economic Costs of the War in Iraq, Scott Wallsten and Katrina Kosec, AEI – Brookings, Paper 05-19, September, 2005 The Economic Costs of the Iraq War, Linda Bilmes and Joseph E. Stiglitz, January, 2006 "Iraq War Will Cost More Than $2 Trillion," Linda Bilmes and Joseph E. Stiglitz, Milken Institute Review, December, 2006 (as posted to Truthout)  "Iraq war could cost US over $2 trillion," Jamie Wilson, The Guardian, January 7, 2006 "Economists Say Costs of War Could Top $2 Trillion," Bryan Bender, Boston Globe, January 8, 2006 "America failed to calculate the enormous costs of war," Martin Wolf, Financial Times, January 11, 2006 [$$$$$ - See below] "Fears grow for US economy," Alex Brummer, Daily Mail, January 12, 2006 "Payback time for the White House," Editorial, The Independent, January 12, 2006 [$$$$$ - See below] "What will war cost?" Kevin G. Hall, Seattle Times, January 14, 2006 "When Talk of Guns and Butter Includes Lives Lost," Louis Uchitelle, New York Times, January 15, 2006 [Also see below] "War's stunning price tag," Linda Bilmes and Joseph Stiglitz, Los Angeles Times, January 17, 2006 From Private to State Capitalism: How the Permanent War Economy Transformed the Institutions of American Capitalism, Seymour Melman, National Commission for Economic Conversion and Disarmament, February, 1997 "The Language of 'Costs' and 'Benefits'," ZNet, January 18, 2006

FYA ("For your archives"): Copies of the two items for which the $$$$$-curtain has precluded me from providing weblinks at the moment.

Financial Times (London, England) January 11, 2006 Wednesday London Edition 1 SECTION: COMMENT; Pg. 19 HEADLINE: America failed to calculatethe enormous costs of war BYLINE: By MARTIN WOLF Before the Iraq war began, Lawrence Lindsey, then president George W. Bush's economic adviser, suggested that the costs might reach Dollars 200bn. The White House promptly fired him. Mr Lindsey was indeed wrong. But his error lay in grossly underestimating the costs. The administration's estimates of a cost of some Dollars 50-Dollars 60bn were a fantasy, as were Saddam Hussein's weapons of mass destruction, and much else. An analysis by Linda Bilmes of Harvard University and the Nobel-laureate Joseph Stiglitz of Columbia University suggests that the administration underestimated the economic costs by considerably more than an order of magnitude.* To paraphrase erstwhile senator Everett Dirksen: "a Dollars 100bn error here, a Dollars 100bn error there and pretty soon you are talking real money". So far the government has spent Dollars 251bn (Pounds 142bn) in hard cash. But the costs continue. If the US begins to withdraw troops this year, but maintains a diminishing presence for the next five years, the additional cost will be at least Dollars 200bn, under what Profs Bilmes and Stiglitz call their "conservative" option. Under their "moderate" one, the cost reaches Dollars 271bn, because troops remain until 2015 (see table). Additional costs must be added: medical treatment; cost of injuries; disability payments; cost of demobilisation; need for increased defence spending (partly because of higher recruitment costs in the aftermath of the war) and additional interest on debt. Such costs will be bigger, the longer and greater the troop presence. Under the conservative scenario, the total budgetary cost is estimated at Dollars 750bn. Under the moderate scenario, the cost is Dollars 1,184bn. To put this in context, the minimum budgetary cost is 10 times the world's net annual official development assistance to all developing countries. Now consider the wider costs to the US economy. In the conservative case, the adjustments add Dollars 187bn to the budgetary cost, even if the macroeconomic impact is ignored. In the moderate one, they add Dollars 305bn. What are these economic costs? The difference between the wages reserves earn in their normal occupations and the lower wages they earn in service are a cost. While life is priceless, the government necessarily values lives in making its decisions. Using the Environmental Protection Agency's valuation of Dollars 6.1m, the authors conclude that the cost of fatalities will be at least Dollars 23bn. There are also ongoing economic costs from the terrible injuries. Finally, there is accelerated depreciation of military hardware. So far, then, the economic cost comes out at a minimum of Dollars 839bn (excluding interest). This, alas, does not end the story. In one area, at least, further costs are evident: the jump in the price of oil. Mr Lindsey is reported to have said that "the best way to keep oil prices in check is a short, successful war on Iraq". He was wrong. Oil production in Iraq has plummeted, from around 2.6m barrels a day before the war to 1.1m. Before the war, the oil price was expected to remain at between Dollars 20 and Dollars 30 a barrel. In practice, it has been more than twice as high. The authors' conservative assumption is that Dollars 5 of this is due to the war. Their moderate assumption is that the impact has been Dollars 10 a barrel. A Dollars 5 increase imposes a cost of Dollars 25bn a year on the US and a Dollars 10 increase one of Dollars 50bn. Higher oil prices have wider macroeconomic effects. In the short to medium run, spending by the now poorer consumers tends to fall faster than spending by the now richer producers rises. Central banks concerned about inflation also adopt tighter monetary policies than they would otherwise do, while fiscal policy does not normally adjust swiftly to such changes. With a modest "income multiplier" of 1.5, the conservative estimate of the additional losses in output is Dollars 187bn over five years. With a multiplier of two and the higher price effect, these costs rise to Dollars 450bn. The authors also add two differences between expenditures on the war in Iraq and likely alternatives: first, they are overwhelmingly abroad; second, they do not contribute directly to consumption, either now or in the future. With these costs taken into account, the total macroeconomic costs may add up to Dollars 750bn (see chart) and total costs to Dollars 1,850bn. Critics will stress that both authors served under President Bill Clinton. In the current heated atmosphere of US politics that will be enough to discredit their analysis. It should not do so. Whether or not one believes the war was justified, one should still be concerned that a decision to go to war was taken in the absence of any intelligent analysis of the likely costs. Nor can one argue that it was impossible to do such an analysis. As I pointed out in a questioning column on the war published almost three years ago (this page, February 4 2003), William Nordhaus of Yale had already prepared a superb analysis, which suggested that Dollars 100bn was the lowest imaginable cost and close to Dollars 2,000bn perfectly conceivable. The present analysis also ignores a host of significant economic and non-economic effects. Among these are: costs borne by other countries, including those created by higher oil prices; costs consequent upon creating a link between Iraq and the jihadi movement that did not, on the evidence, previously exist; costs of increasing the income of some of the world's least desirable regimes, above all, Iran's; costs of throwing away the option to fight ground wars elsewhere or to fight in Iraq later on, under better conditions, better information and a better state of preparedness; costs of enraging many Muslims; costs to the effectiveness of the US military; costs of fragmenting the western alliance; the loss of Iraqi lives; the cost to US credibility of going to war on a false premise; and the cost to the US reputation of the torture scandals. It is possible to argue that the benefits for Iraq, the Middle East and the world will outweigh all these costs. But that depends on the emergence, in Iraq, of a stable and peaceful democratic order. That has not yet been achieved. Even those who supported the war must draw two lessons. First, the exercise of military power is far more expensive than many fondly hoped. Second, such policy decisions require a halfway decent analysis of the costs and possible consequences. The administration's failure to do so was a blunder that will harm the US and the world for years to come. The Independent (London) January 12, 2006 Thursday First Edition SECTION: FEATURES; Pg. 32 HEADLINE: Payback time for the White House Interviewed by the BBC yesterday, the US Treasury Secretary, John Snow, was insouciant when asked about the mounting cost of the Iraq war. The bill, he suggested, would not come near denting an economy as robust as that of the United States. Indeed, all his answers in this wide-ranging interview were bullish in the extreme. Whether on the yawning US trade deficit, the negative savings rate of US citizens or the prospects for the dollar, Mr Snow was all sunny optimism and confidence. If awkward figures lurked around the corner, Mr Snow wearily professed not to know. Were his ignorance deliberate, this would hardly be the first time that the memory of a Cabinet minister or his equivalent had been selective. It would merely confirm that Mr Snow is more of a politician than his loose-lipped predecessor, Paul O'Neill. If, on the other hand, Mr Snow did not know or accept the costings published this week by the Nobel laureate and former World Bank chief economist, Joseph Stiglitz, a rude shock may just be winging his way. Two trillion dollars, his upper estimate, is still $2 trillion (pounds 1.13 trillion), even for the richest country in the world. It is true that this headline figure contains many projections – such as the continuing care and pension costs for wounded servicemen, the loss to the civilian economy from the call-up of reservists and the rise in oil prices -which is not commonly included in the cost of the war. It is also true that Joseph Stiglitz and his co-author, Linda Bilmes of Harvard, are outspoken critics of the Bush administration. Neither caveat, however, invalidates their calculations. Even their most conservative figure – $1 trillion – is still many, many times higher than the "too-high" estimate of $200bn that cost Lawrence Lindsey his job as President Bush's economic adviser. And while $1 trillion may not actually dent the US economy, it is a loss that inevitably limits the money available for other purposes and could prompt difficult questions in Congress. Was it entirely coincidental that the White House recently made known that it would seek no new funds for reconstruction in Iraq? Mid-term congressional elections take place this November, and in an election year any financial cost automatically becomes political. All the early signs are Mr Bush and his strategists hope to make the resilience of the US economy the Republicans' campaign theme. The Vice President, Dick Cheney, somewhat surprisingly, made his first speech of the year a paean to the economy. If the Democrats were somehow able to link the war and economic concerns in voters' minds, however, this Republican strategy could backfire. The Stiglitz analysis shows how much of a risk it could be. The New York Times January 15, 2006 Sunday Late Edition – Final SECTION: Section 3; Column 1; Money and Business/Financial Desk; ECONOMIC VIEW; Pg. 3 HEADLINE: When Talk of Guns and Butter Includes Lives Lost BYLINE: 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.''

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