Monday, January 09, 2006

The Costs of War

How many lives were lost this weekend?

When we economists talk about costs we mean the value of what is lost because resources were used in one way rather than in the next-best alternative use. This meaning of costs is not the one accountants use. Accountants are interested in only those costs that the institution they work must pay. Economists tend to be interested in the costs of some activity wherever they happen to fall, or at least in a wider definition of costs than the accounting one. For example, while a U.S. government cost accountant would calculate the costs of taking care of the war-wounded based on what the government will pay, an economist would add the costs that the rest of the society must pay towards the treatment of the wounded veterans.

Linda Bilmes and Joseph E. Stiglitz have written an article about the costs of the Iraq war using the economic definition of costs. Their final conservative estimate puts the total measurable costs of the Iraq war at one trillion dollars. One trillion dollars. And this estimate does not include the value of foreign lives lost or any of the costs falling to Iraqis or other nationals but Americans. It also doesn't include some hard-to-measure costs of the war. How would you put a monetary value on the loss of American prestige in the world?

All this means that the trillion dollar total is an underestimate of the true costs of the war. But it is a much bigger estimate than anything the U.S. government has come up with. The government estimates would not take into account the costs that fall to the families of the military personnel, for example, or the impact the war has had on oil prices. Or the economic value of the American lives lost in the war. Neither do the government estimates appear to allow for the future costs of this war, in the form of greater health care costs of the wounded veterans. But even allowing for these differences the administration estimates are still far too low. The important question to ask is whether the administration even knew what the true costs of the war would be, even if costs are given the narrower accounting definition. And if they did know the magnitude of these costs, did they believe that the war was worth them? And how do they justify spending like this while trying to make the tax breaks for the wealthy permanent?