US BUSINESS AND IRAQ WAR

US business and Iraq war

US business and Iraq war

Introduction

Expert opinion varies wildly on the relevance of U.S. war spending in Iraq to the U.S. business. At the most basic level, economists disagree whether these wars will have a positive or negative long-term economic impact. Total military spending (including spending on support and operations inside Iraq, as well as operations tied to the “Global War on Terrorism,” all of which are budgeted separately from the U.S. defense budget) remains relatively modest compared to historical levels. During World War II, defense spending rose to levels as high as 37.8 percent of U.S. gross domestic product (GDP). Even including war-spending supplements and terror-war expenditures on top of the normal defense budget, today that number comes to about 6.2 percent of GDP. While experts say the total costs of the wars should thus be kept in perspective, they also point to collateral economic consequences beyond direct expenditures. These include international debt accrued to sustain war costs, volatility on the global oil markets in part attributed to violence in Iraq, and the geopolitical uncertainty engendered by a war that remains widely unpopular outside the United States. These things, experts say, all come with economic consequences of their own.

Total cost of the Iraq war

Following 9/11, the United States launched new military endeavors on a number of fronts, including in Iraq. Estimates for the total costs of these efforts remain sharply politicized. Costs have consistently outpaced government predictions. In September 2002, White House economic adviser Lawrence B. Lindsey estimated the cost of invading Iraq could amount to between $100 billion and $200 billion. Mitch Daniels, who at the time headed the White House budget office, called Lindsey's estimates “very, very high” (www.msnbc.msn.com) and said the war would cost $50 billion to $60 billion; shortly thereafter, Lindsey left the White House. In January 2004, a report from the Congressional Budget Office (CBO) estimated the total costs of Iraq's reconstruction would land between $50 billion and $100 billion. But in October 2007, the CBO said in a new report that the United States had already spent $368 billion on its military operations in Iraq. The CBO now estimates the costs of the Iraq war, projected out through 2017, might top $1 trillion, plus an extra $705 billion in interest payments, and says the total cost of Iraq could reach $2.4 trillion (www.msnbc.msn.com).

Some experts say even those figures underestimate the true price tag. Joseph E. Stiglitz, the Nobel Prize-winning economist and former economic adviser to President Bill Clinton, projected in a 2006 paper with another economist, Linda Bilmes, that the total macroeconomic costs of the Iraq war itself would surpass $2 trillion. This analysis differs from that of the CBO, which measured only the war's budgetary impact. Stiglitz and Bilmes also predict a somewhat higher budgetary impact than the CBO did, though the CBO responds at the end of its 2007 report that some of the difference may be accounted for by factors ...