Notes

Preface

1. These numbers include more than 28,600 troops wounded in combat in the Iraq war (referred to as Operation Iraqi Freedom [or OIF]) plus over 1,800 troops wounded in combat in the Afghanistan conflict (referred to as Operation Enduring Freedom [or OEF]), plus more than 36,500 troops who were medically evacuated from the two combat theaters as a result of serious non-battle injuries or illness (such as vehicle crashes and exotic diseases). These figures do not include troops who suffered non-battle injuries, illness, or disease but were treated in theater and not evacuated. As we note later, the military has considerable discretion in classifying any injury as combat-related. For Iraq casualties, see Defense Manpower Data Center, Statistical Information Analysis Center, "Global War on Terrorism—Operation Iraqi Freedom; By Casualty Category Within Service, March 19, 2003 Through December 8, 2007," obtained by Veterans for Common Sense under the Freedom of Information Act, available at http://siadapp.dmdc.osd.mil/personnel/CASUALTY/OIF-Total.pdf. (This is reprinted as part of our Appendix.) For Afghanistan casualties, see Defense Manpower Data Center, Statistical Information Analysis Center, "Global War on Terrorism—Operation Enduring Freedom; By Casualty Category Within Service, October 7, 2001 Through December 8, 2007," available at http://siadapp.dmdc.osd.mil/personnel/CASUALTY/WOTSUM.pdf.

2. By the first half of fiscal year 2007, approximately 264,000 returning veterans had sought care from VA medical centers and clinics (the federal government’s accounts are based on a fiscal year that begins on October 1). Of these, about 38% (100,282) have received at least a preliminary diagnosis of a mental health condition, and 20% (52,000) a preliminary diagnosis of PTSD—Statement of the Honorable Patrick W. Dunne, Rear Admiral, U.S. Navy (Ret), Assistant Secretary for Policy and Planning, U.S. Department of Veterans Affairs Before the Committee on Veterans Affairs, U.S. Senate, October 17, 2007.

3. Prewar, 12.9 million had access to potable water; by early 2006 (the latest date for which data is available), only 9.7 million did so—Michael O’Hanlon and Jason Campbell, Iraq Index: Tracking Variables of Reconstruction and Security in Post-Saddam Iraq, Brookings Institution, October 1, 2007, www.brookings.edu/iraqindex, chapter 2. In 2004, the Coalition Provisional Authority established a goal to improve peak generation capacity to 6,000 mw per day by the end of June 2004. However, by the end of 2006, peak generation capacity for the year averaged only 4,280 mw per day. In March 2006, the State Department also set a goal to achieve twelve hours of power per day both in Baghdad and nationwide—Government Accountability Office, "Rebuilding Iraq: Integrated Strategic Plan Needed to Help Restore Iraq’s Oil and Electricity Sectors," GAO-07-677, May 2007 (http://www.gao.gov/new.items/d07677.pdf). By November 2007, Baghdad was still getting an average of only 9 hours of electricity, markedly lower than the 16–24 hours it got prewar—O’Hanlon and Campbell, Iraq Index: Tracking Variables of Reconstruction and Security in Post- Saddam Iraq, November 12, 2007, chapter 2.

4. The Gulf War conflict is officially referred to as Operation Desert Storm and Operation Desert Shield (covering the period from August 2, 1990, to March 31, 1991). Additionally, one pilot is listed as missing in action, and as we will see in the case of the Iraq war, there were also many out-of-combat accidents—235 Americans died in these—Department of Veterans Affairs, "America’s Wars," November 2007, at http://www1.va.gov/OPA/fact/docs/amwars.pdf.

5. The Gulf War cost $94 billion (in 2007 dollars). The United States paid only $7 billion of that amount; Saudi Arabia, Kuwait, and other countries reimbursed the United States for the remainder—Testimony by Amy Belasco, Specialist in U.S. Defense Policy and Budget, Congressional Research Service, Statement before the House Budget Committee Hearing on "The Growing Budgetary Costs of the Iraq War," October 24, 2007.

6. Veterans Benefits Administration, Annual Benefits Report, Fiscal Year 2005 (released September 2006), adjusted for inflation and cost-of-living increases (in 2007 dollars).

7. The United States has spent over $1 billion in research related to Gulf War illnesses, primarily in medical research grants funded through the departments of Defense, Health and Human Services, and Veterans Affairs—Authors’ calculation based on FY 93–FY 07 budget of the U.S. government.

8. Department of Veterans Affairs, "Gulf War Veterans Information System," May 2007, released June 30, 2007 (http://www1.va.gov/rac-gwvi/docs/GWVIS_May2007.pdf).

9. Eric Schmitt, "Troops’ Queries Leave Rumsfeld on the Defensive," New York Times, December 9, 2004, p. A1.

10. Official combat operations in Iraq lasted from March 19, 2003, to April 30, 2003. The United States spent $46 billion in Iraq during the full fiscal year 2003 on military operations, equivalent to around $55 billion in 2007 inflation-adjusted dollars—"Estimated Costs of U.S. Operations in Iraq and Afghanistan and of Other Activities Related to the War on Terrorism," Testimony of Robert A. Sunshine, Assistant Director for Budget Analysis, CBO, before the House Budget Committee, July 31, 2007.

11. Government Accountability Office, "VA Health Care: Preliminary Findings on the Department of Veterans Affairs Health Care Budget Formulation for Fiscal Years 2005 and 2006," GAO-06-430R, February 7, 2006.

12. In February 2007, the outpatient facility at Walter Reed Army Medical Center was found to be infested with mold and vermin, and suffering from shortages of staff and basic hygiene. See Dana Priest and Anne Hull, "Soldiers Face Neglect, Frustration at Army’s Top Medical Facility," The Washington Post, February 18, 2007, p. A1.

13. The Iraq war is referred to as Operation Iraqi Freedom (OIF); the Afghanistan War is referred to as Operation Enduring Freedom (OEF). These two operations, together with Operation Noble Eagle (ONE), which provides embassy security and related activities, constitute what is officially called the Global War on Terrorism (GWOT), even though, at least at the onset, there was no connection between Iraq and the terrorist attacks of 9/11. U.S. troops in Afghanistan also include those involved in NATO-led operations.

14. The typical household refers to the median, the household in the "middle," such that half of the households in the country have a higher income, half a lower income—Table H-6. Regions-All Races by Median and Mean Income: 1975 to 2006, US Census Bureau, Current Population Survey, Annual Social and Economic Supplements, at http://www.census.gov/hhes/www/income/histinc/h06ar.html.

15. "2007 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds," May 1, 2007, available at http://www.ssa.gov/OACT/TR/TR07/tr07.pdf.

16. See www.costofwar.com.

17. See "Education for All: Meeting Our Collective Commitments," World Education Forum, Dakar, Senegal, April 26–28, 2000. Goal #2 of the Millennium Development Goals is universal primary education; recent studies estimate that "putting every child in the world in a good-quality primary school would cost between $7–$17 billion per year." Nancy Birdsall, Ruth Levine, Amina Ibrahim, et al., "Toward Universal Primary Education: Investments, Incentives, and Institutions," Task Force on Education and Gender Equality, Millennium Project, 2005, pp. 8–9 (http://www.unmillenniumproject.org/documents/Education-complete.pdf).

18. U.S. Census Bureau, Current Population Survey. While median incomes have been declining, average household income has been increasing. Large disparities between median and average income are associated with large income disparities. If a few people at the top get richer and richer, the average income rises, but median income can remain unchanged or even decrease. Today, average (mean) household income is more than a third greater than median income.

19. For instance, one critic suggested that even in peacetime, there are casualties in the armed forces, e.g., automobile accidents. Not all of the seeming war casualties should accordingly be blamed on the war. Even though the U.S. government has to pay for all soldiers’ deaths and injuries, regardless of how they occur, we agree that it is important to understand the incremental numbers. To do this we have now compared the number of accidental, non-hostile casualties in the Army for the five years prior to Iraq to the years following the invasion. We found that accidental, non-hostile deaths have increased by more than 50%. We explain this new analysis in chapter 3.

20. Steven Davis, Kevin Murphy, and Robert Topel, "War in Iraq versus Containment," American Enterprise Institute, Washington, DC, February 15, 2006, prepared for the CESifo Conference on "Guns and Butter: The Economic Causes and Consequences of Conflict," Munich, Germany, December 9–10, 2005 (http://www.aei.org/publications/pubID.23916/pub_detail.asp).

21. Hans Blix, the UN diplomat responsible for the UN inspections to ensure that Iraq did not have WMD, had forcefully concluded that it was highly unlikely such weapons existed. He plaintively asked, "Are reports from [the United Nations] totally unread south of the Hudson?"—"Blix Questions Coalition’s Expectations for WMD Discovery," Global Security Newswire, June 18, 2003 (http://www.nti.org/d_newswire/issues/newswires/2003_6_19.html#1).

Chapter 1: Is It Really Three Trillion?

1. In FY 2008, the United States is slated to spend more on its military than the next forty-two highest-spending countries combined, accounting for 47% of the world’s total military spending—"National Security Spending," Center for Arms Control and Non-Proliferation, at http://www.armscontrolcenter.org/policy/securityspending/(accessed October 16, 2007).

2. Anthony Cordesman and Abraham Wagner, The Lessons of Modern War. Vol. II: The Iran-Iraq War (Washington, DC: Center for Strategic and International Studies, May 1990).

3. Eric Hooglund, "The Other Face of War," Middle East Report, no. 171, The Day After (July–August 1991), pp. 3–7, 10–12.

4. See Pew Global Attitudes Project, "Global Opinion Trends 2002–2007: A Rising Tide Lifts Moods in the Developing World," July 2007 (http://pewglobal.org/reports/pdf/257.pdf), and "America’s Image in the World: Findings from the Pew Global Attitudes Project," Remarks of Andrew Kohut to the U.S. House Committee on Foreign Affairs, Subcommittee on International Organizations, Human Rights, and Oversight, March 14, 2007.

5. "The Iraqi Public on U.S. Presence and the Future of Iraq," a WorldPublic Opinion.org Poll conducted by the Program on International Policy Attitudes, September 27, 2006, at http://www.worldpublicopinion.org/pipa/pdf/sep06/Iraq_Sep06_rpt.pdf.

6. Even though the price of oil has soared. See O’Hanlon and Campbell, Iraq Index: Tracking Variables of Reconstruction and Security in Post-Saddam Iraq.

7. For a discussion of these estimates and of the other indicators of what has happened to Iraq’s economy and society, see chapter 6.

8. "The binding section of the population does not exist anymore. The middle class has left Iraq"—Sabrina Tavernise, "Iraq’s Middle Escapes to Poverty and Pain Abroad," International Herald Tribute, August 11–12, p. 6. The article goes on to argue, in what is now accepted as common wisdom, "The poorer they grow and the longer they stay away, the more crippled Iraq becomes, making it difficult for anyone to put the country back together again." Such arguments provide part of the case for an early exit.

9. The Office of the UN High Commissioner on Refugees (UNHCR) puts the internally displaced at 2.2 million—UNHCR, "Statistics on Displaced Iraqis around the World," September 2007, at http://www.unhcr.org/cgi-bin/texis/vtx/home/opendoc.pdf?tbl=SUBSITES&id=470387fc2. Approximately one in seven Iraqis have been forcibly uprooted—UNHCR, "Iraq Situation Response," July 2007. http://www.unhcr.org/cgi-bin/texis/vtx/home/opendoc.pdf?tbl=SUBSITES&id=46a4a5522. See also Elizabeth Ferris, "Security, Displacement, and Iraq: A Deadly Combination," Brookings-Bern Project on Internal Displacement, August 27, 2007, at http://www.brookings.edu/~/media/Files/rc/papers/2007/0827humanrights_ferris/20070827.pdf.

10. "Asylum Seekers to Sweden During 1984–2006" and "Resident Permits to Relative (Family Ties) by Citizenship 1986–2006," Swedish Migration Board. See also "U.S. Humanitarian Assistance for Displaced Iraqis," Press Release, U.S. Department of State, October 5, 2007.

11. CRS estimates the military costs (in FY 2007 dollars) of previous wars as: Vietnam, $670 billion; Korean War, $295 billion; and Gulf War $94 billion (total costs, mostly paid by allies). These are military costs, not including veterans’ medical care and disability compensation and other budgetary costs—Belasco, Statement before the House Budget Committee Hearing on "The Growing Budgetary Costs of the Iraq War." By contrast, in our "best case" scenario, we estimate the operating costs for this war will be around $855 billion.

12. In a separate study, the Congressional Research Service cites a figure of $4.7 trillion in 2002 dollars (equivalent to $5.4 trillion in 2007 dollars) for World War II, and $577 billion for World War I ($410 billion net of war loans to our allies, in 2002 dollars, or $476 billion in 2007 dollars)—Stephen Daggett and Nina Serafina, "Costs of Major U.S. Wars and Recent U.S. Overseas Military Operations," CRS Report to Congress, October 3, 2001. See also a study by Yale professor William Nordhaus, "The Economic Consequences of a War with Iraq," chapter 3 in his paper, War with Iraq: Costs, Consequences and Alternatives (New York: American Academy of Arts and Sciences, 2002), pp. 51–86. He cites numbers for World War I and World War II that are (in current dollars) considerably smaller. These imply, of course, that relative to these previous wars, Iraq is even more expensive.

13. Amy Belasco, "The Cost of Iraq, Afghanistan, and Other Global War on Terror Operations Since 9/11," CRS Report for Congress, July 16, 2007, order code RL33110. This report puts the cost in FY 2006 per troop at $390,000, that is, in 2007 dollars, around $400,000 per troop.

14. Letter from CBO director Peter Orzsag to Congressman John Spratt, February 1, 2007.

15. Congressional Budget Office, "Some Implications of Increasing U.S. Forces in Iraq," April 2007, http://www.cbo.gov/ftpdocs/80xx/doc8024/04-24-Iraq.pdf.

16. Bob Davis, "Bush Economic Aide Says Cost of Iraq War May Top $100 Billion," Wall Street Journal, September 16, 2002, p. 1.

17. In an interview with George Stephanopoulos on ABC This Week, January 19, 2003.

18. House Budget Committee transcript, Hearing on FY 2004 Defense Budget Request, February 27, 2003.

19. The Bush administration was, however, not alone in providing these vast underestimates. The Congressional Budget Office (the independent office of Congress that estimates the costs of various proposals and bills) estimated the costs of a two-and-a-half month conflict at approximately $50.99 billion (in 2007 dollars), and $1.74 to $4.64 billion per month of occupation. While Bush’s "Mission Accomplished" speech might have suggested a short occupation, even a five-year occupation would have led to a figure of $104.4 to $278.4 billion, still markedly below the actual level of expenditures.

20. Transcript of interview with Andrew Natsios, USAID Administrator, on ABC’s Nightline, with Ted Koppel, April 23, 2003.

21. Davis, "Bush Economic Aide Says Cost of Iraq War May Top $100 Billion."

22. The total will be the $645 billion spent to date (inflation-adjusted to 2007 dollars to account for inflation and what economists call the "time value" of money) plus the approximately $200 billion requested for FY 2008, which brings us to $845 billion in 2007 dollars. These amounts do not include the cost of disability compensation paid to veterans so far, nor does it include some intelligence funding—Belasco, "The Cost of Iraq, Afghanistan, and Other Global War on Terror Operations Since 9/11." This covers funding in 25 separate funding bills, including: P.L.107-117, 107-206, 1207-115, 108-7, 108-11, 108-106, 108-199, 108-287, 109-13, 108-447, 108-287, 109-148, 109-102, 109-108, 109-54, 109-114, 109-234, 109-289, 110-5, the FY 2007 Continuing Resolution (PL 110-28), and $2 billion in "unidentified transfers" into DOD.

23. Belasco, Statement before the House Budget Committee Hearing on "The Growing Cost of the Iraq War."

24. Unless Congress enacts specific restrictions, funds approved for the DOD are appropriated for particular types of expenses (e.g., military personnel) rather than designated for particular operations like the war in Iraq.

25. "Baseline funds" simply refers to the funds that would have been spent normally, in the absence of the war.

26. According to the CRS estimates, at least three quarters of the personnel and direct operational military expenditures are for operations in Iraq; by contrast, medical costs and disability compensation are closely related to the number of injuries, of which 89% have occurred in Iraq. Accordingly, in our analysis we have attributed 75% of military costs to Iraq, and 89% of veterans’ disability costs, Social Security disability compensation, and medical costs to the Iraq war—Injury data from DOD sources (OIF/OEF U.S. Casualty Status, at http://www.defenselink.mil/news/casualty.pdf) and Hannah Fischer, "United States Military Casualty Statistics: Operation Iraqi Freedom and Operating Enduring Freedom," CRS Report RS22452, August 17, 2007.

27. Belasco, Statement before the House Budget Committee Hearing on "The Growing Cost of the Iraq War."

28. More than 531,000 Reservists and National Guard personnel had been mobilized (notified of possible deployment) as of June 30, 2006, and more than 378,000 had been deployed by that date. Because most Guards and Reservists have reached the end of their eligibility period, they composed 34% of the force in 2005 but had declined to 23% by December 2006—"DOD and the Services Need to Take Additional Steps to Improve Mobilization Data for the Reserve Components," GAO-Report to Congressional Committees, GAO-06,1068, September 2006, and Belasco, "The Cost of Iraq, Afghanistan, and Enhanced Base Security Since 9/11."

29. In that sense, even most of the costs—including any future benefits, such as medical care—of the Reservists and National Guard that have been mobilized but not deployed either to Iraq or Afghanistan should be attributed to the Iraq war.

30. This figure does not even count the number of subcontractors, that is, those the contractors themselves may hire to perform their work—Renae Merle, "Census Counts 100,000 Contractors in Iraq," The Washington Post, December 5, 2006, p. D1. Probably a more accurate estimate is the "more than 160,000" provided by Brookings Institution scholar Peter W. Singer, in "Can’t Win With ’Em, Can’t Go to War Without ’Em: Private Military Contractors and Counterinsurgency," Brookings Institution, September 2007. In contrast, the number during the Gulf War was 9,200—Katherine Peters, "Civilians at War," Government Executive, July 1, 1996.

31. John M. Broder and David Rohde, "State Department Use of Contractors Leaps in 4 Years," New York Times, October 24, 2007, p. A1.

32. To put some perspective on this number, the State Department suggested that the family of one of the Iraqis killed be compensated with a $5,000 payment to "put this unfortunate matter behind us quickly"—compensation for a "wrongful death" that amounted to less than five days’ pay of the Blackwater security guard—House Committee on Oversight and Government Reform, Memorandum re: Additional Information About Blackwater USA, October 1, 2007.

33. A few have suggested that the comparison is unfair. After all, the government winds up paying for disability and medical costs for injured veterans, the costs of which are significant. But the argument is disingenuous. As we point out in chapter 3, it turns out that the figures cited for the cost of contractors do not include the costs of insurance, which the government bears; and, even after paying for the insurance, for those injured or killed in combat, the government still picks up the tab.

34. Contractors are not always bound by the Uniform Code of Military Justice (UCMJ), and by and large, they appear exempt from prosecution by Iraqis for crimes committed there—Stephen M. Blizzard, "Increasing Reliance on Contractors on the Battlefield; How Do We Keep from Crossing the Line?" Air Force Journal of Logistics, vol. XXVIII, no. 1 (Spring 2004). From 2006 onwards military contractors have been bound by the UCMJ, but State Department contractors (like Blackwater) are still not. See John Broder and James Risen, "Armed Guards in Iraq Occupy a Legal Limbo," New York Times, September 20, 2007, p. A1.

35. On September 17, 2007, after a particularly bloody encounter in which Blackwater contractors were accused of killing seventeen civilians, Iraq’s government threatened to suspend Blackwater’s license, and the U.S. Congress felt impelled to hold hearings. See, e.g., Sabrina Tavernise, "U.S. Contractor Banned by Iraq Over Shootings," New York Times, September 18, 2007, p. A1. The FBI has since found that fourteen of the seventeen shootings were unjustified—David Johnston and John M. Broder, "FBI Says Guards Killed 14 Iraqis Without Cause," New York Times, November 14, 2007, p. A1.

36. At least ninety investigations have been opened, alleging misconduct involving billions of dollars of contracts for everything from the supply of food to weapons. The criminal investigative arm of the DOD is investigating allegations of fraud, profiteering, and disappearance of weapons. These investigations have already led to five federal criminal indictments and ten persons convicted of felonies, nineteen companies and persons suspended from doing business with DOD, and four individuals and one company barred permanently from contracting with the U.S. government—Statement of Thomas F. Gimble, Principal Deputy Inspector General, Department of Defense, before the House Armed Services Committee, on "Accountability During Contingency Operations: Preventing and Fighting Corruption in Contracting and Establishing and Maintaining Appropriate Controls on Material," September 20, 2007.

37. Contrast the requested $19 billion with the statements of Andrew Natsios (p. 8), who on behalf of the Bush administration, only a few months earlier, had assured Ted Koppel and the American people that the reconstruction costs would not top $1.7 billion.

38. DOD Office of the Inspector General, "Human Capital," Report on the DOD Acquisition Workforce Count (D-2006-073), April 17, 2006.

39. House Committee on Oversight and Government Reform, Memorandum re: Supplemental Information on Iraq Reconstruction Contracts, February 15, 2007.

40. Office of the Special Inspector General for Iraq Reconstruction, "Oversight of Funds Provided to Iraqi Ministries Through the National Budget Process," Report No. 05-004, January 30, 2005.

41. Center for Public Integrity, "Outsourcing the Pentagon: Halliburton Co.," http://www.publicintegrity.org/pns/db.aspx?act=cinfo&coid=964409007. Halliburton is the largest private contractor operating in Iraq, through its Kellogg, Brown & Root subsidiary. It holds three large contracts: the Logistics Civil Augmentation Program (LOGCAP), through which it provides support services to the troops; the Restore Iraqi Oil (RIO) contract, to rebuild oil fields throughout Iraq; and the Restore Iraqi Oil 2 (RIO 2) contract to rebuild oil fields in southern Iraq—House Committee on Oversight and Government Reform, Memorandum re: Supplemental Information on Iraq Reconstruction Contracts, February 15, 2007.

42. Calculations based on Yahoo! Finance, prices at close on November 15, 2007, adjusted for dividends and splits.

43. Amy Belasco testified that "In recent years DOD’s annual war costs have more than doubled from $72 billion in FY 2004 to about $165 billion in FY 2007, an increase of $93 billion. Little of this increase reflects changes in the number of deployed personnel. Rather the increase is attributable to several factors: 1) certain unanticipated requirements for force protection and gear and equipment; 2) the cost of training and equipping Afghan and Iraqi security forces; and 3) even more, a broadened definition of the types of expenses that would be considered part of war reconstitution or reset—funds to repair and replace war-torn equipment."—Belasco, Statement before the House Budget Committee Hearing on "The Growing Budgetary Cost of the Iraq War."

44. CBO director Peter Orzsag, Testimony to the House Budget Committee Hearing on "The Growing Cost of the Iraq War," October 24, 2007.

45. Jim Michaels, "19,000 Insurgents Killed in Iraq Since ’03," USA Today, September 28, 2007, p. A1. In chapter 7, we explain how our strategy helped increase the number of insurgents.

46. Active and Reserve duty soldiers pay their life insurance premiums out of their paycheck, based on the face value of the policy. Veterans also pay their premiums for the Veterans Group Life Insurance (VGLI), although they are quite low, and the VA will deduct VGLI premiums from VA disability compensation or pension payments. The veteran may only buy VLGI based on the amount of his (or her) policy at the time of discharge. In other words, if a veteran has only $100,000 in Servicemember Group Life Insurance, he can only buy up to $100,000 in VGLI within one year of discharge. If he doesn’t enroll within the first year after discharge, he loses the right forever to get VGLI.

47. 97% of total deaths in Operation Iraqi Freedom have been male—Hannah Fischer, "United States Military Casualty Statistics: Operation Iraqi Freedom and Operation Enduring Freedom," CRS Report for Congress, August 17, 2007, order code RS22452.

48. Cf. Preface, note 1. This includes all combat-related injuries and all non-hostile injuries and illnesses that require medical air transport. It does not include any of the non-hostile injuries, illnesses, or diseases in which the soldier was treated but did not require medical air transport. The discrepancy came into the open in January 2007 when Linda Bilmes published her paper on the costs of returning U.S. soldiers—Linda Bilmes, "Soldiers Returning from Iraq and Afghanistan: The Long-term Costs of Providing Veterans Medical Care and Disability Benefits," Kennedy School of Government Faculty Research Working Paper RWP07-001, Harvard University. Interestingly, in the Gulf War, almost 50% of all deaths were classified as non-combat.

49. Economists often use suicide rates as indicators (admittedly crude) of stress—See Gregg Zoroya, "Suicide Rate Spikes Among Troops Sent to Iraq War," USA Today, December 20, 2006. See also Mental Health Advisory Team (MHAT-IV) study, conducted by DOD, involving 1,300 soldiers and 450 Marines, in August and October 2006—U.S. Department of Defense News Release No. 530-07, May 4, 2007.

50. See Charles S. Milliken, Jennifer L. Auchterlonie, and Charles W. Hoge, "Longitudinal Assessment of Mental Health Problems Among Active and Reserve Component Soldiers Returning from the Iraq War," Journal of the American Medical Association, vol. 298, no. 18, (November 14 2007), p. 2141, citing Paul Bliese, Kathleen Wright, Amy Adler, Charles Hoge, and Rachel Prayner, "Post-Deployment Psychological Screening: Interpreting and Scoring DD Form 2900," Heidelberg, Germany: U.S. Army Medical Research Unit-Europe; 2005, Research Report 2005-003; and Paul Bliese, Kathleen Wright, Amy Adler, Jeffrey Thomas, and Charles Hoge, "Timing of Postcombat Mental Health Assessments," Psychological Services, vol. 4, no. 3 (August 2007), pp. 141–48.

51. The study noted particularly increases in relationship problems and the shortcomings in services for family members.

52. Statement of Thomas F. Gimble, Acting Inspector General, Department of Defense, before the Subcommittee on Federal Financial Management, Government Information and International Security, Senate Committee on Homeland Security and Government Affairs, August 3, 2006.

53. Government Accountability Office, "Global War on Terrorism: Observations on Funding, Costs, and Future Commitments," GAO-06-885T, July 18, 2006.

54. The criteria for emergency funding are that the need be necessary and vital, urgent, sudden, requiring immediate action, unforeseen, unpredictable, and unanticipated—Title IX, Sec. 9011 in PL 108-287. President Bush indicated in his initial request for funds for Afghanistan that he would not request further emergency supplemental funding—Letter from George W. Bush to the Speaker of the House of Representatives, October 17, 2001, reprinted in the Appendix on page 207.

55. Belasco, "The Cost of Iraq, Afghanistan, and Other Global War on Terror Operations Since 9/11."

56. James A. Baker III and Lee Hamilton, Co-Chairs, Iraq Study Group Report, December 6, 2006, http://www.usip.org/isg/iraq_study_group_report/report/1206/iraq_study_group_report.pdf.

57. Belasco, "The Cost of Iraq, Afghanistan, and Other Global War on Terror Operations since 9/11."

58. "Global War on Terrorism: Observations on Funding, Costs, and Future Commitments," Statement by U.S. Comptroller General David M. Walker, Testimony before the Subcommittee on National Security, Emerging Threats, and International Relations, Committee on Government Reform, House of Representatives, July 18, 2006.

59. Disability benefits, which are also administered by the VA, are automatic entitlements and do not require special appropriations.

60. Throughout, in our budgetary analysis we convert all past expenditures to constant 2007 dollars, and discount future cash expenditures at the "real" T-bill rate of 1.5%. If inflation continues at recent levels of around 3%, this means discounting cash outlays by 4.5%. When assessing the long-run economic impacts (chapters 4–6), there is some controversy over the appropriate discount rate, which we discuss at length later.

61. Interestingly, our estimates turn out in line with forecasts made by William Nordhaus before the war for what a protracted unfavorable war would cost. He estimated, for instance, that the impact on oil markets would cost $778 billion; our moderate scenario puts the oil costs at $800 billion. He estimated the adverse macroeconomic impacts at $391 billion. He slightly underestimated the costs of military spending (including occupation/peacekeeping) at $640 billion—but who could have anticipated that matters would be handled so badly—and ignored all of the other hidden budgetary and non-budgetary costs upon which we focus in this book—Nordhaus, War With Iraq, p. 77.

Chapter 2: The Costs to the Nation’s Budget

1. This money has been appropriated to Iraq and Afghanistan in twenty-five separate appropriations bills since 2001—Testimony of Robert A Sunshine, Assistant Director for Budget Analysis, CBO, "Estimated Costs of U.S. Operations in Iraq and Afghanistan and of Other Activities Related to the War on Terrorism" before the House Budget Committee, July 31, 2007.

2. Approximately 36% of the U.S. troops who have served in Iraq and Afghanistan have been drawn from the National Guard and the Reserves, particularly the Army Reserves. Between 2001 and 2006, 531,000 were mobilized and 378,000 deployed—Government Accountability Office, "DOD and the Services Need to Take Additional Steps to Improve Mobilization Data for the Reserve Components," GAO-06-1068, September 2006. Additionally, over 60,000 people have been recruited to "backfill" domestic positions in the Guard and Reserves that are vacant because the others are in Iraq. The direct additional cost of mobilizing these individuals is $3 billion per year.

3. This includes only the costs of treating veterans through 2007.

4. Congress appropriated $18.4 billion—an unprecedented sum—for Iraqi reconstruction in September 2003. This funding was specified for purposes including school construction, sewerage, sanitation, repair of the electrical grid, and other civilian projects. To date, most of the money spent has been diverted to military projects, including training bomb squads, training Iraqi security forces, constructing prisons, purchasing armored cars; and for the 3,600 projects completed, some 25% of funds were spent on security. Money has also been diverted to pay for the elections—Special Inspector General for Iraqi Reconstruction. At the end of 2007, the administration announced that it would rescind its request for the remaining reconstruction money.

5. In 2007, the federal budget included $394 billion for Medicare and $276 billion for Medicaid and related payments—Budget of the U.S. Government, 2007.

6. The CBO provides a range of scenarios for military engagement. Our analysis focuses on two of these, the first one reflecting a relatively quick disengagement that would leave only a non-combat force such as that currently stationed in Korea, and a second in which the U.S. would withdraw more slowly and continue to engage in combat operations. In comparing our estimates with the CBO, we reached similar projections for the future costs of operating the war and the military "reset" costs. Our estimates for veterans’ health care and disability compensation are higher than the CBO projections, in large part because we project costs for the entire lifetime of the veteran whereas CBO uses a ten-year timeframe or less. Additionally, we include a number of costs not covered in the CBO’s projections.

7. As noted in chapter 1, all dollars have been converted into 2007 dollars, adjusting for inflation and the "time value" of money. This chapter focuses on the budgetary implications for the federal government, so there should be little controversy on the use of the real rate (1.5%) at which government can borrow for evaluating budgetary implications of the war. (Corporations cannot typically borrow at the same rate, and often raise money by issuing new equity, which raises difficult issues in evaluating the appropriate discount rate for corporations. More controversial still is the right discount rate to use for the evaluation of the broader social costs of the war, to which we turn in the Appendix on page 216).

8. Some forty countries, led by the United States, Britain, Australia, and Poland were in the coalition during 2003. Since then, in response to voters’ public opinion, eighteen countries have pulled out completely, with another eight keeping fewer than fifty troops in the region. In 2007, the only countries that still maintained more than 1,000 troops in Iraq were the U.K., South Korea, and Georgia. As with so many other aspects of this war, finding out how many countries were in the coalition is more difficult than it should be (cf. chapter 6).

9. "The Possible Costs to the United States of Maintaining a Long-Term Military Presence in Iraq," Letter from Peter Orzsag (director of the CBO) to Congressman Kent Conrad regarding the costs of maintaining a presence in Iraq similar to that of U.S. forces in the Republic of Korea and the Northeast Asia region—September 20, 2007, Congressional Budget Office.

10. As this book goes to press, some of this money has already been spent, so it should really be included in "past" rather than "future" expenditures. For simplicity, however, we have taken as our dividing line the beginning of the fiscal year, October 1, 2007.

11. According to the DOD Contingency Tracking System Deployment File, as of October 31, 2007, about 1.64 million U.S. service members had been deployed in the Global War on Terror. This includes the Army (800,681), Navy (304,382), Air Force (325,023), Marines (208,731), and Coast Guard (3,077). It is difficult to estimate the numbers through the year 2017, given the uncertainties about enlistment and retention and casualties. In this scenario, we estimate that a total of 200,000 additional troops will serve in Operation Iraqi Freedom and Operation Enduring Freedom (Afghanistan). In our realistic-moderate scenario, we have estimated that 400,000 additional troops will be deployed by 2017.

12. For example, in the U.K., projected personnel costs for Iraq in FY 2008 are only 5% lower than in FY 2007, despite the fact that Britain has cut its troop levels in half—House of Commons Defence Committee, "Cost of Operations in Iraq and Afghanistan: Winter Supplementary Estimate 2007–08," November 27, 2007.

13. Veterans Benefits Administration, Annual Benefits Report, Fiscal Year 2005, released September 2006, http://www.vba.va.gov/2005_abr.pdf; and Gulf War Veterans Information System. This amounts to $6,927 in 2007 dollars.

14. Of the nearly 700,000 who served, 620,266 are estimated to be still living. Of these, 280,623 have filed claims, of which 212,867 had been granted (161,313 with 10% or more service-connected disabilities), 30,679 denied, and 38,398 were still pending at the time of the most recent report. Many of these veterans suffer from symptoms that are not fully diagnosed, often termed "Gulf War syndrome." The Department of Veterans Affairs publishes frequent updated reports—Department of Veterans Affairs, "Gulf War Veterans Information System, May 2007," released June 30, 2007, at http://www1.va.gov/rac-gwvi/docs/GWVIS_May2007.pdf. See also Veterans Benefits Administration, "Annual Benefits Report Fiscal Year 2005," released September 2006, at http://www.vba.va.gov/2005_abr.pdf.

15. Karen H. Seal, et al., "Bringing the War Back Home: Mental Health Disorders Among 103,788 U.S. Veterans Returning from Iraq and Afghanistan Seen at Department of Veterans Affairs Facilities," Archives of Internal Medicine, vol. 167, no. 5 (March 2007), pp. 476–82.

16. The average annual Social Security cost-of-living adjustment during the five years from 2003 to 2007 amounts to 3.3 percent.

17. The VA’s medical budget is discretionary (that is, lawmakers appropriate funds on an annual basis), so we cannot definitively predict future medical appropriations, which may be increased or decreased by future acts of the Congress. (By contrast, the VA’s disability benefits are mandatory—they are not subject to the annual appropriations process, so the amounts estimated here can be projected with greater accuracy.) Our estimates for the total medical costs for the ten-year period 2007–17 are $17.7 billion under the best case scenario and $32 billion under the moderate scenario. This compares to the CBO’s estimate of $7–$9 billion for the same period.

18. These disability adjustments typically increase faster than the cost of living. They are intended to (partially) offset the losses in income suffered by veterans as a result of their disability. Historically, wages have risen faster than prices. Veterans’ benefits have been rising at a compound average growth rate of 7%; our estimates are based on an average increase of 3.3%, because of current congressional proposals to link increases in veterans’ benefits to those in Social Security. (Social Security payments are linked not just to increases in prices but also to wages. This is important if there is not to be a growing gap between the incomes of retirees and those who are working.)

19. Veterans Disability Benefits Commission, "Honoring the Call to Duty: Veterans’ Disability Benefits in the 21st Century," October 2007 (http://www.vetscommission.org/pdf/FinalReport10-11-07-compressed.pdf).

20. Lawrence Korb, Loren Thompson, and Caroline Wadhams, "Army Equipment After Iraq," Center for American Progress and the Lexington Institute, Washington, DC, April 25, 2006 (http://www.americanprogress.org/kf/equipment_shortage.pdf).

21. William M. Solis, Director, Defense Capabilities and Management, GAO, "Preliminary Observations on Equipment Reset Challenges and Issues for the Army and Marine Corps," Testimony before the Subcommittee on Readiness and Subcommittee on Tactical Air and Land Forces, Committee on Armed Services, House of Representatives, GAO-06-604T.

22. GAO Report to Congressional Committees, "Military Readiness: DOD Needs to Identify and Address Gaps and Potential Risks in Program Strategies and Funding Priorities for Selected Equipment," GAO-06-141, October 2005.

23. Andrew Feickert, Specialist in National Defense, "U.S. Army and Marine Corps Equipment Requirements: Background and Issues for Congress," Congressional Research Service report, June 15, 2007, order code RL33757.

24. Carl Connetta, "Fighting on Borrowed Time: The Effect on U.S. Military Readiness of America’s Post–9/11 Wars," Project on Defense Alternatives, Briefing Report no. 19, September 11, 2006, p. 5 (http://www.comw.org/pda/fulltext/0609br19.pdf).

25. On June 27, 2006, Army Chief of Staff General Peter Schoomaker told lawmakers that the Army alone will require $12–$13 billion "for a minimum of two to three years beyond" the end of the conflict—Statement of Peter J. Schoomaker before the House Armed Services Committee, "On the Army’s Reset Strategy and Plan for Funding Reset Requirements," Washington, DC.

26. The $250 billion number is almost certainly "best case." The new chairman of the Joint Chiefs of Staff, Admiral Mike Mullen, told the New York Times that he will "press Congress to sustain current military spending levels even after the Iraq War ends so the Pentagon can repair and replace worn-out weapons and rebuild ground forces"—New York Times editorial, October 25, 2007, p. A24. Just one year’s extension of current levels would be $200 billion.

27. General Ronald Keys, head of Air Combat Command, quoted in Tom Vanden Brook, "General: Air Fleet Wearing Down," USA Today, May 8, 2007, p. 1A.

28. Note that we have already taken into account increased expenditures because of inflation. There were some increases in expenditure scheduled before the war (such as increased compensation for troops), but actual increases were far higher than these prescheduled increases. We found an increased DOD expenditure of $533 billion over and above what would be predicted based on the forty-year rate of increase.

29. CRS, for instance, found $14 billion in DOD war funding that could not be tied to any specific item, and therefore might be related to DOD regular operations instead of the war. We explain below, moreover, how the war has led to increased costs, e.g., for recruiting and retaining troops—Belasco, Statement before the House Budget Committee Hearing on "The Growing Budgetary Costs of the Iraq War."

30. Material weaknesses in a company or government agency’s accounting system are deficiencies that are so grave that they make it highly likely that significant misstatements in financial systems (say, an underreporting of expenditures) will not routinely be detected on a timely basis.

31. Inspector General, Department of Defense, "Independent Auditors’ Report on the Principal Statements," DOD Performance and Accountability Report, Fiscal Year 2006, November 12, 2006.

32. For example, the May 2005 recruiting target was originally 8,050, but it was later lowered to 6,700; similar adjustments were made throughout the year—Eric Schmitt, "After Lowering Goal, Army Falls Short on May Recruits," New York Times, June 8, 2005, p. A9.

33. Lizette Alvarez, "Army Giving More Waivers in Recruiting," New York Times, February 14, 2007, p. A1.

34. National Priorities Project, "Military Recruiting 2006," December 22, 2006, http://www.nationalpriorities.org/Publications/Military-Recruiting-2006. html.

35. Joseph Galloway, "Asking Too Much of Too Few," McClatchy Newspapers, October 24, 2007.

36. Andrew Tilghman, "The Army’s Other Crisis, Why the Best and Brightest Young Officers Are Leaving," Washington Monthly, December 21, 2007.

37. Gordon Lubold, "To Keep Recruiting Up, U.S. Military Spends More," Christian Science Monitor, April 12, 2007, p. 2.

38. Michael O’Hanlon, "The Need to Increase the Size of the Deployable Army," Parameters (U.S. Army War College Quarterly) (Autumn 2004), pp. 4–17.

39. The administration has announced plans to increase the size of the active duty Army to 547,000 personnel, the Marine Corps to 202,000 personnel, and the Army Reserve and National Guard to 564,200 personnel over the next five years. The goal is to add a total of 74,000 by 2010.

40. $16 billion per year, increasing by 2% per annum due to inflation.

41. In their more recent tallies of the war, the Congressional Research Service has added on these prewar costs—Belasco, "The Cost of Iraq, Afghanistan, and Other Global War on Terror Operations Since 9/11."

42. Estimates of the cost of enforcing the no-fly zones vary. Wallsten and Kosec estimated the cost at $13 billion a year. But clearly, the savings were not manifested in overall lower expenditures by the Defense Department; moreover, since we have already accounted for other uses of funds, e.g., funding the war on terror and increased armaments, it suggests that the savings were in effect diverted to the war. In this view, by ignoring these savings, we have underestimated the cost of the war. We need to add $10 to $15 billion a year, offset then by the savings—Scott Wallsten and Katrina Kosec, "The Economic Costs of the War in Iraq," AEI-Brookings Joint Center Working Paper 05-19, September 2005, and Sarah Graham-Brown, "No Fly Zones: Rhetoric and Real Intentions," Global Policy Forum, February 20, 2001.

43. Two World War II–era laws are involved here: the 1941 Defense Base Act requires contractors to be insured; and the 1942 War Hazards Compensation Act allows the insurers to apply to the U.S. government to cover the payments for contractors killed or injured.

44. Compensation for total disability is two thirds of the employee’s average weekly earnings, up to a current maximum of $1,030.78 per week (this figure rises to three fourths with dependents). Compensation also is payable for partial loss of earnings. Death benefits are half of the employee’s average weekly earnings to the surviving spouse with no children, or 45% to the spouse with dependents and an additional 15% per dependent, up to a maximum of 75%. Permanent total disability and death benefits may be payable for life and are subject to annual cost of living adjustments—U.S. Department of Labor, Employment Standards Administration, "Injury Compensation for Federal Employees," Publication CA-810, January 1999.

45. John M. Broder and James Risen, "Death Toll for Contractors Reaches New High in Iraq," New York Times, May 19, 2007, p. A1.

46. The numerous claims from major contractors include: 346 from Halliburton; 309—CSC Dyncorp; 307—Raytheon; 157—Titan; 142—CSA Ltd.; 118—ITT Industries; 99—L-3 Communications; 96—General Dynamics; 89—Northrop Grumman; and 54—Washington Group International—James Cox, "Contractors Pay Rising Toll in Iraq," USA Today, June 16, 2004, p. 1B.

47. There also is reason to believe that their life expectancy will be shorter. This is an example where budgetary and economic costs move in opposite directions: the fact that they die earlier will save Social Security money; but there is a real societal cost to their earlier death. Our estimates do not include adjustments for any of these factors.

48. U.S. Department of Transportation Research and Innovative Technology Administration, Bureau of Transportation Statistics; and Al Shaffer, Executive Director, Office of Defense Research and Engineering, DOD Energy Secretary Task Force, presentation on May 22, 2007.

49. Even a tripling of energy prices would add $12 billion a year to the deficit. In our realistic-moderate scenario, we have attributed to the Iraq war only a small fraction of the increase in energy prices.

50. An economic analysis is somewhat more complicated, as the discussion later makes clear.

51. In March 2003, the U.S. debt was $6.5 trillion. The $1 trillion number can be thought of as approximately the present value (in 2007 dollars) of the expenditures on the war up through 2008. It is calculated by adding the total estimated current cost of the war (direct expenditures totaling 75.4% of the $645 billion, plus the implied expenditures hidden in the defense budget, $151 billion) in each year, and compounding the debt through March 2008.

Chapter 3: The True Cost of Caring for Our Veterans

1. According to the CBO report, "The All-Volunteer Military: Issues and Performance," July 2007, the typical recruit is eighteen years old; half the active duty force is between seventeen and twenty-four; women comprise 14% of the enlisted force. The percentage drawn from the Reserves and Guard has dropped to under 25% as these have bumped up against two-year deployment limits.

2. We use the term "soldiers" generically here, to include all soldiers, Marines, airmen and women, sailors, Coast Guard, Reservists, and National Guard.

3. See the DOD Web site at http://siadapp.dior.whs.mil/personnel/CASUALTY/castop.htm.

4. John Horton, in his "Army Accident Fatalities Attributable to the Iraq War," Unpublished paper by Ph.D. candidate at the National Bureau of Economic Research and Kennedy School of Government, September 2007, shows that the Iraq and Afghanistan conflicts caused approximately 190 additional accidental fatalities compared with what would have occurred during peacetime deployments—comparing the rate of accidental casualties in the five years to the invasion of Iraq and five years after. Extrapolating this to accidental injuries suggests that the rate of injuries during the current conflict is 50% higher than during peacetime (this is discussed at greater length in chapter 4).

5. Fischer, "United States Military Casualty Statistics: Operation Iraqi Freedom and Operation Enduring Freedom," CRS Report for Congress, August 17, 2007, order code RS22452.

6. This information comes from several sources, including published scientific literature. See Kenneth C. Hyams, et al., "Endemic Infectious Diseases and Biological Warfare During the Gulf War: A Decade of Analysis and Final Concerns," American Journal of Tropical Medicine and Hygiene, vol. 65, no. 5 (2001), pp. 664–70; Scott F. Paparello, et al., "Diarrheal and Respiratory Disease Aboard the Hospital Ship, USNS-Mercy T-AH 19, During Operation Desert Shield," Military Medicine, vol. 158, no. 6 (June 1993), pp. 392–95; A. L. Richards, et al., "Medical Aspects of Operation Desert Storm," New England Journal of Medicine, vol. 325, no. 13 (September 1991), pp. 970–71; Scott Thornton, et al., "Gastroenteritis in U.S. Marines During Operation Iraqi Freedom," Clinical Infectious Diseases, 2005, vol. 40, no. 4 (February 2005), pp. 519–25; and Glenn M. Wasserman, et al., "A Survey of Outpatient Visits in a United States Army Forward Unit During Operation Desert Shield," Military Medicine, vol. 162, no. 6 (June 1997), pp. 374–79. See also medical surveillance monthly reports published by the Army Medical Surveillance Activity, the U.S. Centers for Disease Control and Prevention, and infectious disease experts at the Department of Defense and the Department of Veterans Affairs.

7. We originally found these statistics published by the Department of Veterans Affairs, Office of Public and Intergovernmental Affairs. The "Fact Sheet: America’s Wars," available on September 30, 2006, showed that the number of non-mortal woundings in the global war on terror (combining Iraq and Afghanistan) as of September 30, 2006, was 50,508, as well as 2,333 deaths in battle plus 707 other deaths in theater. This Fact Sheet was linked to the DOD Web site (http://siadapp.dior.whs.mil/personnel/CASUALTY/castop.htm), which at that time reported the same number of total "non-mortal casualties." In January 2007, Linda Bilmes published "Soldiers Returning from Iraq and Afghanistan: The Long-Term Costs of Providing Veterans Medical Care and Disability Benefits" (Kennedy School of Government Working Paper No. RWP07-001), in which she cited these statistics. She subsequently received a phone call from then DOD Under Secretary William Winkenwerder, Jr., asking for the source of her data. She pointed him to the VA Web site and to his own DOD site. Following this phone call, the number of casualties reported on the VA site was lowered from 50,508 to fewer than 25,000 and the DOD site was made inaccessible. This was the subject of two articles by Denise Grady in the New York Times—"U.S. Reconfigures the Way Casualty Totals Are Given," New York Times, February 2, 2007, p. A17; "Agency Says Higher Casualty Total Was Posted in Error," New York Times, January 30, 2007, p. A17)—which reprinted the "before" and "after" charts. These charts are shown in the Appendix on page 210. The full story was reported in Scott Jaschik, "Shooting the Messenger," Inside Higher Ed, January 30, 2007.

8. "The Plight of American Veterans," New York Times, November 12, 2007, p. A20.

9. By October 2007, some 564,769 (34%) of 1,641,894 service members had been deployed twice or more to the wars in Iraq and Afghanistan—Defense Manpower Data Center, Contingency Tracking System, October 2007.

10. In mid-December 2007, the DOD Web site listed 28,711 wounded in Operation Iraqi Freedom and 1,840 wounded in Operating Enduring Freedom (Afghanistan)—DOD, U.S. Casualty Status, www.defenselink.mil/news/casualty.pdf. (As noted earlier, this site uses a narrower definition of injuries than the one that includes non-battle injuries and diseases.)

11. Testimony of Dr. Ira Katz, Deputy Chief Patient Care Services Officer for Mental Health, VHA, U.S. Department of Veterans Affairs, before House Committee on Veterans Affairs, July 25, 2007, and Statement by the Honorable Gordon England, Deputy Secretary of Defense, before the Senate Armed Services Committee and the Senate Veterans Affairs Committee, April 12, 2007.

12. The Dole-Shalala Commission (formally titled the President’s Commission on Care for America’s Returning Wounded Warriors) was created in the aftermath of the Walter Reed scandal and headed by former Senate Republican leader Robert Dole and former Secretary of Health under President Clinton Donna Shalala—President’s Commission on Care for America’s Returning Wounded Warriors, "Serve, Support, Simplify," July 2007, p. 15, at http://www.pccww.gov.

13. Daniel Cooper, Under Secretary for Health, Disability Claims Roundtable, House Veterans Affairs Committee, May 23, 2007, and Michael McGeary, et al., A 21^st Century System for Evaluating Veterans for Disability Benefits (Washington, DC: National Academies Press, 2007).

14. Physicians for Social Responsibility, "Fact Sheet on U.S. Military Casualties," http://www.psrla.org/emails/medical-consequences/documents/MilitaryCasualtiesFactSheet.pdf, October 2006 (accessed October 14, 2007). Other causes include vehicle accidents, shrapnel, gunshot wounds, and falls.

15. TBI accounts for a larger proportion of casualties than it has in other recent U.S. wars. The Joint Theater Trauma Registry, compiled by the U.S. Army Institute of Surgical Research, noted that 22% of the wounded troops from Iraq and Afghanistan who have passed through the military’s Landstuhl Regional Medical Center in Germany had injuries to the head, face, or neck. This percentage can serve as a rough estimate of the fraction that have TBI, according to Deborah L. Warden, a neurologist and psychiatrist at Walter Reed Army Medical Center who is the national director of the Defense and Veterans Brain Injury Center. Warden said the true proportion is probably higher, "since some cases of closed brain injury are not diagnosed promptly"—Susan Okie, M.D., "Traumatic Brain Injury in the War Zone," New England Journal of Medicine, 352 (May 2005) pp. 2043–47.

16. Ibolja Cernak, Johns Hopkins University Applied Physics Laboratory, who has studied blast-related brain injuries since the conflict in the Balkans, at a presentation before the National Academy of Sciences in August 2007; see also Geoff Ling, DOD, and Maria Mouratidis, head of brain injury treatment at the National Naval Medical Center in Bethesda, MD, in Gregg Zoroya, “Brain Injuries from War Worse Than Thought,” USA Today, September 24, 2007, p. 8A.

17. Ibid.

18. Dr. Gene Bolles, interviewed on The NewsHour with Jim Lehrer, February 15, 2005.

19. Walter Reed is a 260-bed hospital that admits more than 13,000 patients every year; the outpatient care facility holds 700 patients, who stay 10 months on average. The hospital was supposed to be shut down by 2011 under the terms of the Defense Base Closure and Realignment Commission.

20. Co-chairman Togo West, former Secretary of the Army, in Steve Vogel, "Panel Calls for Closing Walter Reed Sooner," The Washington Post, April 12, 2007, p.A1.

21. Statement by the Honorable Gordon England, April 12, 2007 (italics added).

22. Quoted in Dana Milbank, "Painting Over the Problems at Walter Reed’s Building 18," The Washington Post, February 23,2007, p. A2.

23. Sullivan, a former VA employee, and Robinson, both Gulf War veterans, were at that time working for Veterans for America, an organization led by the Nobel Peace Prize winner Bobby Muller. Sullivan now is president of Veterans for Common Sense.

24. Government Accountability Office, "GAO Findings and Recommendations Regarding DOD and VA Disability," GAO-07-906R, May 25, 2007.

25. See Veterans Benefits Administration, Annual Benefits Report, Fiscal Year 2005, p. 17, for a definition of disability compensation; and see Department of Veterans Affairs, Disability Compensation Program, Legislative History, VA Office of Policy, "Planning and Preparedness 2004," for the principles behind the program.

26. However, conditions are not scaled continuously from 0 to 100. Some mental conditions, for example, are rated: 0, 10, 30, 70, or 100; coronary artery disease ratings are rated: 10, 30, 60, and 100; spinal conditions are rated: 10, 20, 30, 40, 50, or 100. A huge amount of time is devoted to making these determinations.

27. The VA 2007 Federal Benefits manual lists $1,380 for 10% and $30,000 for 100%, but those with 30% or more service-connected disability may also receive additional payments; those who are 100% service-connected will receive an annual payment of about $45,000—Department of Veterans Affairs, Federal Benefits for Veterans and Dependents, 2007 edition, available at www1.va.gov/OPA/vadocs/fedben.pdf.

28. Veterans Benefits Administration, Annual Benefits Report, Fiscal Year 2005, p.33.

29. The 30% "service-connected" qualification varies according to the condition, but typically refers to a moderately disabled veteran.

30. Government Accountability Office, "GAO Findings and Recommendations Regarding DOD and VA Disability."

31. Government Accountability Office, "Veterans Benefits Administration: Problems and Challenges Facing Disability Claims Processing," GAO Testimony Before the Subcommittee on Oversight and Investigations, House Committee on Veterans Affairs, May 18, 2000.

32. Ibid.

33. Government Accountability Office, "Veterans Benefits: Further Changes in VBA’s Field Office Structure Could Help Improve Disability Claims Processing," GAO-06-149, December 2005.

34. Government Accountability Office, "GAO Findings and Recommendations Regarding DOD and VA Disability Systems."

35. GAO, "Veterans’ Disability Benefits: Processing of Claims Continues to Present Challenges," GAO-07-562T, March 13, 2007.

36. The VBA’s backlog of pending claims in late December 2007 was 406,065—VBA Monday Morning Workload Report, December 22, 2007 (http://www.vba.va.gov/bln/201/reports/mmrindex.htm).

37. Department of Veterans Affairs, Fiscal Year 2007 Performance and Accountability Report, November 15, 2007 (http://www.va.gov/budget/report/2007/2007FullWeb.pdf).

38. Most claims were submitted by health care providers within thirty days, bringing the total reimbursement period to about sixty days. Claims that were "pending" and required additional attention took a further nine days (Center for Policy and Research, American Health Insurance Plans, 2006). Moreover, forty-nine states and the District of Columbia have enacted "prompt payment" laws that require insurance companies to reimburse health care providers within thirty to sixty days. The penalties for non-compliance are interest charges of up to 18%. The federal government has a "Prompt Payment" rule that requires it to pay federal contractors within thirty days of receipt of an invoice, or penalties are imposed. Another rule, the Federal Travel Regulation interim rule, requires federal agencies to reimburse an employee within thirty days after the employee submits a travel voucher to the approving official.

39. "Stop-loss" orders allow the military to refuse to allow an enlistee to leave the military, even when his term of contract expires. The military has used these to an unprecedented extent. Even by the end of 2005, some 50,000 troops had been forced to stay beyond their enlistment period—Tom Regan, "Stop-Loss used to Retain 50,000 Troops," Christian Science Monitor, January 31, 2006.

40. This may be one of the reasons that denial rates are higher among National Guard and Reservists: the active duty denial rate is 6.6%, compared with a National Guard and Reserve denial rate of 15.5%—Department of Veterans Affairs, "VA Benefits Activity: Veterans Deployed to the Global War on Terrorism," June 2007.

41. Government Accountability Office, Report to Congressional Requesters, "Hundreds of Battle-Injured GWOT Soldiers Have Struggled to Resolve Military Debts," GAO-06-494, April 2006 (http://www.gao.gov/new.items/d06494.pdf).

42. Veterans Benefits Improvement Act of 1994 (Public Law 103-446) and Persian Gulf War Veterans Act of 1998 (PL 105-277). All veterans from 1991 onward are classified together for the purposes of determining eligibility for VA benefits. The VA does not distinguish between the end of the first Gulf War and the present conflict (38 USC Section 101[33] defines the Gulf War as starting on August 2, 1990, and continuing until either the president or the Congress declares an end to it, and 38 CFR 3.317 defines the locations of the conflict).

43. For the first Gulf War, the total claims filed to date are 280,623, of which 212,867 have been approved, 30,679 have been denied, and 38,398 are still pending—Department of Veterans Affairs, "Gulf War Veterans Information System" May 2007 (cf. Preface, note 8), p. 7.

44. VBA, Annual Benefits Report, Fiscal Year 2005, p. 33.

45. By contrast, any disability claims from the first Gulf War also stem from exposure to pollution from oil well fires, low levels of chemical warfare agents, experimental anthrax vaccines, the experimental antichemical warfare agent medication called pyridostigmine bromide, and the antimalaria pill Lariam.

46. Discussion with Dr. Jonathan Shay, October 7, 2007.

47. Department of Veterans Affairs, "VA Benefits Activity: Veterans Deployed to the Global War on Terror." (As of June 2007, 720,000 had been discharged, of whom 202,000 had applied for disability benefits.)

48. In calculating veterans’ disability compensation, we have included all the potentially eligible veterans from the 224,000 who have already filed disability claims. We have not adjusted for the incremental cost—that is, the number of veterans who may have claimed disability even during peacetime. This is because the VA does not report which of the 263,000 who have been treated so far in its medical facilities were wounded in combat vs. non-combat. However, it would be possible to estimate very roughly that the VA would have received 25,000 claims even during peacetime (assuming half of the veterans who are evacuated for non-battle-related injuries and 5% of the disease-related make claims). That would lower the total costs attributable purely to the decision to invade Iraq by around 10–15%. (This adjustment is itself much too high, because it assumes the same rate of peacetime injury for National Guard and the Reserves as for full-time servicemen and women.)

49. The average claim for existing veterans in the system in 2005 was $8,890.

50. This projection is based on our best case scenario, using the figure of 1.8 million servicemen and women and the CBO troop deployment figures through 2017.

51. Daniel Cooper, Disability Claims Roundtable, May 23, 2007.

52. Linda Bilmes, Testimony before the House Veterans Affairs Committee, March 13, 2007. See also Cooper, Disability Claims Roundtable, who estimates that additional claims specialists could only reduce the existing backlog by 22%.

53. "Eligibility for Hospital, Nursing Home, and Domiciliary Care," 38 USC Section 1710. This recommendation enjoys strong bipartisan support. The proposal (the Akaka amendment, as it is known) passed the Senate unanimously on July 12, 2007. See http://veterans.senate.gov/public/index.cfm?pageid=12&release_id=11183 (accessed on December 4, 2007).

54. Lisa Sprague, "Veterans’ Health Care: Balancing Resources and Responsibilities," Issue Brief No. 796, April 1, 2004, National Health Policy Forum, George Washington University.

55. Veterans Health Administration, Office of Public Health and Environmental Hazards, "Analysis of VA Health Care Utilization Among U.S. Southwest Asian War Veterans," November 2006, p. 14.

56. See the testimony of Ira Katz, M.D., Ph.D., Deputy Chief Patient Care Services Officer for Mental Health, Veterans Health Administration, U.S. Department of Veterans Affairs, before the House Committee on Veterans Affairs, July 25, 2007; Hoge, Auchterlonie, and Milliken, "Mental Health Problems, Use of Mental Health Services, and Attrition from Military Service After Returning from Deployment to Iraq or Afghanistan," pp.1023–32; and Charles Hoge, Carl Castro, Stephen Messer, et al., "Combat Duty in Iraq and Afghanistan: Mental Health Problems and Barriers to Care," New England Medical Journal, vol. 351, no.1 (July 2004), pp. 13–22. These studies estimated that 19–30% of all veterans returning from Iraq will meet criteria for serious mental health disorders.

57. Linda Bilmes, interview with Paul Sullivan, Program Director of Veterans for America, December 23, 2006.

58. Veterans Disability Benefits Commission, Final Report, August 2007, pp. 470–7.

59. See Douglas Zatzick, et al., "Posttraumatic Stress Disorder and Functioning and Quality of Life Outcomes in a Nationally Representative Sample of Male Vietnam Veterans," American Journal of Psychiatry, 154 (December 1997), pp. 1690–95.

60. Seal, et al., "Bringing the War Back Home: Mental Health Disorders Among 103,788 U.S. Veterans Returning from Iraq and Afghanistan Seen at Department of Veterans Affairs Facilities," pp. 476–82.

61. Quoted in Rich Daly, "New Freedom Commission Members Assess Report’s Impact," Psychiatric News, vol. 41, no. 9 (May 2006), p. 1.

62. Statement by Gordon Espamer, litigation partner at Morrison & Foerster LLP, August 7, 2007. The complaint was filed in the U.S. District Court, Northern California.

63. Government Accountability Office, "VA Health Care Budget Formulation," GAO-06-430R, September 2006, pp. 18–20.

64. Cooper, Disability Claims Roundtable.

65. We also assume that some 83% of veterans who are severely disabled will rely on the VA to provide all of their medical care. This percentage declines to 58% for moderately disabled veterans and 42% for veterans who are rated least disabled. Sixty percent will seek short-term treatment (less than five years), and 40% will continue to use the VA as their health care provider for the rest of their lives.

66. The CBO has lower estimates. See the testimony of Matthew S. Goldberg, Deputy Assistant Director for the National Security Congressional Budget Office, before the House Veterans Affairs Committee, October 17, 2007. He estimated the 2006 annual average cost per Iraqi and Afghanistan veteran who used VA health care at $2,610 versus an overall average of $5,765 in 2006. Our two scenarios reflect this range. We adjusted the minimum range to $3,500 after consulting with physicians in the VA treating new veterans.

67. The size of the administrative costs will depend on the nature of the bureaucratic processes. If the reforms we advocate in chapter 8 are adopted, not only will veterans get the benefits to which they are entitled without the hassles they currently face, but the administrative costs will be lower.

Chapter 4: Costs of War That the Government Doesn’t Pay

1. Stella M. Hopkins, "Veterans with Severe Ailments Face Long Waits for Care," Charlotte Observer, October 21, 2007, revealed that some of the most severely injured veterans have to wait more than thirty days to see a doctor in the VA system; waiting times were longest for problems such as TBI and related diagnostic services. The Inspector General of the VA also reported that only 75% of veterans were able to schedule appointments with doctors within thirty days, in a contradiction of the testimony of Under Secretary Michael Kussman, who stated that 95% of soldiers were seen by the VA within thirty days—Statement of Michael Kussman before the Subcommittee on Health of the Committee on Veterans Affairs, U.S. House of Representatives, February 14, 2007.

2. The commission was established in the National Defense Authorization Act of 2004 to study the adequacy of the benefits provided to compensate and assist veterans and their survivors for disabilities and deaths attributable to military service. The commission is independent of government agencies, such as the Department of Veterans Affairs and the Department of Defense, and its thirteen members are appointed by the president and leaders of Congress. Its final report, "Honoring the Call to Duty: Veterans’ Disability Benefits in the 21st Century," dated October 2007, is available at http://www.vetscommission.org/reports.asp.

3. Joyce McMahon Christensen, et al., "Final Report for the Veterans Disability Benefits Commission: Compensation, Survey Results, and Selected Topics," CNA Corporation, Alexandria, VA, August 2007, at https://www.1888932-2946.ws/vetscommission/e-documentmanager/gallery/Documents/Reference_Materials/CNA_FinalReport_August2007.pdf.

4. Hundreds of large jury awards (ranging from $2m–$269m) have been awarded in wrongful death suits over the past five years. They include $112 million to Elizabeth and John Reden of New York for a malpractice case in which their daughter suffered brain damage (2004) and $43 million in Louisiana in 2001 for Seth Becker, a twenty-four-year old who needed both legs amputated after sustaining an injury while working for Baker Oil Tools. In these and many other cases the amount awarded was determined primarily on the basis of the cost of round-the-clock medical care (not on the basis of economic opportunity costs). The $269m award was for Rachel Martin, a fifteen-year-old Texas girl who died in 1998. In most of these cases with multi-million-dollar settlements, the plaintiffs receive less than the total award, typically about 10%. But even these reduced awards are far greater than the amounts provided to veterans.

5. Michael Kaplen, "Behavior Changes Following Train Accident Leads to 8.5 Million Dollar Brain Damage Settlement," Brain Injury News and Information Blog, April 2005 (http://www.braininjury.blogs.com/).

6. Stephen Vangel, et al., "Long-Term Medical Care Utilization and Costs Among Traumatic Brain Injury Survivors," American Journal of Physical Medicine and Rehabilitation, vol. 84, no. 3 (March 2005), pp. 153–60.

7. "Fact Sheet: Traumatic Brain Injury: Selected Statistics," Brain Injury Association of Missouri, http://www.biamo.org/BrainInjuryFacts.asp (accessed on November 26, 2007).

8. As of April 21, 2004, the EPA estimate is $6.2 million in 2002 dollars—Chris Dockins, et al., "Value of Statistical Life Analysis and Environmental Policy: A White Paper," Environmental Protection Agency, National Center for Environmental Economics, April 21, 2004 (http://yosemite.epa.gov/ee/epa/eermfile.nsf/vwAN/EE-0483-01.pdf/$File/EE-0483-01.pdf). This is $7.2 million in 2007 dollars, using changes in CPI from 2002 until August 2007.

9. The "peak" age for VSL, in terms of lost earnings potential, may be twenty-nine, with a VSL in 2002 dollars of between $6 and $7.5 ($6.8 to $8.5 million in 2007 dollars)—W. Kip Viscusi and Joseph E. Aldy, "The Value of Statistical Life: A Critical Review of Market Estimates Throughout the World," National Bureau of Economic Record [hereafter NBER] Working Paper W9487, February 2003.

10. Scott Wallsten and Katrina Kosec estimated the value of a statistical life as $6.5 million in 2000 dollars in their 2005 study of the economic costs of the war, based on an analysis of VSL values ranging from $4 to $9 million in 2000 dollars; converting to 2007 dollars, this gives a range of $4.72 to $10.62 million—Wallsten and Kosec, "The Economic Costs of the War in Iraq."

11. Some argue that the fact that they volunteered means that the person would be willing to pay less not to die or be wounded than an ordinary civilian, and therefore they ought to be compensated less when they die or are injured. In this view, from an economic perspective, the loss if they are injured or killed is less.

12. That is, the economic cost of a person assigned a 50% disability is 0.5 $7.2 million, or $3.6 million. This methodology is similar to that used by a variety of government agencies, and by courts in determining appropriate compensation for "wrongful injury." They assess impairments as a fraction of total disability. Similarly, in an 2002 EPA report on averting boating accidents, the EPA stipulates fractions of a life at certain levels of injuries: minor injuries are 0.0020; moderate are 0.0155; serious are 0.0575; severe are 0.1875; and critical are 0.7625—Department of Transportation, "Wearing of Personal Flotation Devices (PFDs) by Certain Children Aboard Recreational Vessels," Federal Register, vol. 67, no. 121, June 24, 2002, at http://www.epa.gov/fedrgstr/EPA-IMPACT/2002/June/Day-24/i15793.htm.

13. Horton, "Army Accident Fatalities Attributable to the Iraq War." Unpublished paper.

14. Peter Katel, "Wounded Veterans: Is America Shortchanging Vets on Health Care?" Congressional Quarterly Researcher, vol. 17, no. 30 (August 31, 2007), pp. 697–720.

15. CBS News interview with Paul Sullivan, Director of Veterans for Common Sense, November 13, 2007.

16. Mental Health Advisory Team (MHAT-IV) study, Final Report.

17. Seal, et al., "Bringing the War Back Home: Mental Health Disorders Among 103,788 U.S. Veterans Returning from Iraq and Afghanistan Seen at Department of Veterans Affairs Facilities," pp. 476–82.

18. Mental Health Advisory Team (MHAT-IV) study, Final Report.

19. Veterans Disability Benefits Commission, "Honoring the Call to Duty: Veterans’ Disability Benefits in the 21st Century," October 2007.

20. Ibid., p. 15.

21. Zatzick, et al., "Posttraumatic Stress Disorder and Function and Quality of Life Outcomes in a Nationally Representative Sample of Male Vietnam Veterans," RAND Corporation, 1997.

22. Eric Christensen, et al., "Final Report for the Veterans’ Disability Benefits Commission: Survey Results and Selected Topics," August 2007, p. 269.

23. Veterans’ Disability Benefits Commission, "Honoring the Call to Duty: Veterans’ Disability Benefits in the 21st Century," p. 155.

24. The maximum lump-sum payment in the U.K. for impairment to quality of life is £285,000 (about $570,000). This is paid in addition to a guaranteed income supplement.

25. President’s Commission on Care for America’s Returning Wounded Warriors (described in chapter 3), "Serve, Support, Simplify," p. 9.

26. The Brain Injury Association of Missouri estimates that medical and non-medical (e.g., home modifications, vocational rehabilitation, health insurance) expenditures per TBI survivor average $151,587.

27. TRICARE is the health care program serving active duty service members, retirees, their families, survivors, and certain former spouses worldwide. As a major component of the Military Health System, TRICARE brings together the resources of the uniformed services and supplements them with a network of civilian health care professionals, institutions, pharmacies, and suppliers. These provide access to high-quality health care services while maintaining the capability to support military operations.

28. Uwe Reinhardt, Senate Veterans Affairs Committee Hearing on Veterans’ Health Care Funding, Congressional Transcripts, March 8, 2007, reported in Katel, "Wounded Veterans," Congressional Quarterly Researcher.

29. The social cost encompasses the entire economic value of the impairment from the injury to the serviceman. Therefore, to calculate the social costs in excess of the budgetary costs, we need to adjust this total by subtracting out the amount that the VA pays in disability benefits, which is in fact a partial payment toward the overall economic loss. We have accordingly subtracted $11 billion (best case) and $15 billion (realistic-moderate). We subtracted out $500,000 per soldier in death benefits from the VSL for fatalities.

30. Of the 67,000 soldiers who have been wounded, injured, or suffered illnesses requiring medical evacuation as of late 2007, about 60% have been classified as seriously ill, reflecting the harsh conditions in Iraq. In a peacetime army, stateside, the number of serious illnesses and disease among young men and women in their prime would have been very small. We have thus treated 95% of these as incremental.

31. The "serious" PTSD sufferers are the one third of those affected with PTSD that are unemployable, that is, cannot hold down a job—Veterans Disability Benefits Commission, "Honoring the Call to Duty: Veterans’ Disability Benefits in the 21st Century."

32. Government Accountability Office, "RESERVE FORCES: Actions Needed to Identify National Guard Domestic Equipment Requirements and Readiness," Report to the Ranking Minority Member, Committee on Oversight and Government Reform, and to the Ranking Minority Member, Subcommittee on National Security and International Relations, House of Representatives, GAO-07-60, January 2007.

33. Government Accountability Office, "Army and Marine Corps Cannot Be Assured That Equipment Reset Strategies Will Sustain Equipment Availability While Meeting Ongoing Operational Requirements," GAO-07-814, September 2007.

34. David S. Loughran, Jacob A. Klerman, and Craig Martin, Activation and the Earnings of Reservists, RAND National Defense Research Institute, Santa Monica, CA, 2006. The study was based on Social Security records, rather than on surveys of soldiers or their spouses. Each methodology has its own advantages. Surveys depend for their accuracy on the ability to recall accurately incomes. But there are fundamental flaws in relying on Social Security records: (1) reported Social Security earnings do not include fringe benefits, which typically are both untaxed and significant, often comprising 25% or more of income, even more for those with lower-income jobs. (2) The study assumes that self-employment income is accurately reported (and even those with regular jobs often have some self-employment). But underreporting is common. It is therefore all the more striking that the study maintains that 62% of the self-employed called to active duty for less than thirty days show an income loss, some 55% lost more than 10%. (3) The study does not include the loss of income for spouses who cannot rely on a husband (or wife) for babysitting services. (4) It does not take into account the additional expenses (e.g., housing and subsistence) as a result of being called to active duty—which means that "take-home family pay" has not been changed in the way indicated. There is some question too about the appropriate comparison of tax advantages. The largest single item in the RAND study is a housing allowance, intended to offset incremental housing costs, which is tax-exempt. An appropriate comparison, one could argue, would not have included either the allowance or the tax benefit. Moreover, if the soldier had owned a home, he (or she) would have enjoyed a tax benefit on his housing expenditures, a tax benefit he gives up if he has to give up his home. The study unfortunately does not distinguish between impacts on different groups, e.g., those who have regular full-time jobs and those who do not. For an unemployed individual, being called to active duty raises incomes. There is no opportunity cost. For others, the costs may be high. Finally, the RAND study does not include the value of work for which they are not directly paid, like home repairs, which can increase the value of their house. Troops serving in Iraq lose these opportunities. More generally, even if the pay were higher, the pay per hour is not: the troops are on duty, at risk, twenty-four hours a day, seven days a week. In short, even apart from the failure not to compensate fully for the risks associated with fighting, there is good reason that Reservists and National Guard troops are not volunteering by the droves for service in Iraq. They may well be economically worse off. In our earlier analysis, we had borrowed Wallsten and Kosec’s estimate that Reserve soldiers earn about $33,000 per year as civilians. They estimated that even by that earlier date, the opportunity cost of using Reserve troops at current levels (what these individuals would have earned in their civilian jobs) was $3.9 billion. Take-home pay is, of course, less than worker’s full compensation, and it is the full compensation which is the better measure of what workers would have produced had they not been deployed in Iraq—Wallsten and Kosec, "The Economic Costs of the War in Iraq," p. 8. In our earlier study, accordingly, we increased the pay per Reservist slightly, to $46,000, taking into account the fully loaded cost of benefits, particularly for those Reservists who are in police and fire departments, receiving benefits that are some 60% to 100% of their take-home pay. Of course, as the war has continued, these costs have risen. Our current overall tally of the war costs, however, does not include any estimate of these opportunity costs in either scenario.

35. It is apparent (from the increased difficulties in recruiting) that individuals did not fully appreciate the risks they faced when joining the Reserves, so that the wage received does not reflect adequate compensation for those risks.

36. The RAND study raises the issue of the impact on incomes after deactivation. The study did not incorporate the effects on returning Reservists and National Guard troops after one, two, or three tours of duty, and especially the evidence of the high incidence of disability. Even apart from these disability effects, there are potential adverse effects of extended tours of duty on those who, at the time they are called up, are in long-term employment. Whatever the value of the experience, it is likely that it was not directly job-related, and hence will not serve to advance the individual in his/her career. For those whose jobs are not there upon their return, the costs are likely to be even greater. Extensive studies of the consequences of involuntary job displacement suggest that they are associated with marked declines in income.

37. Government Accountability Office, "Military Pay: Army Reserve Soldiers Mobilized to Active Duty Experienced Significant Pay Problems," GAO-04-911, August 2004, p. 1.

38. Department of Veterans Affairs, Veterans Benefit Administration Office of Performance Analysis and Integrity, "VA Benefits Activity: Veterans Deployed to the Global War on Terrorism," June 25, 2007. (http://www.veteransforcommonsense.org/files/VFCS/VBA_GWOT_Claims_June_2007.pdf).

39. In chapter 8, we discuss these and other reforms more extensively.

40. See Vali Nasr’s work on Iraqi regional hegemony in The Shia Revival: How Conflicts Within Islam Will Shape the Future (New York: W. W. Norton, 2006).

41. We should emphasize that our discussion of hard-to-quantify costs is far from complete. While chapter 2 focused on the budgetary costs to the federal government, the war has also had budgetary implications for states and localities: for instance, they pick up part of the tab for health care costs, especially under the Medicaid program. At the same time, some of the costs that we have identified as budgetary are transfer payments, payments from one part of our society to another. For instance, any excess costs from corruption (associated, e.g., with Halliburton and Blackwater) means that the amount paid exceeded the value of the resources used. These were simply transfers from ordinary taxpayers to the coffers of the owners of Halliburton’s shares and its management. Similarly, some of the higher energy prices that the government paid (part of the budgetary impact of the war that we did not quantify and that thus is not part of our overall tally) are simply transfers from ordinary American taxpayers to oil and other energy companies in the United States.

Chapter 5: The Macroeconomic Effects of the Conflicts

1. The oil price averaged $23.71/barrel in 2002; in the month before the war, it reached $32.23. Part of this was the result of stockpiling because of worries about supply interruptions. The price averaged $27.71 in 2003, $35.90 in 2004, and rose to $49.28 by June 2005. Hurricane Katrina led to another increase. Since Katrina, prices have stayed relatively high.

2. The fact that war may be bad for the economy was made clear by the Gulf War of 1991, which at the very least contributed to the recession that began in that year—and for some of the reasons outlined in this chapter.

3. For a broader discussion of whether oil played a role, see the Appendix on page 216.

4. In 2007, five of the ten most profitable corporations in the world are oil and gas companies—Exxon-Mobil, Royal Dutch Shell, BP, Chevron, and Petro-China. In 2002, only one of the top ten most profitable corporations was from the oil and gas industry—Forbes magazine online, The Forbes Global 2000, March 29, 2007 http://www.forbes.com/lists/2007/18/biz_07forbes2000_The-Global-2000_Prof.html). As we noted in chapter 1, the price of oil company shares has soared since the beginning of the war.

5. Such questions are called counterfactuals, and involve an analysis of a "but for" world—what oil prices would have been, but for the war in Iraq. There is no way of answering these questions with certainty, but modern social sciences enable us to provide reasonably reliable estimates.

6. For instance, on January 2, 2003 (when war rumblings already were having some impact on prices), markets still expected the price to be under $25 in December 2003, and the December 2009 contract for Light Sweet Crude settled at $22.57 a barrel—from tables in the Money & Investing section of the eastern edition of the Wall Street Journal, January 2, 2003.

7. On November 1, 2007, the futures market predicted the price to remain at around $94 through the end of 2007, declining to $85 toward the end of 2008, and then gradually lowering to $81 by 2011, where they will remain through 2015—Prices of Light Sweet Crude on the New York Mercantile Exchange.

8. In 2004, imports were slightly over 4.8 million barrels; in 2005 and 2006, slightly more than 5 million barrels. As this book goes to press, imports for 2007 have been running slightly lower than in 2006.

9. We emphasize that these are approximations. We have not adjusted the numbers either for inflation, for the time value of money, or for the changing levels of imports over the period. Fine-tuning the calculations would lead to slightly larger numbers than those used in our estimate ($195.4 billion and $446.4 billion, compared to $175 billion and $400 billion in the conservative and realistic-moderate scenarios, respectively). We use the lower numbers because we think it inappropriate to give the false sense of precision that the higher figures might suggest; there is, in particular, still uncertainty about the level of imports for 2008 and 2009. We prefer to err on the conservative side.

10. This is almost precisely the estimate arrived at by the Joint Economic Committee of the House of Representatives in their report War at Any Price?" (November 2007). They cite a figure of $174 billion, but argue that the true number is likely to be much larger.

11. In theory, households could dip into their savings to maintain other expenditures. In practice, given the fact that America’s savings rate was already close to zero or negative (cf. note 35 below), the scope for doing so was limited.

12. The effects are felt not just in the year that the oil price increases but in the years thereafter. The multiplier refers to the ratio of the total reduction in consumption to the initial increase in cost of oil. One-year multipliers are typically smaller, but our concern is with the total impact, not the timing of the impact (the focus of most short-run GDP forecasting models).

13. The Joint Economic Committee estimates the multiplier to be just in excess of 2, so that the (conservatively) estimated increased expenditure on oil imports of $124 billion has a further GDP effect of $150 billion. This is consistent with (though slightly higher than) the multiplier we use in our realistic-moderate scenario. The committee’s result is consistent with the Global Insight simulation—cf. Hillard G. Huntington, "The Economic Consequences of Higher Crude Oil Prices," Stanford Energy Modeling Forum, report for the U.S. Department of Energy, 2005—and is smaller than estimates provided by other studies—cf. the survey article by Donald W. Jones, Paul N. Leiby, and Inja K. Paik, "Oil Price Shocks and the Macroeconomy: What Has Been Learned Since 1996," The Energy Journal, vol. 25, no. 2 (2004), and James Hamilton and Ana Herrera, "Oil Shocks and Aggregate Macroeconomic Behavior: The Role of Monetary Policy," Journal of Money, Credit, and Banking, 36 (2004), pp. 265–85; and additional studies cited in the Appendix on Methodologies), in some cases markedly so. It is larger than the multiplier used by the CBO in their report, "The Economic Effects of Recent Increases in Energy Prices" (2006), but as we explain at greater length in our appendix we believe that even the multiplier of 2 used in our realistic-moderate scenario is extremely conservative.

14. We describe these empirical and theoretical analyses in more depth. See the Appendix on p. 216.

15. Again, see the Appendix for some of the reasoning behind this conclusion.

16. Earlier, we were dealing with discussed the oil multiplier, the effect on GDP of increased spending on oil.

17. For some of the long-run costs referred to in chapter 3, such as increased disability and health care costs for veterans, there are not likely to be large differences in multipliers. That is why we have focused on the impact of switching only $800 billion, which is just half of the total (present discounted value) of direct military expenditures. Recall that the realistic-moderate estimate, based on standard DOD scenarios, envisions a significant American presence in Iraq at least through 2017.

18. Assume, for instance, that in the case of normal investment expenditures (such as university-based research), two thirds of the money is not spent on domestic goods and services—we say that the first-round "leakage" (the amount not respent back in the United States) is two thirds, then this will generate an overall multiplier of 1.5, consistent with our earlier analysis. But in the case of money spent in Iraq, if instead of two thirds of the initial expenditures being for American-made goods, one half of the initial expenditures is spent in that way—but after this first round, money is spent in similar ways (that is, leakages are the same), then the overall Iraq spending multiplier is 1.1, for a difference of 0.4 from the normal multiplier. Small differences in first-round expenditure patterns have large effects on multipliers. In reality, the differences in "leakages" for first round expenditures are greater, and there are significant differences in subsequent patterns of expenditures, so that once again our estimate is almost surely very conservative.

19. The Joint Economic Committee’s report War at Any Price? estimates the total increase in taxpayer spending at a projected $1.9 trillion; including interest on the cumulative debt brings the number to well over $2 trillion. In our projections, the cost of direct military operations for Iraq alone is $1.4 trillion. Cumulative interest on the increased indebtedness—even ignoring Social Security, veterans’ disability, and veterans’ health care expenditures—brings the total to $2 trillion. (If Afghanistan is included, all numbers are increased by a third.)

20. These ideas are known as Ricardian equivalence, after David Ricardo, the nineteenth-century economist who first proposed them.

21. At most, between one half and one third of the amount of the increased deficit—See William Gale and Peter Orszag, "Budget Deficits, National Savings, and Interest Rates," Brookings Papers on Economic Activity, vol. 2004, no. 2 (2004), pp. 101–210.

22. Quoted in Jeremy Grant, "Learn from Fall of Ancient Rome, Official Warns U.S.," Financial Times, August 14, 2007, p. 4.

23. See, e.g., Alice Rivlin and Isabel Sawhill, "Growing Deficits and Why they Matter," in Rivlin and Sawhill, eds., Restoring Fiscal Sanity 2005: Meeting the Long-Run Challenge (Washington, DC: Brookings Institution, 2005); William Gale and Peter Orszag, "The Budget Outlook: Analysis and Implications," Tax Notes, October 6, 2003, pp. 145-57; or Gale and Orszag, "Budget Deficits, National Savings, and Interest Rates." If the United States borrows the full amount abroad, and there are no effects on the interest rates at which it can borrow, then there is no displacement effect, and the only costs to GDP are the direct costs already estimated. But national income is still lower, as we shall see next. The studies referred to above reflect an attempt to calculate empirically the extent of displacement, taking into account that some of the deficit is, at the margin, financed abroad.

24. Assuming that (over the period) the $2 trillion deficit reduces investment by 60% (cf. the discussion below), private investment is reduced by $1.2 trillion. With a multiplier of 1.5, the reduction in aggregate demand is $1.8 trillion; with a more realistic multiplier of 2, the reduction is $2.4 trillion. If the war expenditures have a multiplier of 1.1, the $1.4 trillion of war expenditures increases aggregate demand (and output) by $1.54. Thus, the net reduction in output is between $240 billion and $840 billion. The midpoint in this range is around $500 billion, somewhat greater than the number we have used in our "expenditure-switching" methodology. A third methodology focuses on marginally balanced budgets, where taxes are assumed to increase to cover the additional government expenditures. There is little evidence, however, that the Bush administration ever tried to finance extra expenditures through increased taxes. Even if it had, the short-run effects would be similar, as the increased taxes lead to lower consumption—in this scenario, the Iraq war crowds out consumption, which again has a much higher multiplier than war expenditures. However, the long-run effects would be much less.

25. This is the estimate used by the Joint Economic Committee, based on estimates provided by the Bush administration’s Council of Economic Advisers, Economic Report of the President (2003), pp. 54–55. It is within the range of the numbers estimated in the studies cited above.

26. For a broader discussion of discount rates, see the Appendix on page 216.

27. For instance, if we assume, as before, that the investments yield a real return of only 7 percent, and the benefits are discounted back at the rate of 1.5%, and if we note that the real payments are only $30 billion, then the value of the loss in future output from one year’s taxes is $14 billion, and year after year, this amounts to $933 billion. Furthermore, these estimates do not even include the knock-on effects of the lower tax revenues from the displaced investment. Two trillion dollars is a large number—and it can have large consequences.

28. Investments in government research have been shown to have much higher rates of return. The standard cutoff for government projects is 7%, so that average returns should be considerably in excess of 7%. Because raising taxes is costly, there is a general consensus among economists that in the public sector, investment is constrained, and so the value of the lost output is in fact greater than the value of the investment itself. A relatively modest investment in levees in New Orleans would have saved hundreds of billions of dollars.

29. In 2007, there were 116 million households—Selected Characteristics of Households, U.S. Census Bureau, Current Population Survey, 2007, Annual Social and Economic Supplement, Table HINC-01.

30. And the sources of the cost may differ; that is, in some estimates, there are greater short-run multiplier effects, in others, greater private or public investment displacement effects, and in still others, greater losses from increased foreign indebtedness. The short-run costs are less sensitive to the choice of discount rates than the long-run costs.

31. War at Any Cost? But we emphasize that we believe that the committee’s number is very low. They reached it using a discount rate of 3%. If our analysis is correct, and the appropriate discount rate is 1.5%, then the value of the lost output (as they project it) is twice that number, or $2.2 trillion. Of the array of numbers, the one that we think constitutes the most realistic estimate of the overall macroeconomic costs is that derived by assuming deficit financing, with 40% financed abroad, with interest payments financed by crowding out public investment, a 7% return of displaced private or public investment, and a 1.5% discount rate, based on a conservatively estimated approximate $1.5 trillion (present value) debt-financed operational budget. The present discounted value of future lost output is then $7 trillion. The results are robust: almost any plausible set of assumptions yields a cost in excess of the $1.1 billion budgetary impact we have used in our estimates.

32. In chapter 2, we noted that many economists believe that the interest costs of the war should not be added to the direct expenditures, but that it is appropriate to calculate the opportunity costs, what would have happened to the economy had we not gone to war and financed it by increased deficits. The calculations reported here are our attempt to provide a conservative estimate of these opportunity costs.

33. Personal correspondence with Robert Westcott. A primary explanation of this poor performance is the heightened uncertainty associated with soaring fiscal and trade deficits and rising oil prices.

34. Mortgages where interest payments vary as market interest rates change. With interest rates at an all-time low in the early years of the decade, this meant that individuals could afford much larger houses than they otherwise would have considered. But almost surely, interest rates would rise from these low levels (real interest rates in this period, taking into account inflation, were negative); and, with variable rate mortgages, as they rose, many households would predictably face problems. What was predicted has now happened. Yet on February 23, 2004, Alan Greenspan pointed out that "many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade"—"Understanding Household Debt Obligations," Remarks by Alan Greenspan at the Credit Union National Association 2004 Governmental Affairs Conference, Washington, DC, February 23 (http://www.federalreserve.gov/boardDocs/speeches/2004/20040223/default.htm).

35. In the third quarter of 2005, the personal savings rate was–0.5%, and from the first quarter of 2005 through the second quarter of 2007, the rate was below 1%—Bureau of Economic Analysis, Department of Commerce, http://www.bea.gov/briefrm/saving.htm.

36. It is estimated that more than 2.2 million Americans will lose their homes—and all of the money they have put into them—to foreclosure—Ellen Schloemer, et al., "Losing Ground: Foreclosures in the Subprime Market and Their Cost to Homeowners," Center for Responsible Lending, December 2006. In the United States, there were 635,159 filings for foreclosure in the third quarter of 2007, up 30% from the previous period—Dan Levy, "U.S. Home Foreclosures Doubled in the Third Quarter," Bloomberg News, November 1, 2007.

37. The subprime borrowers, most of whom were financially unsophisticated, may not have fully understood this, especially given the encouragement received from those who were supposedly financially sophisticated. But it is harder to understand the failings of the regulators.

38. Some might argue that these problems are not the result of the Iraq war as such, but of the way the war was financed, and of accompanying monetary and fiscal policies. Earlier, we encountered a similar argument in discussing the deficits, and said that similar points could be raised about many other aspects of the war: they are not the inevitable result of the war but of the particular way in which it was conducted. But the analysis of this chapter shows that any way the war was financed would have had adverse macroeconomic consequences. Different ways of financing the war affect the timing of the impact. The monetary policies may have hidden the impacts in the short run and shifted the burden to later years. Had the United States not confronted, for instance, the dampening effects of higher oil prices, the Fed would not have been able or willing to lower interest rates as much as they did, and there would have been less profligate borrowing.

39. The magnitude of the boost that this borrowing gave to the economy is highlighted by the size of the refinancing of mortgages and the amount of money taken out to finance consumption. Net mortgage equity withdrawals are estimated to have ranged between $500 bn–$750 bn in the years 2003–06, with a significant fraction (around one half) of these amounts going into consumption—See Alan Greenspan and James Kennedy, "Sources and Uses of Equity Extracted from Homes," Federal Reserve Finance and Economics Discussions Series (FEDS) No. 2007-20, March 2007. The positive stimulus from this increased consumption more than offsets the effects we have depicted here—but, as we have emphasized, the increased indebtedness will lead (or is already leading) to problems down the line.

40. Of course, just as Johnson and Nixon could have pursued alternative policies for financing the Vietnam War, the Bush administration could have pursued other policies that would not have left the legacy of debt: e.g., it could have shifted the burden of taxation more to upper-income individuals. While the adverse long-run effects would have been less, it would have been hard to avoid them totally, as we have emphasized.

41. And our conservative scenario does not even include any estimate of the costs of the legacy of debt of the federal government.

42. This is another example in which the Bush administration tried to misuse data to shape public opinion. In 2003, it put out statistics purporting to show a decline in terrorism—presumably as a result of the war against terrorism. In fact, a closer look at the correct numbers showed exactly the opposite, as Professor Alan Krueger of Princeton University pointed out, much to their chagrin. Alan Krueger and David Laitin, " ‘Misunderestimating’ Terrorism," Foreign Affairs (September–October 2004).

43. The higher oil prices resulting from the war have substantially increased these transportation costs.

Chapter 6: Global Consequences

1. Office of the UN High Commissioner on Refugees, "UNHCR Doubles Budget for Iraq Operations," news release, July 12, 2007, http://www.unhcr.org/cgi-bin/texis/vtx/media?page=home&id=469630434 (accessed on December 2, 2007).

2. A survey conducted by UNHCR in Damascus showed that 76% of Iraqi refugee children were not in school, many of them for two or three years—Ibid.

3. Ibid.

4. Jennifer Pagonis, spokeswoman for UNHCR, news release "The Iraq Situation: UNHCR Cautious About Returns," November 23, 2007. The report noted that some Iraqis were returning from Syria, but for reasons not related to security conditions. The majority said they were returning because they are running out of money, or because their visas have expired. However, on a positive note, the report noted that this was the first time in several years that Iraqis were even discussing the possibility of returning.

5. Dale Gavlak, "Jordan Appeals for Help in Dealing with Iraqi Refugees," The Washington Post, July 27, 2007, p. A16.

6. About $70 million of the $123 million 2007 budget is supposed to be paid by the United States—"UNHCR’s Annual Programme Budget 2007," UN General Assembly, A/AC.96/1026, September 1, 2006, at http://www.unhcr.org/excom/EXCOM/44fe8cb52.pdf; and UNHCR, "UNHCR Doubles Budget for Iraq Operations."

7. Martin A. Weiss, "Iraq’s Debt Relief," CRS report for Congress, April 21, 2006. Because the United States had already written off most of the debt, the budgetary cost to the United States of its debt forgiveness was only $360 million. Other countries that forgave Iraq’s debt included: Japan, $4.1 billion; Russia, $3.45 billion; France, $3 billion; and Germany, $2.3 billion (all excluding interest). Under traditional rules, Iraq would not have been eligible for debt relief because of its large oil reserves, but the Bush administration pushed for a revision of the rules. (The debt forgiveness was conducted through the "Paris Club," an informal group of eighteen major creditor countries that from time to time reschedule or forgive debts owed to them by developing countries.)

8. O’Hanlon and Campbell, Iraq Index, December 3, 2007.

9. The Economist Intelligence Unit estimates 2003 GDP per capita at $2,469, about 7% of that of the United States—"Country Report: Iraq," November 2007.

10. O’Hanlon and Campbell, Iraq Index, December 3, 2007, p. 20.

11. We focus here on the numbers killed or injured. But large numbers have been "injured" in other ways, such as extended periods of imprisonment. For instance, in August 2007, 23,000 Iraqis were in U.S. custody (up more than 25% from a year earlier, and more than 50% from June 2006) and another 37,000 in Iraqi custody (almost double the number a year earlier). In July 2007, U.S. and Iraqi government officials reported that since March 2003, an estimated 44,000 suspected Iraqi insurgents or sectarian killers previously detained had been released—O’Hanlon and Campbell, Iraq Index, p. 22. Another 19,000 insurgents had been killed—Jim Michaels, "Thousands of Enemy Fighters Reported Killed," USA Today, September 27, 2007, p. A1. But these numbers raise many questions. The International Crisis Group (ICG) estimates that there are approximately 5,000 to 15,000 insurgents in Iraq—In Their Own Words: Reading the Iraqi Insurgency, Middle East Report No. 50, February 15, 2006. The Iraq Index estimates have hovered in the 15,000–20,000 range, far less than the total numbers in prison/killed. If these numbers are correct, it is clear that many of those in prison are almost surely not part of the insurgency. More recent numbers for the insurgency size suggest that the numbers have increased substantially—the Iraq Index now puts the number of Sunni insurgents alone at around 70,000, though the number may include non-operational supporters. This means that the insurgency has recruited more than we have killed—O’Hanlon and Campbell, Iraq Index, October 29, 2007, p. 26.

12. Iraq Coalition Casualty Count, http://icasualties.org/oif/IraqiDeaths.aspx (accessed November 14, 2007). Other sources give slightly different numbers.

13. O’Hanlon and Campbell, Iraq Index, October 1, 2007, p. 11. There is some good news: the number of recorded deaths declined beginning in August 2007.

14. In October 2006, they reached 3,709.

15. Of the 34,000 physicians at the beginning of the war, 17,000 have left, 2,000 have been killed, and 250 have been kidnapped—O’Hanlon and Campbell, Iraq Index, December 3, 2007, p. 43.

16. In 2000, some 140,000 cases of cholera worldwide, resulting in approximately 5000 deaths, were reported to WHO; Africa accounted for 87% of these cases—World Health Organization Statistical Information System (WHO SIS). In 2006, there were 234,349 cases and 6,303 deaths in Africa, of which 70% were in Angola, Sudan, and Djibouti. In 2006, there were 2,472 reported cases in Asia, including 161 cases in China (two deaths), 1939 in India (three deaths), and three other deaths reported in Malaysia and the Philippines—WHO, 2006 Cholera Annual Report, Weekly Epidemiological Record No. 31, August 3, 2007.

17. In 2003, there were 73 cases were reported—WHO statistics, 2003.

18. WHO, Epidemic and Pandemic Alert and Response Report, "Cholera in Iraq" Update 3, October 3, 2007 (http://www.who.int/csr/don/2007_10_03/en/index.html).

19. Ibid.

20. Gilbert Burnham, et al., "Mortality After the 2003 Invasion of Iraq: A Cross-Sectional Cluster Sample Survey," The Lancet, vol. 368, no. 9545 (October 21, 2006), pp. 1421–28.

21. The study compared the number of deaths that one would have expected—on the basis of prewar mortality data—with the number of deaths on the basis of the higher after-war mortality data. The difference was 654,965, with a range of 392,979 to 942,636 (the 95% confidence interval). A more recent study, based on survey data, estimated the number of violent deaths in the first three years and three months of the war at 151,000—a tenfold increase in the prewar rate. The study also found that the war led to an almost doubling in overall death rates. Iraq Family Health Survey Study Group, "Violence-Related Mortality in Iraq from 2002 to 2006." New England Journal of Medicine, January 31, 2008, pp. 484–93. The fact that even after only four years of conflict, some 26% of Iraqis reported experiencing the murder of a family member or relative, and, outside of the Kurdish areas, far fewer than half had experienced neither a murder nor a kidnapping of a family member, relative, or friend lends credence to these high numbers—"Public Attitudes in Iraq; Four Year Anniversary of Invasion," survey conducted by Opinion Research Business, March 2007 (www.opinion.co.uk).

22. The pace of killing accelerated in the months following the survey, but there is some evidence that since the summer of 2007, it has been somewhat reduced. It is hard, accordingly, to predict what will happen in 2008 and 2009. But note that the "excess deaths" include not only those dying from violence but also from malnutrition, disease, lack of access to medical care, etc. Moreover, we have arbitrarily used a cutoff date of March 2010; more realistically, the problems are likely to persist for years beyond. In short, while one cannot predict with certainty whether the eventual numbers will exceed, or be less than, the 1.2 million estimated, the likelihood is that over the entire period of this study, from the beginning of the war to 2017, the numbers will very probably exceed our estimate of 1.2 million.

23. That so much of Iraq’s middle class has also departed does not bode well for its future. Cf. chapter 1.

24. Comprehensive Report of the Special Advisor to the Director of Central Intelligence on Iraq’s WMD, September 30, 2004, p. 207 (https://www.cia.gov/library/reports/general-reports-1/iraq_wmd_2004/index.html).

25. O’Hanlon and Campbell, Iraq Index, December 3, 2007, p. 40.

26. Nationwide, matters are somewhat better: prewar, there were only 4–8 hours of electricity; by November 2007, it was up to 12.9 hours—Ibid., p. 36. The most current data on unemployment are from the Iraq Index, which continues to show unemployment rates between 25% and 40% (that is, as many as two out of five Iraqis may be unemployed—in spite of the fact that more than 2 million have already left the country). Different data sources suggest different magnitudes of decline of GDP. Based on Economist Intelligence Unit data, we estimate a decline of 13% between 2002 and 2006; based on IMF estimates, there is a smaller, 8.3% decline. There is continuing controversy over 2007 growth. The World Bank and IMF suggest that 2007 growth may be sufficiently great to bring Iraq to where it was before the war. The estimates in the Iraq Index for 2007 growth suggest that even by the end of 2007, GDP was lower—by 5–10%—than its prewar level. But it should be clear that this is not because the economy is performing well; rather, it is because the price of oil—the country’s main product—has been booming. Even though crude oil exports are down by some 25% from prewar levels (with a great deal of variability month to month), revenues are up. And even though exports from September 2004 to October 2007 increased by only 10%, revenues increased two and a half times—O’Hanlon and Campbell, Iraq Index, November 29, 2007, pp. 34–35.

27. Ibid, p. 34.

28. Ibid, p. 53

29. Alan Beattie and Charles Clover, " ‘Surprise’ Revamp for Iraq’s Economy," Financial Times, September 22, 2003, p. 1. Other goods faced a nominal 5% tariff. These policies—the sudden privatization and liberalization of an economy—are referred to as "shock therapy." In the early nineties, the IMF encouraged the countries in transition to engage in "shock therapy." Today, there is broad consensus that shock therapy failed, and that countries such as Hungary, Poland, and Slovenia, countries that took the gradualist approach to privatization and the reconstruction (or, in many cases, the construction for the first time) of their institutional infrastructure, managed their transitions far better than those that tried to leapfrog into a laissez-faire economy. The shock therapy countries saw incomes plunge and poverty soar. Social indicators, such as life expectancy, mirrored the dismal GDP numbers. More than a decade after the beginning of the transition, many of the shock therapy post-Communist countries haven’t even returned to pretransition income levels. Worse, the prognosis for establishing stable democracies and the rule of law in most of shock therapy countries looks bleak. If Bush or his advisers had paid attention to these historical experiences, they would have been more cautious in urging this failed strategy upon Iraq.

30. For instance, the Iraqi constitution placed restrictions on foreign ownership of certain parts of the Iraqi economy and deemed essential services protected and not able to be privatized. However, Bremer’s new law permitted complete foreign ownership of Iraqi companies and assets that have been publicly owned. Article 43 of the 1907 Hague Convention "Regulations" states that the occupying power must "take all the measures in his power to restore, and ensure, as far as possible, public order and safety, while respecting, unless absolutely prevented, the laws in force in the country." See also Shirley Williams—"The Seeds of Iraq’s Future Terror," The Guardian (London), October 28, 2003, p. 22.

31. Rajiv Chandrasekaran, Imperial Life in the Emerald City: Inside Iraq’s Green Zone, (New York: Alfred A. Knopf, 2006), p. 126.

32. Linda Bilmes, "Civil Service Has Morphed into U.S. Inc.," Los Angeles Times, July 18, 2004, p. M1.

33. U.S. contractors with cost-plus contracts did not, of course, have to worry about their costs. But not all contractors had these contracts. And interestingly, even many contractors with cost-plus contracts preferred to import workers into Iraq. Perhaps they realized that their overall costs were being scrutinized: if they were going to be lax on their costs, it was better to do so with the pay of U.S. employees, including their executives, or in some of their other subcontracts. Worries about which Iraqis could be trusted also played a role, increasingly so as the insurgency grew.

34. Of course, given the high price of oil, there is considerable interest in investing in Iraq’s oil fields; but oil companies have demonstrated a willingness to go almost anywhere in the world so long as they can get the oil at a low enough price. They are willing to bear the risk. This should not be viewed as indicative of economic success.

35. There are scenarios in which one could have seen their economy expand markedly. Assume, for instance, that one takes seriously our conservative calculation that at least $35 of the $90 or more per barrel price of oil is a result of the increase in demand from China and elsewhere in the world. Clearly, the world might have responded by a "deal" in which Iraq could have expanded its production considerably, with some of the money used to pay back its debts and some of the money going to food and medicine for Iraq. Higher oil prices and increased output would have led to a boom in the Iraqi economy—instead of the disaster that emerged. With a GDP as low as it was at the beginning of the war, even Iraq’s complete destruction would have added only a limited number to our tally—highlighting in a way the magnitude of these losses from the Iraqi perspective.

36. Samuel P. Huntington, The Clash of Civilizations and the Remaking of World Order (New York: Simon & Schuster, 2006).

37. "Operation Iraqi Freedom," White House news release, March 27, 2003. There seems to have been some disingenuousness in the statistics describing the "coalition of the willing" (as in other areas of the Iraq war). The exact number of countries contributing troops is certainly markedly less than forty-nine—only four countries participated in the invasion, and of the forty countries that seem to have contributed support (in the widest sense, including logistical support), eighteen have now withdrawn, including Tonga’s forty-five troops and Iceland’s two. Moldova’s support has dropped from a peak of twenty-four to eleven and Latvia’s from a peak of one hundred thirty-six to three. At President Bush’s request, in May 2005, Congress created a $200 million Coalition Solidarity Fund that supports coalition partners in Afghanistan and Iraq. For example, Estonia received $2.5 million in Coalition Solidarity Fund money to support its troops—about forty in Iraq and eighty in Afghanistan. Albania, with its 120 or so troops in Iraq and 35 or so in Afghanistan, received $6 million, as did the Czech Republic, which has roughly 100 troops in Iraq and 60 in Afghanistan—Patricia Weitsman, "The High Price of Friendship," New York Times, August 31, 2006, p. A1.

38. A total of 173 U.K. troops through November 11, 2007, and 133 troops of other nationalities—Hanlon and Campbell, Iraq Index, December 3, 2007, p. 18.

39. Since the bulk of the Coalition forces are from the U.K, and since, at current exchange rates, differences in incomes are relatively small, the adjustments to take into account differences in living standards is relatively small, under 20%. We have conservatively assumed that the cost of a serious injury is, on average, 20% of a VSL, and that there are twice as many serious injuries as fatalities.

40. Some of the costs may be lower because of differences in per capita income; on the other hand, many of our allies may provide better disability benefits for their veterans, as well as more extensive public health care.

41. Joe Sestak, "Iraq and the Global War on Terror," 2006, at http://www.sestakforcongress.com/media/pdf/sestak_defense_060309.pdf (accessed December 6, 2007).

42. Providing in some years over 90% of the world’s supply—UN Office of Drugs and Crime, "The Opium Economy in Afghanistan: An International Problem," New York, 2005.

43. Total International Security Assistance Force (ISAF) troop strength as of December 2007 was 41,700, with thirty-nine nations contributing. Contingents were led by the United States (15,038), the United Kingdom (7,753), Germany (3,155), Canada (1,730), Italy (2,358), the Netherlands (1,512), Turkey (1,219) and Poland (1,141). Additionally, approximately 7,000 U.S. troops are deployed under Operation Enduring Freedom, bringing the total of foreign troops to above 50,000—International Security Assistance Force, "ISAF Placemat," December 5, 2007, at http://www.nato.int/isaf/docu/epub/pdf/isaf-placemat.pdf.

44. "Afghanistan Army Needs 200,000 Troops to Assure Long-term Stability," Associated Press, December 3, 2007.

45. "Suicide Bomber Attacks Afghan Soldiers in Bus; At Least 13 Killed," Associated Press, December 6, 2007.

46. The British ruled Iraq (then called Mesopotamia) under a League of Nations Class A mandate when the Ottoman Empire was divided in 1919 by the Treaty of Sèvres following World War I. Mesopotamia was granted independence in 1932. During World War II, when Iraq sided with the Axis powers, Britain invaded Iraq again, fought a brief war, then reoccupied the country.

47. The United Kingdom contributed 46,000 troops, including army, navy and air force, out of a total Coalition force of 467,000—U.K. Ministry of Defence, "Operations in Iraq: First Reflections Report," July 2003 (http://www.mod.uk/NR/rdonlyres/0A6289F6-898B-44C5-9C9D-B8040274DC25/0/opsiniraq_first_reflections_dec03.pdf).

48. William Mathew, University of East Anglia, School of History, August 20, 2007, "Parliamentary Rubber-Stamping: The Military Costs of War in Iraq and Afghanistan, 2001–2007." See also Iraq Analysis Group, "The Rising Costs of the Iraq War," March 2007, which estimates that UK £5.4 billion was spent by the Reserves from 2001–02 through 2005–06 plus £1.08 billion from the Ministry of Defence, for a total of £6.27 through 2006. The total to date would be this sum plus the 2006–07 amount.

49. Jane Perlez, "Britain to Halve Its Force in Iraq by Spring of ’08," New York Times, October 9, 2007, p. A1.

50. Operation Herrick (Afghanistan) Casualty and Fatality Tables, October 7, 2001–October31, 2007, Ministry of Defence, Defence Analytical Services Agency; and Operation Telic (Iraq) U.K. Military and Civilian Casualties, January 1, 2003–October 31, 2007, Ministry of Defence, Defence Analytical and Services Agency.

51. Under Secretary of State Derek Twigg, speech to the Confederation of British Service and Ex-Service Organisations (COBSEO) Annual General Meeting, October 25, 2007. British veterans are entitled to a wide range of benefits, including appliances, convalescence care, home nursing equipment, hospital traveling expenses, housing adaptation grants, prescription refunds, access to private or overseas care in some cases, treatment allowances, and priority treatment. Those receiving a war pension may qualify for clothing, comforts, home attendant, invalidity allowances, funeral expenses, mobility supplements, and other benefits. The amounts vary depending on the particular case.

52. Ned Temko and Mark Townsend, "The Fresh Agonies of Our Returning Soldiers," The Observer, March 11, 2007.

53. See, e.g., Matthew Hickley, "British Legion Accuses Defence Chiefs of Hiding True Scale of War Casualties," Daily Mail (London), March 17, 2007, p. 6. The article reports on "growing complaints over the treatment of injured troops on NHS [National Health Service] wards have become a major embarrassment to the MoD"; problems at Selly Oak in Birmingham, the hospital where most casualties arrive; and the shutdown of the extensive network of dedicated military hospitals that once existed across the country.

54. Jonathan Ungoed-Thomas, "Focus: Our Forgotten Victims," Sunday Times (London), March 11, 2007.

55. Mr. Caplin reported £3.3 billion in payments to private health care providers in the U.K. in 2002–03—Question 118799 from Mr. Hoban, Commons Written Answers, Hansard 2003. (Hansard is the traditional name for the printed transcripts of parliamentary debates in Britain.)

56. Chief of the General Staff’s Briefing Team Report, 2007, reported by Sean Rayment, "Army Chief: Our Forces Can’t Carry On Like This," Sunday Telegraph (London), November 18, 2007, p. 1.

57. Lords Hansard, November 22, 2007.

58. "Recruitment and Retention in the Armed Forces," Report by the Commons Public Accounts Committee, and survey by the National Audit Office, reported in The Times (London), July 3, 2007.

59. The 3rd Battalion Parachute Regiment (routinely shortened to "3 Para") is an elite parachute battalion in the British army.

60. Lords Hansard, November 22, 2007.

61. Gordon Brown, Statement of October 8, 2007. General Peter Wall, deputy chief of defense, reportedly told the House of Commons Defence Committee afterwards that military planners did not think it was possible to draw down numbers below the 2,500 mark, and that additional numbers could even be sent in as reinforcements if the security situation deteriorates—See Kim Sengupta, "Military Planners Doubtful of Early Iraq Withdrawal," The Independent (London), October 24, 2007, p. 8.

62. Keith Hartley, "The Economics of the Iraq Conflict," VOX: The Periodical of Politics, Economics, and Philosophy, vol. 1, no. 2 (May 2006).

63. House of Commons Defence Committee, "Cost of Operations in Iraq and Afghanistan," Winter Supplementary Estimate, 2007–2008, November 27, 2007.

64. Although some U.K. estimates of VSL are much larger, in the range of £8.8 million, 1990 prices—W. S. Siebert and X. Wei, "Compensating Wage Differentials for Workplace Accidents: Evidence for Union and Nonunion Workers in the U.K.," Journal of Risk and Uncertainty, vol. 9, no. 1 (July 1994), pp. 61–76.

65. Energy Information Administration (EIA), "International Petroleum Monthly," September 20, 2007. OECD Europe includes the EU-15, which comprises Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom, plus the Czech Republic, Hungary, Iceland, Norway, Poland, Slovakia, Switzerland, and Turkey.

66. Ibid.

67. As we noted in chapter 5, the effects are expected to last much longer, at least through 2015, but we have only included cost increases through 2010 in our realistic-moderate scenario. Of course, the high prices will have some effect on oil demand, moderating its growth or even leading to reduced consumption. Still, by leaving out any impact going forward and including only $10/ barrel, we have vastly understated the oil impacts.

68. In contrast to the U.S. Federal Reserve Board, which focuses on growth and employment as well as inflation. And unlike the United States, where attention is centered on a measure of "core inflation," i.e., inflation exclusive of the highly volatile agriculture and energy sectors, Europe focuses on the overall inflation rate, to which rising oil prices have contributed.

69. Total Central Government Debt (percent of GDP), 2005, OECD Statistics Catalogue, 2007.

70. Ed Crooks and Matthew Green, "Soaring Oil Bills Put Pressure on Africa’s Fragile Economies," Financial Times, December 29, p. 3.

71. A point that was emphasized to Stiglitz in meetings with the leaders of several of these countries.

72. "America’s Image in the World: Findings from the Pew Global Attitudes Project," Remarks of Andrew Kohut to the U.S. House Committee on Foreign Affairs, hearing on "Global Polling Data on Opinion of American Policies, Values, and People," Subcommittee on International Organizations, Human Rights, and Oversight, March 14, 2007.

73. Pew Research Center, "Global Unease with Major World Powers: Rising Environmental Concern in 47-Nation Survey," Pew Global Attitudes Project, June 27, 2007 (http://pewglobal.org/reports/pdf/256.pdf).

74. Kohut, "America’s Image in the World: Findings from the Pew Global Attitudes Project." These results are corroborated by other surveys. A BBC World Service poll (undertaken by the Program on International Policy Attitudes, and commissioned by the Toronto Star and La Presse in Canada, The Guardian in Britain, Reforma in Mexico, and Haaretz in Israel), surveyed 1,000 people in each country at the end of October 2006. Most striking, a majority of people in Britain, Canada, and Mexico consider President George W. Bush a threat to world peace, along with North Korea’s Kim Jong Il and Iran’s Mahmoud Ahmadinejad—Associated Press, "International Poll Ranks Bush a Threat to World Peace," International Herald Tribune, November 3, 2006 (http://www.iht.com/articles/ap/2006/11/03/america/NA_GEN_World_Views_of_Bush.php).

75. Kohut, "America’s Image in the World: Findings from the Pew Global Attitudes Project."

76. This is a point that even conservative commentators have emphasized. Anne Applebaum, for instance, noted that "Countries that would once have supported American foreign policy on principle, simply out of solidarity or friendship, will now have to be cajoled, or paid, to join us. Count that—along with the lives of soldiers and civilians, the dollars and equipment—as another cost of the war"—Anne Applebaum, "Why They Don’t Like Us," The Washington Post, October 2, 2007, p. A19.

Chapter 7: Exiting Iraq

1. "Corruption Perceptions Index 2007," Transparency International, December 2007.

2. Damien Cave, "Nation Staggered by Extent of Theft and Corruption," New York Times, December 2, 2007, p. A1.

3. Tina Susman, "Insurgents Attack Sleeping Villagers in Iraq," Los Angeles Times, December 2, 2007, p. A13.

4. Tina Susman, "Solidify the Gains, U.S. Tells Iraqis," Los Angeles Times, December 3, 2007, p. A3.

5. www.icasualties.org

6. Ahmed Ali and Dahr Jamail, "Iraq Slashes Food Rations, Putting Lives at Risk," Inter Press Service, December 27, 2007.

7. General Eric Shinseki, among others, had urged a much larger initial force. He was overruled by Secretary Rumsfeld and other civilians. It is widely known that Colin Powell privately advocated a higher number of troops at the outset.

8. Interestingly, the vast majority of Iraqis (80%) believe that the U.S. government plans to have a permanent presence in Iraq—O’Hanlon and Campbell, Iraq Index, December 3, 2007, p. 54.

9. A poll conducted by Opinion Research Business, March 2007, showed that 53% believed that it would get a great deal better, more than twice the number who thought it would get worse; and among the Shia, the imbalance was even larger, with 62% believing that it would get better, and only 4% that it would get worse—O’Hanlon and Campbell, Iraq Index, December 3, 2007, p. 49.

10. Survey conducted by the U.K.-based polling agency, Opinion Research Business, as reported by the BBC, "Basra Residents Blame UK Troops," December 14, 2007, at http://news.bbc.co.uk/2/hi/middle_east/7144437.stm.

11. Events in the fall of 2007 made it clear that Turkey will do what it chooses, whether we withdraw or not; it is obvious that neither the Iraqi government nor the American occupation forces can control Kurdish attacks against Turkey.

12. House Appropriations Committee Report 109-388 to accompany H.R. 4939, "Making Emergency Supplemental Appropriations for the Fiscal Year Ending September 30, 2006, and for Other Purposes," March 13, 2006.

13. These were among the reasons that President Eisenhower—who knew firsthand the horror of war—was quick to settle the Korean conflict after assuming office.

14. Iraq Study Group Report, p. 27.

15. O’Hanlon and Campbell, Iraq Index, October 1, 2007, p. 26.

16. U.S. Department of State, "Iraq Weekly Status Report," September 12, 2007.

17. O’Hanlon and Campbell, Iraq Index, December 21, 2007, p 26.

18. Economists often look to financial markets for judgments: they are "putting their money where their mouth is," in contrast to politicians, who are putting at risk other people’s money and who typically have a vested interest in persuading others, for instance, that their strategy is working. Financial markets have not been particularly favorable in their judgments on the effectiveness of the surge; in fact, Iraqi state bond prices fell, suggesting an increased probability of default. A study by Michael Greenstone of MIT showed that, correcting for other factors that might have influenced bond prices, the market decline "signaled a 40 percent increase in the market’s expectation that Iraq will default"—Michael Greenstone, "Is the ‘Surge" Working? Some New Facts," NBER Working Paper 13458, October 2007, p. 1.

19. O’Hanlon and Campbell, Iraq Index, December 3, 2007, p. 46, from a poll conducted by D3 Systems for the BBC, ABC News, ARD German TV, and USA Today, in March 2007.

20. Recent events show clearly how much what happens in the region is beyond our control. The imposition of emergency powers by General Musharraf in Pakistan has left America isolated in supporting the dictator, as democratic political forces in the country become increasingly critical. The British Commonwealth suspended Pakistan’s membership. America, which supposedly went to war to promote democracy, while it has criticized the imposition of the emergency, is left saying almost nothing about suspension of the judiciary. The assasination of Benazir Bhutto in December 2007 has shown even further the extent to which events are beyond our control. Similarly, tensions along the Iraq-Turkish border have risen to the boiling point, with Kurdish attacks and Turkish counterattacks. It is not clear that the United States and the Iraqi government can fully contain the Kurdish attacks or Turkey’s response—especially as support for America in Turkey is so low.

21. The Iraq Index, October 1, 2007, concludes that "there is…little good to report on the political front" (p. 4). Seventy-five percent of Iraqi’s rate their security position as "poor," 91% as "fair" or "poor"—Ibid., December 3, 2007, p 53. Divisions within the country are evident in response to opinion polls on Prime Minister Nouri Al-Maliki. Some 96% of Sunni’s disapprove of the way he is handling the job, while two thirds of the Shia approve—Ibid., p 47.

22. Economists refer to this problem as that of time consistency: it must still be in one’s interests to carry out threats made at one date to be executed at a later date, when that later date rolls around. In the 1990s, America threatened to impose trade sanctions on China if it did not comply with a ten-point list of demands. The threat was not time consistent: when China did not comply, it was not in the U.S. interest to impose the sanctions. China knew this, and not surprisingly, the threat was ineffective.

23. The downward spiral resulting from initial decisions is well documented in Charles Ferguson’s documentary film, No End in Sight, which won the Sun-dance Special Jury Prize in 2007, and numerous other awards.

24. In partial equilibrium economic models, the behavior of others (such as other firms) is taken as given, unaffected by the action of the firm in question.

25. By the beginning of 2006, 88% of Sunnis approved attacks on U.S.-led forces; 47% of all Iraqis did so—O’Hanlon and Campbell, Iraq Index, December 3, 2007, p. 54.

26. Even if, as we have seen, it does not fully disclose these numbers.

27. Burnham et al., "Mortality After the 2003 Invasion of Iraq: A Cross-sectional Cluster Sample Survey." This study was discussed extensively in the previous chapter.

28. We mistakenly thought that punishing those who supported the insurgency would deter individuals from joining; but as our discussion makes clear, the accuracy with which punishment is meted out matters a great deal.

29. A large number of policies served to increase the number of insurgents and their effectiveness; this increased perceptions of the likelihood of success, again reinforcing the insurgency’s actual success.

30. Rational "game theoretic" models underlay the deterrence strategies of the Cold War. It is clear that, for the most part, such models are of little relevance in a world in which one party believes in the virtues of sacrificing their own lives.

31. O’Hanlon and Campbell, Iraq Index, December 3, 2007, p. 22.

32. Dr. Salam Ismael appears alongside U.S. chief Landstuhl surgeon Dr. Gene Bolles in the independent documentary Healing Iraq: A Tale of Two Doctors, directed by Kevin Kelley (2006).

Chapter 8: Learning from Our Mistakes: Reforms for the Future

1. For a broader discussion of the failures of America’s system of checks and balances, see Frederick A. O. Schwarz, Jr., and Aziz Huq, Unchecked and Unbalanced: Presidential Power in a Time of Terror (New York: The New Press, 2007).

2. Cf. the discussion of Tony Blair’s pivotal role in chapter 6.

3. Patrick Moynihan wrote eloquently on the dangers—and abuses—of secrecy. See Daniel Patrick Moynihan, Secrecy: The American Experience (New Haven: Yale University Press 1999). America passed its Freedom of Information Act after Nixon’s abuses came to light. Sweden recognized its citizens’ "right to know" more than two hundred years ago.

4. Greg Jaffe, "Balancing Act: As Benefits for Veterans Climb, Military Spending Feels Squeeze," Wall Street Journal, January 25, 2005, p. A1.

5. There has been congressional complicity in the use of emergency supplementals: this meant that congressmen and women also could avoid voting on huge appropriations for the war. They too seemed to believe that they could gain from the reduced accountability.

6. Chief Financial Officers Act, Public Law 101-576, November 15, 1990, and Financial Management Integrity Act, Public Law 97-255, September 8, 1982.

7. Executives in publicly listed private firms have been made personally accountable for the accounts of their firms under Sarbanes-Oxley. It is striking that public officials are not held to the same degree of accountability.

8. Required by the Federal Managers Financial Integrity Act of 1982.

9. Sarbanes-Oxley imposes criminal penalties, but we would not advocate imposing criminal penalties on government officials, because they have less control over financial assets than their private sector counterparts.

10. Congress has, from time to time, faced up to these problems and tried to improve the quality of information, e.g., by creating an independent Congressional Budget Office to provide assessments of costs of administration proposals. Some earlier directors, such as Alice Rivlin and Robert Reischauer, performed their role admirably.

11. VA, "Fact Sheet: America’s Wars," and David Segal and Mady Wechsler Segal, "America’s Military Population," Population Bulletin, vol. 59, no 4 (December 2004).

12. Robert Hormats, in his excellent book The Price of Liberty: Paying for America’s Wars (New York: Times Books, 2007), explains the important role that budgetary constraints have historically played in reining in kings with imperial ambitions from waging war.

13. Dividing the $3 trillion war by the number of U.S. households implies a cost to each in excess of $25,000, for this is the burden that the average American family will face as a result of the war.

14. This proposal runs against some technical economics arguments, which contend that the cost of unusual expenditures, like wars, should be spread out over a large number of years (this is called "consumption smoothing"). In the case of a major conflagration like World War II, which was not a war of choice, these arguments are compelling. But the political economy argument for forcing those undertaking a war of choice to have to bear more of the burden of the war we find even more compelling.

15. Cf. Reform 12 on page 200.

16. Monthly claims amounts could be adjusted downward, but we should not seek to reclaim amounts already paid, even if subsequent audits suggest that lower payments are warranted.

17. National Institute of Medicine, A 21st Century System for Evaluation Veterans Disability Benefits, ed. Michael McGeary, et al. (Washington, DC: The National Academies Press, 2007).

18. According to the Homelessness Research Institute, veterans comprise 11% of the total U.S. population but 26% of the homeless population—Mary Cunningham, Meghan Henry, and Webb Lyons, "Vital Mission: Ending Homelessness Among Veterans," Homelessness Research Institute, National Alliance to End Homelessness, November 8, 2007 at http://www/naeh.org/content/ article/detail/1839.

19. Tom Philpott, "Bitter Split Over Making VA Care Open to All Veterans," Military Update, June 23, 2007.

20. Actual cutoff income levels vary according to the region of the country, but average between $35,000 and $40,000 a year.

21. Department of Veterans Affairs, "Seamless Transition Task Force Year End Report," December 2004, conducted as the "Seamless Transition of Returning Service Members Task Force" under former VA secretary Anthony Principi.

22. A National Priorities Project study shows that the number of recruits from the top quintile has declined since 2003; that in 2004, 13.1% had a high school graduate equivalency degree (not a high school diploma); and that today 26.7% have an equivalence degree (not a high school diploma)—National Priorities Project, "Military Recruiting 2006," December 2006, at http://www.nationalpriorities.org/Publications/Military-Recruiting-2006.html (accessed December 5, 2007).

23. "Declaration of Principles for a Long-Term Relationship of Cooperation and Friendship Between the Republic of Iraq and the United States of America," White House, November 26, 2007, signed by George W. Bush (President of the United States) and Nouri Kamel al-Maliki (Prime Minister of the Republic of Iraq).

Appendices

1. "Saddam’s Oil," Wall Street Journal, September 16, 2002, p. A14.

2. Bob Woodward, "Greenspan: Ouster of Hussein Crucial for Oil Security," The Washington Post, September 17, 2007, p. A3.

3. See Alan Greenspan, The Age of Turbulence: Adventures in a New World (New York: Penguin Press, 2007), p. 463.

4. Andrew E. Kramer, "Iraq, with U.S. Support, Voids a Russian Oil Contract," New York Times, November 4, 2007, p. A4.

5. Joshua Partlow, "Missteps and Mistrust Mark the Push for Legislation," Washington Post Foreign Service, September 5, 2007; p. A12, at http://www.washingtonpost.com/wp-dyn/content/article/2007/09/04/AR2007090402190.html.

6. China’s oil consumption increased by 153 million barrels in 2003, or 8%, after a 5% increase in 2002. Some oil analysts did underestimate not only oil demand in China and India but also in the United States where it increased by some 268 million barrels in 2003, or 6%, after having declined in 2002. But the Energy Information Agency model’s conservative prediction of crude oil imports in 2001 for 2003 was right on the spot, and actual consumption was markedly lower than its projections for the high growth scenario—http://tonto.eia.doe.gov/dnav/pet/hist/mttimus1A.htm, accessed on October 6, 2007.

7. That is, the costs of extraction in Iraq (apart from the security concerns), Saudi Arabia, and elsewhere in the Middle East are much lower than $20 per barrel. In fact, the extraction ("lifting") costs in Iraq, ignoring security concerns, have been estimated at as low as $1 a barrel, and elsewhere in the Middle East at under $5 a barrel (more like $1–$2.50 per barrel). At $45 to $55, there are many alternative sources (shale, tar sands) that become profitable. (Some estimates put the total costs of "melting" a gallon of oil out of the tar sands of Alberta much lower than that.) But developing these alternatives will require heavy long-term investments, and the worry is that, should some semblance of stability be restored to the Middle East, oil prices would fall, and investors would incur a loss—See Peter Huber and Mark Mills, "Oil, Oil, Everywhere…" Wall Street Journal, January 27, 2005, p. A13.

8. As we noted in note 7 of chapter 5, futures markets expect the price of oil to remain above $80 through 2015.

9. The increase in the price immediately after the war can in part be directly attributed to Iraq, as what it had been supplying to the world markets under the oil-for-food program was greatly diminished (by almost 1 million barrels a day). Oil prices had, of course, increased even before the war, in anticipation of these effects, so that the costs of the war began even before the war itself. Iraq produced 3.5 mbd in 1990, prior to the Gulf War, and is said to have one of the world’s greatest oil reserves. Prewar, it was exporting 1.7 to 2.5 mbd. Exports have varied greatly—down to 1.05 mbd in January 2006, and up to 1.42 mbd by November 2007—still below the prewar level—O’Hanlon and Campbell, Iraq Index, December 3, 2007, p. 34. There is a further aspect of oil price dynamics in which the war played a role. High oil prices sometimes induce current oil producers to produce less and even to invest less in expanding production. They realize that the demand elasticity is low (so that small reductions in supply can generate large increases in prices), and that means that they have a real incentive to restrict production; but it is often difficult for them to act as collusively as they should (from the perspective of their own interests). When oil prices are high, they have less need for further government revenues; indeed, they often face difficulties spending what they have well. It makes more sense for them to keep their resources below the ground—which may appear as the "investment" with the highest rate of return.

10. See Alan Blinder and Robert Wescott, "Higher Oil Prices Will Hurt the U.S. Economy," Unpublished paper, August 2004, based on model simulations from Global Insight, Inc., simulation results supplied August 9, 2004 (results with a monetary policy reaction function engaged and disengaged were essentially the same); and Macroeconomic Advisers, LLC, simulation results supplied August 2, 2004.

11. See International Monetary Fund, "The Impact of Higher Oil Prices on the Global Economy," December 8, 2000, prepared by Research Department staff under the direction of Michael Mussa.

12. One of the standard studies, that of James D. Hamilton—"What Is an Oil Shock?" Journal of Econometrics, 113 (April 2003), pp. 363–98—estimates that in the past a 10% increase in the price of oil has been associated with a 1.4% decrease in GDP. A $5 (20%) increase in the price of oil thus implies a lowering of GDP by 2.8%, or approximately $300 billion per year that oil prices remain at that level. A five-year price rise would generate costs of $1.5 trillion. Hamilton’s analysis is consistent with an oil price multiplier that is much larger than the earlier studies. Hamilton and Herrera’s more recent 2004 study suggests that a 10% increase in oil prices leads to a reduction in GDP of 0.5 to 0.6 percentage points, still much larger than the numbers that we use—James Hamilton and Ana Maria Herrera, "Oil Shock and Aggregate Macroeconomic Behavior: The Role of Monetary Policy," Journal of Money, Credit, and Banking, vol. 36, no. 2 (April 2004), pp. 265–86. A word of caution in using these statistical studies: Many studies of the impact of oil price increases are based on the experiences of the 1970s. The world economy has changed a great deal since then. At the time, monetarism was in fashion, and governments put a lot of emphasis on fighting the inflation caused by oil price rises. As they responded with higher interest rates and tighter monetary conditions, the economy was dampened. Today, when many countries have adopted inflation targeting, monetary policy may still significantly amplify the adverse effects of increase in the oil price (cf. the discussion below). Moreover, in some ways the economy is less dependent on oil than it was at the time of the earlier oil price shock. The result of these changes is that recent oil price increases have had less of an impact than comparable increases in the 1970s—See William Nordhaus, "Who’s Afraid of a Big Bad Oil Shock?" Paper prepared for Brookings Institution Panel on Economic Activity, September 2007.

13. Throughout the period, Europe had a high level of employment, and output was clearly below potential. So was Japan’s for most of the period.

14. As a matter of theory, policymakers could respond in ways that offset or increase the direct effect of the oil price increase. Monetary policy response is determined by two offsetting factors. The oil price increase generates some inflationary pressures, and especially among central banks focusing on inflation, this leads to higher interest rates, exacerbating the slowdown of the economy. On the other hand, if central banks focus on aggregate demand and unemployment, it is conceivable that monetary policy could offset the adverse effects of oil price increases. If they fully offset the effect, then the only effect (in the short run) would be the transfer effect described earlier. Fiscal policy (such as tax collection) typically does not adjust quickly enough to stabilize the economy, and the effect of built-in automatic stabilizers (the impetus to aggregate demand automatically provided, e.g., by increased unemployment benefits as the economy weakens)—is reflected in the multipliers discussed elsewhere. Again, there are two effects. For countries with fixed government expenditures, the increase in the oil price means that there is less to be spent on domestic goods, and that exerts a downward effect on the economy. On the other hand, for countries running active countercyclical fiscal policies, the slowdown in the economy could be offset by such policies: the government could lower taxes to boost demand. In the text, we have argued that over much of the period, the Federal Reserve seemed more focused on high unemployment and low growth than on inflation; it kept interest rates low to offset the adverse effects on the economy—with consequences that we are paying for today.

15. By contrast, in Japan, with interest rates close to zero in any case and fiscal policy stretched to its limits, probably little policy response can be attributed to the oil price increase. European policy responses contrast with those in the United States, where the aggressive lowering of interest rates meant that the U.S. economy slowed much less than it otherwise would have done. Indeed, some more recent reduced-form econometric estimates for the United States suggest a small multiplier—even as small as 1.0. But this analysis focuses only on the impacts in the short run. Aggressive monetary policy responses can offset the adverse effects, and may have done so, in the short run. There are, however, significant long-run costs of the monetary policy responses. In effect, the costs have just been postponed—and by being postponed, they may be even larger.

16. These dynamic feedbacks are even present in first-year income: increased savings this year leads to increased wealth next year, and that increased wealth leads to increased output (if output is sensitive to demand). But rational consumers will realize this—See J. Peter Neary and Joseph E. Stiglitz, "Toward a Reconstruction of Keynesian Economics: Expectations and Constrained Equilibria," Quarterly Journal of Economics, vol. 98, Supplement 1983, pp. 199–228. Consider a simple two-period model in which increased savings this period does lead to increased consumption next period. In standard elementary textbooks, which focus only on a single period, the multiplier is 1/s, where s is the savings rate; but once taxation is introduced, the multiplier becomes 1/m, where m s(1-t). But the two-period (Y₁ + Y₂) multiplier, that is the increase in GDP over both periods, associated with increased spending (say from investment) in the first period is much larger—(1 + (1+r))/m, where is the marginal propensity to consume out of wealth and r is the interest rate. In a simple life cycle model with no bequests, where the only reason to save is for consumption in future periods, 1, so the multiplier has more than doubled. The analysis here assumes that the economy is operating below its potential, that is, there is a problem of lack of aggregate demand. Some have argued that the United States was operating at close to its potential even as early as 2005. We have argued against this view; but the macroeconomic effects in a supply constrained model may not be that different. When supply constraints are binding in some periods but not others, individuals may displace consumption to periods when they are not binding; so the net effect may be not much different from that which would prevail if demand constraints were always prevailing.

17. While these models predict that the effects are not fully felt immediately, they also predict that the effects are felt even after the prices come down. Our calculations ignore the timing of the impacts. Oil price shocks have effects that are different (and presumably greater) than many other shocks, since they adversely affect all the advanced industrial countries simultaneously.

18. We even believe the very large multipliers implicit in Hamilton’s study are not implausible, especially when account is taken of potential responses from central banks.

19. 2003—6.0%, 2004—5.5%, 2005—5.1%, 2006—4.6% (average is 5.3%)—Bureau of Labor Statistics, Employment status of the civilian non-institutional population, at www.bls.gov/cps/cpsaat1.pdf.

20. In 2006, the number of workers officially unemployed was 7 million, up from 5.7 million in 2000; but in addition, 381,000 were officially categorized as "discouraged workers" (who had dropped out of the labor force, and therefore were not included), up almost 50% from 2000, and another 1.5 million were sufficiently marginally attached not to be included in the labor force (individuals who have looked for a job sometime in the prior twelve months, or since the end of their last job if they held one within the past twelve months, but were not counted as unemployed because they had not searched for work in the four weeks preceding the survey), up from 1.16 million in 2000. The numbers of those underemployed—working part time because they could not get full-time jobs—had increased almost 25%, to 2.1 million. In addition, increased numbers were on disability—above what one would have expected from the normal increase in the labor force—and many retired earlier than would have normally been expected. Slightly more than 0.5 million were in government training programs (and other government programs) and were thus not classified as unemployed; and an additional 300,000 were in jail and prison (an increase of 15% in just six years). All told, the effective unemployment rate had increased by 1.65 percentage points, almost three times the official increase (0.63 points). With a total unemployment rate (actual and disguised) of 2.5 million, it is hard to see how one could claim that the economy was running at its full potential—Computations based on the Center on Budget and Policy Priorities; the 2007 Earned Income Tax Credit Outreach Kit, the Center for Economic and Policy Research, and the Bureau of Labor Statistics.

21. According to the Bureau of Labor Statistics, while worker productivity (output per hour in the non-farm business sector) increased by 18.8% between 2001 and the third quarter of 2007, hourly compensation, adjusted for inflation, increased only around 10.5%. From the end of March 2003 to the end of September 2007, productivity increased by just over 10.7%, while hourly compensation increased by less than 7.2%.

22. This is true even with the very loose monetary policy pursued by the Fed, which, while it may have offset some of the adverse effects in the short run, seems likely to cause significant adverse macroeconomic effects in the medium run. If the official unemployment rate were reduced to 3.8%, employment would have increased by an average of some 1.5% over the period. Typically, a 1 percentage decrease in the unemployment rate leads to a 2 to 3 percentage increase in output (this relationship is known as Okun’s law, after Arthur Okun, chairman of the Council of Economic Advisers under President Johnson, and former professor of economics at Yale, who first enunciated the relationship between changes in the unemployment rate and changes in GDP). Thus, this reduction in unemployment would have resulted in an increase in annual output in the range of $338 to $506 billion, far larger than the amounts under consideration here. We have conducted a year-by-year analysis of the GDP gap, the discrepancy between actual and potential GDP, using a conservative estimate that the unemployment rate at which inflation starts to increase is 4.0% (rather than the 3.8% to which unemployment fell in the 1990s), and assuming a conservative estimate of Okun’s law (we assume a coefficient of 2, in contrast with Okun’s original estimate of 3). In every year, the GDP gap is greater than the amounts included in our analysis of the macro-impacts of the combined effects of increased oil prices and the war’s budgetary impacts under our realistic-moderate scenario. For future years (through the period in which we have calculated short-run macroeconomic impacts), we have used EIU projections.

23. See, e.g., Rebecca Rodriguez and Marcelo Sanchez, "Oil Price Shocks and Real GDP Growth: Empirical Evidence for Some OECD Countries," Applied Economics, 37 (2005), pp. 201–28.

24. Adjustment costs help explain why sharp unanticipated increases in oil prices have (proportionately) far larger negative effects than those that are smaller and have been anticipated. This would suggest that the oil price shocks associated with the Iraq war may be particularly costly—See Hillard Huntington, "Crude Oil Prices and U.S. Economic Performances: Where Does the Asymmetry Reside?" Energy Journal, vol. 19, no. 4 (October 1998), pp. 107–32, and Joint Economic Committee, War at Any Price?

25. Much of the non-investment budget of the federal government is non-discretionary. Expenditures such as Social Security and Medicare are automatic and depend simply on the number of individuals eligible for benefits. This means that as Iraq war expenditures put pressure on other aspects of government expenditures, it is investment expenditures which typically are among those most affected.

26. This is true even if there is a gap between potential and actual output. Over the long run, actual output tends to increase as potential output increases, even if there remains a gap between the two.

27. GDP does include the value of wages paid to the soldiers, but there are reasons to believe that at least substantial fractions of Reservists and National Guard soldiers see a decline in their incomes (cf. chapter 3). But even if there were no decline, wages are typically less than the value of their productivity, e.g., because of taxes, including Social Security taxes. Hence, there is a direct negative effect on GDP.

28. And we also noted that some spouses may have had to drop out of the labor force, or go into part-time employment, because of the lack of backup support from their partners.

29. This is the thrust of the "new growth economics"—See, e.g. Paul Romer, "Increasing Returns and Long-Run Growth," Journal of Political Economy, vol. 94, no. 5 (October 1986), pp. 1002–37, and Robert Lucas, "On the Mechanics of Economic Development," Journal of Monetary Economics, vol. 22, no. 1 (July 1988), pp. 3–42.

30. If the economy really were supply constrained, the absence of these workers would contribute to the appearance of bottlenecks.

31. Allen Sinai, "Wars and the Macroeconomy: The Case of Iraq," Paper presented to a meeting of the American Economic Association/Economists for Peace and Security, January 8, 2005.

32. See F. P. Ramsey, "A Mathematical Theory of Saving," Economic Journal, 38 (1928), pp. 543–59.

33. The present discounted value of lost income of an investment I yielding a return of g at a discount rate of r is Ig/r. If g r, the value of the lost income is just equal to the investment. But if, more plausibly, the discount rate is less than the opportunity cost—as it will be if there is capital taxation or constraints on investment—then the value of lost income exceeds the value of the investment itself. For instance, if g 7% and r =4% (as is the case for plausible values of capital tax rates), then the value of the lost income is 75% greater than the value of the investment itself, so that $1 trillion of forgone investment generates a lost income, in excess of the value of the investment itself, of $750 billion; if g 8% and r 4%, then the value of the lost income, in excess of the value of the investment itself, is $1 trillion.

34. For discussions of the appropriate discount rate for long-term investments, see J. E. Stiglitz, "The Rate of Discount for Cost-Benefit Analysis and the Theory of the Second Best," in R. Lind, ed., Discounting for Time and Risk in Energy Policy (Baltimore: Resources for the Future, 1982), pp. 151–204; K. J. Arrow, J. E. Stiglitz, et al., "Intertemporal Equity, Discounting, and Economic Efficiency," chap. 4 in Climate Change 1995: Economic and Social Dimensions of Climate Change, ed. J. Bruce, H. Lee, and E. Haites (Cambridge: Cambridge University Press, 1996), pp. 21–51, 125–44; and William R. Cline, The Economics of Global Warming (Washington, DC: Peterson Institute for International Economics, 1992).