Wednesday, August 25, 2010

The Costs of War

Copyright, The New York Times Company

As the midterm elections approach, Democrats and Republicans will each try to convince us that their party wasted less tax money than the other. The stimulus law and the Iraq War will be favorite examples. So let’s examine some economic principles for valuing the human cost of the war.

More than 4,000 American troops have been killed in Iraq and more than 30,000 wounded. And these totals do not begin to count the human losses among the civilian personnel and the militaries of other countries.

At the same time, the Congressional Budget Office recently estimated that the United States Treasury spent about $700 billion on military operations in Iraq between 2003 and 2010. That total includes some human costs but not others.

The United States has an all-volunteer military, which means that personnel chose to serve their country and accept the risks associated with a military occupation, in exchange for salary, training, benefits and any nonpecuniary benefits that military service offers.

It would be double-counting if a monetary value of military deaths and injuries were added to the military payroll, unless a subtraction were made for the hundreds of thousands of troops who received salaries and benefits and finished their Iraq duty without injury. At the same time, the time frame for American military expenditures should reflect the time frame over which personnel are compensated for the risks they accept.

Some commentators
have noted that future Department of Defense expenditures on Iraq veteran health and other benefits should be counted, and I agree. Part of the deal for volunteer military personnel is that they and their family will receive retirement benefits and help with medical expenses for the rest of their lives. In this regard, expenditures on the Iraq war could continue for more than 100 years, although presumably at a reduced rate (the last Civil War veteran’s widow died in 2004!).

When the Iraq war began, active and reserve military personnel were obligated to serve when asked, a consequence of the salary and other benefits they had been receiving since enlisting in the military. For this reason, expenditures to compensate for the human cost of the Iraq war began actually before the war did, in 2003, and probably date back to the 1980s.

None of this counts the lost lives and health among Iraqis. So it’s clear that the Iraq war cost more than the $700 billion so far tabulated by the Congressional Budget Office.


Ryan Edwards said...

Dear Prof. Mulligan,

(Forgive me for posting this; I tried emailing, but it looks like your inbox is full.)

I liked your recent economix blog post on war costs. I'm a big fan. I recently put out an NBER wp that looks at historical war costs and reports that between a half and a third of the present value of costs are long-lived payments to veterans and survivors, and that the half-lives of payments have averaged 30 years.

One of the big questions this raised in my mind was what the broader macro effects of war spending really was, since it's clearly not (or at least, no longer) a temporary shock as in the standard textbook model.


Ryan Edwards

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