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The Economic Cost Of The Iraq War
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The Economic Cost Of The Iraq War

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The goal of this report will be to bring awareness of the various economic costs of the Iraq War. The war which has continued for far longer than anyone expected has seen recent estimates of costs to ...

The goal of this report will be to bring awareness of the various economic costs of the Iraq War. The war which has continued for far longer than anyone expected has seen recent estimates of costs to accumulate to roughly a trillion dollars. That amount is staggering considering former director of the White House Economic Council Lawrence Lindsey stunned the Bush Administration in 2002 when Lindsey suggested the war would cost between $100 and $200 billion.
The report will focus on the economic costs associated with the U.S. budget and how it is set aside for Department of Defense spending, the costs to Iraq and the environment, and the cost of human life loss and post-war lives of veterans. Our findings and research based on several previous reports contain some estimates and require several assumptions when we try to monetize the values of human life and other indirect costs related to the war.

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  • Thank you for joining us this evening… I hope you find this presentation to be quite informational and thought provoking.
  • Today we are going to talk about the war in relation to two different costs. The budgetary cost is more of the direct cost that the government associates with the war

The Economic Cost Of The Iraq War The Economic Cost Of The Iraq War Presentation Transcript

  • Greg Young Aditya Mehta Eric Garcia 05/29/10 California Lutheran University: School of Business
    • To gain an understanding of the true costs of the Iraq War to the United States through the framework of an economist.
      • Develop a respectable value for budgetary costs.
      • Define and put a monetary value on the Social Costs.
      • Macroeconomic costs- Oil, Interest on Debt, etc.
    • Develop an understanding of what the United States is giving up by pursuing war in Iraq.
      • Expenditure Switching.
    05/29/10 California Lutheran University: School of Business
    • What does the war mean to an average American Citizen.
      • Is there relief in sight based on the next presidential election.
      • The United States dealings with other foreign nations. (Trade and Security Issues)
      • Budget Deficit
    05/29/10 California Lutheran University: School of Business
    • Spending to date – $646 billion, Congressional Budget Office
    • Total estimated spending thru 2017
      • Best case $1.7 trillion.
      • More probable $2.7 trillion.
      • Congressional Research Service estimate
    05/29/10 California Lutheran University: School of Business
  • Estimates in Percentage change per year. Source: CRS report for Congress, updated February 8 th 2008 05/29/10 California Lutheran University: School of Business
    • The monthly “burn rate” or the war has been rising
      • 4.4 billion in 2003
      • 8 billion in 2006
      • 12 billion in 2007
      • to an estimated 16 billion in 2008
    05/29/10 California Lutheran University: School of Business
    • Conservative estimate 521 billion
    • Realistic moderate estimate 913 billion
    05/29/10 California Lutheran University: School of Business
    • Conservative estimate 132 billion
    • Realistic moderate estimate 404 billion
    05/29/10 California Lutheran University: School of Business
    • Sunk costs ?
    • Increasing demand for VA support
    Source: U.S. House of representatives budget committee, based on U.S. department of veterans affairs. 05/29/10 California Lutheran University: School of Business
    • Best case $422 billion
    • Long-term $717 billion
    • 31% of soldiers who have returned filed disability claims and expected to increase
    • Corporations are required to put money away, why shouldn’t the government?
    05/29/10 California Lutheran University: School of Business
    • We face a rapidly rising monthly cost to fund the war currently over 12 billion/month.
      • Estimated 16 billion/month in 2008
    • Better estimates will follow upcoming presidential election
    05/29/10 California Lutheran University: School of Business
    • Obama: Bring home 2 regiments of troops per month.
      • All combat brigades home within 18 months
      • Cease building of permanent bases
      • Protect embassy and diplomats
      • Keep selected troops in Iraq to carry out targeted strikes on al Qaeda
    • Aggressive diplomatic efforts will be made.
    • Provide at least $2 billion to expand services to Iraqi refugees.
    http://www.barackobama.com/issues/iraq/ 05/29/10 California Lutheran University: School of Business
    • Phased Redeployment.
      • draw up a clear, viable plan to bring our troops home starting with the first 60 days of office
      • provide the highest quality health care
    • Securing Stability
      • American aid efforts
      • direct aid to the Iraqi people
    • Diplomatic Initiative
      • regional stabilization group
      • develop and implement a strategy to stabilize Iraq
    http://www.hillaryclinton.com/issues/iraq/ 05/29/10 California Lutheran University: School of Business
    • Bolster Troops on the Ground
      • Greater military commitment is necessary to achieve long-term success in Iraq
    • Implement New Counterinsurgency Strategy
      • More robust counterinsurgency strategy
      • American forces must clear areas occupied by insurgents, stay, and hold these areas
    • Strengthen the Iraqi Armed Forces and Police
      • accelerate training and equipping of Iraqi armed forces
    http://www.johnmccain.com/Informing/Issues/fdeb03a7-30b0-4ece-8e34-4c7ea83f11d8.htm 05/29/10 California Lutheran University: School of Business
  • 05/29/10 California Lutheran University: School of Business
    • Increased Recruitment Benefits
      • - New sign up bonus $50000
      • - Illegal immigrants sign up;
      • $20000 quick ship bonus.
      • citizenship for members of immediate family.
    • Increased Reenlistment Benefits
      • -Experienced military personnel get up to $150000 for reenlistment.
    05/29/10 California Lutheran University: School of Business
  • 05/29/10 California Lutheran University: School of Business                 Budgetary and Social Economic Costs       Total Operations to Day $646 $646   (Spent to date)   Future Operations $521 $913   (Future Operations only)   Future Veterans' Costs $422 $717   (Hidden Medical+ Veterans   Disability + Veterans Sosical Security)   Other Military Costs/Adjustments $132 $404   (Hidden Defence + Future Defence   reset + Demobilization,   less no-fly-zone savings)   Total Budgetary Costs $1,721 $2,680       Social Costs Total $295 $415       Total Budgetary and Social Costs $2,016 $3,095       Total Budetary, social, and $2,203 $4,995   Macroeconomic Costs   (Without Interest)       Interest costs $613 $816       Total ( With Interest) $2,816   $5,811  
    • US indebtedness at end of 2008 excess of $900 billion
    • Including cumulative interest on the debt-financed war borrowing, exceeds $1.1 trillion
    05/29/10 California Lutheran University: School of Business
    • 3,988 US soldiers have been killed in combat
    • Government pays $500,000 to families (death benefit + life insurance)
    • Value of a Statistical Life (VSL) $7.2 million
    • Rough estimate of loss to U.S. economy is $28 billion due to loss of labor resource
    05/29/10 California Lutheran University: School of Business
    • 29,395 soldiers have been injured
    • Value of Statistical Injury (VSI) – lost to the economy $6.1 million each
    05/29/10 California Lutheran University: School of Business
    • Going through equipment six to ten times faster than normal peacetime rate.
    • $250-375 billion to rebuild the entire armed services
    • 404 Billion - Stiglitz
    05/29/10 California Lutheran University: School of Business
    • Adverse effects
      • Higher oil prices
      • Growing deficits
      • Expenditure switching towards Iraq
      • Supply-side effects of lost resources
    • Iraq war expenditures crowd out government investments.
    05/29/10 California Lutheran University: School of Business
    • Individuals are risk aversive
    • 9/11
    • Safety
    • Trade barriers
    05/29/10 California Lutheran University: School of Business
  • © 2008 Organization of the Petroleum Exporting Countries A significant proportion of the increase in the price of oil resulted from the war 05/29/10 California Lutheran University: School of Business Yearly Basket Price 1995 16.86 1996 20.29 1997 18.68 1998 12.28 1999 17.48 2000 27.6 2001 23.12 2002 24.36 2003 28.1 2004 36.05 2005 50.64 2006 61.08 2007 69.08 2008 92.15
    • A realistic moderate estimate assumes that $10 per barrel is the price increase due to the war & and the duration of these high oil prices is 8 years.
    • The U.S. imports around 5 billion barrels a year.
    • A $10 per barrel increase translates into an extra expenditure of $50 billion per year.
    • Over the 8 years projected in the realistic moderate estimate, that is $400 billion extra expenditure on oil imports.
    05/29/10 California Lutheran University: School of Business
    • Spending $50 billion more on oil every year leads to a reduction in American GDP & incomes.
    • The extent to which a change in oil imports translates into a change in total output is the oil import multiplier.
    • The realistic moderate estimate uses a multiplier of 2
    • GDP has gone down $50 billion x 2 or $100 billion, for 8 years – and we arrive at a total estimated reduction in GDP of $800 billion
    05/29/10 California Lutheran University: School of Business
    • Increased government spending of say $1 million, increases national output by an amount greater than $1 million, by a factor which is called the expenditure multiplier.
    • Multipliers used to measure the effect of spending on GDP differ according to the type of spending.
    • In a realistic moderate estimate we use a multiplier of 0.4
    • Switching just $800 billion over the 15 years we project we will be engaged in Iraq, to domestic investment would result in an increased GDP of $800 billion x 0.4 or $320 billion
    05/29/10 California Lutheran University: School of Business
    • No fly zone no longer enforced
    • Money to be spent on schools, transportation going to war
    05/29/10 California Lutheran University: School of Business Alternative Ways to Spend the $432 Million We Spend In Iraq Every Day         Current Potential   Enrollment Enrolemnt   Per Year Per Year People Insured through SCHIP 6,400,000   513,000 Head Start Participants 909,200   58,000 Pell Grants   5,000,000 163,700 Border Patrol Agents 12,300   10,700 State and Local Police 580,700   14,200 Teachers     6,800,000   9,300
  • 05/29/10 California Lutheran University: School of Business Cost in Billions   Best Case Realistic- Moderate     Macroeconomic Costs                     Oil Price Impact   $187   $800   Budgetary Impact   $0   $1,100   Subtotal Macro Economic           Costs   $187   $1,900  
    • Best case $1.7 trillion
      • More probable $2.7 trillion
    • Health Care: Long-term $717 billion
    • Demobilization: $12 Billion per month
    • Future Operations: $717 Billion
    • U.S. Debt after 2008: reaching $900 billion
    05/29/10 California Lutheran University: School of Business
    • Costs of planning war
    • All costs borne by other countries, including Iraq
    • All costs of increased insecurity
    • Consequences of Loss of credibility
    • Value of reduced capability of responding to national security threats elsewhere in the world
    • Value of reduced capability of responding to domestic situations (Hurricane Katrina)
    05/29/10 California Lutheran University: School of Business
    • http://www.hillaryclinton.com/issues/iraq/
    • http://www.barackobama.com/issues/iraq/
    • http://www.johnmccain.com/Informing/Issues/
    • Stiglitz, Joseph, and Bilmes, Linda. The Three Trillion Dollar War. New York London: W.W. Norton & Company, 2008.
    • Organization of the Petroleum Exporting Countries, 2008
    • Wallsten, Scott. “The economic cost of War in Iraq”. AEI Brookings Joint Center for Regulatory Studies , “2005”
    • Congressional Budget Office, http://www.cbo.gov
    05/29/10 California Lutheran University: School of Business