Greg Young Aditya Mehta Eric Garcia The Economic

Greg Young Aditya Mehta Eric Garcia The Economic Cost of the Iraq War 6/13/2021 California Lutheran University: School of Business 1

Objectives To gain an understanding of the true costs of the Iraq War to the United States through the framework of an economist. Develop a respectable value for budgetary costs. Define and put a monetary value on the Social Costs. Macroeconomic costs- Oil, Interest on Debt, etc. Develop an understanding of what the United States is giving up by pursuing war in Iraq. Expenditure Switching. 6/13/2021 California Lutheran University: School of Business 2

Objectives Cont. What does the war mean to an average American Citizen. Is there relief in sight based on the next presidential election. The United States dealings with other foreign nations. (Trade and Security Issues) Budget Deficit 6/13/2021 California Lutheran University: School of Business 3

Budgetary Costs to Government Spending to date – $646 billion, Congressional Budget Office Total estimated spending thru 2017 Best case $1. 7 trillion. More probable $2. 7 trillion. Congressional Research Service estimate 6/13/2021 California Lutheran University: School of Business 4

Percentage change in DOD spending. (year to year) Estimates in Percentage change per year. Budget Change for DOD Spending 120 111 100 80 60 50 40 33 16 20 0 Budget Change 0 0 0 2001 2002 2003 2004 2005 2006 2007 Source: CRS report for Congress, updated February 8 th 2008 6/13/2021 California Lutheran University: School of Business 5

Operating costs The monthly “burn rate” or the war has been rising 4. 4 billion in 2003 8 billion in 2006 12 billion in 2007 to an estimated 16 billion in 2008 6/13/2021 California Lutheran University: School of Business 6

Predicted spending on wartime operations (thru 2017) Conservative estimate 521 billion Realistic moderate estimate billion 6/13/2021 913 California Lutheran University: School of Business 7

Military equipment replacement and repair Conservative estimate 132 billion Realistic moderate estimate 404 billion Sunk costs ? 6/13/2021 California Lutheran University: School of Business 8

Additional Cost of Health Care Increasing demand for VA support Source: U. S. House of representatives budget committee, based on U. S. department of veterans affairs. 6/13/2021 California Lutheran University: School of Business 9

Disability Pay Best case $422 billion Long-term $717 billion 31% of soldiers who have returned filed disability claims and expected to increase Corporations are required to put money away, why shouldn’t the government? 6/13/2021 California Lutheran University: School of Business 10

Cost of demobilization We face a rapidly rising monthly cost to fund the war currently over 12 billion/month. Estimated 16 billion/month in 2008 Better estimates will follow upcoming presidential election 6/13/2021 California Lutheran University: School of Business 11

Suggested Strategies: Obama: Bring home 2 regiments of troops per month. All combat brigades home within 18 months Cease building of permanent bases Protect embassy and diplomats Keep selected troops in Iraq to carry out targeted strikes on al Qaeda Aggressive diplomatic efforts will be made. Provide at least $2 billion to expand services to Iraqi refugees. 6/13/2021 California Lutheran University: School of Business 12 http: //www. barackobama. com/issues/iraq/

Suggested Strategies: Clinton Phased Redeployment. draw up a clear, viable plan to bring our troops home starting with the first 60 days of office provide the highest quality health care Securing Stability American aid efforts direct aid to the Iraqi people Diplomatic Initiative regional stabilization group develop and implement a strategy to stabilize Iraq 6/13/2021 California Lutheran University: School of Business 13 http: //www. hillaryclinton. com/issues/iraq/

Suggested Strategies: Mc. Cain Bolster Troops on the Ground Greater military commitment is necessary to achieve long-term success in Iraq Implement New Counterinsurgency Strategy More robust counterinsurgency strategy American forces must clear areas occupied by insurgents, stay, and hold these areas Strengthen the Iraqi Armed Forces and Police accelerate training and equipping of Iraqi armed forces 6/13/2021 California Lutheran University: School of Business 14 http: //www. johnmccain. com/Informing/Issues/fdeb 03 a 7 -30 b 0 -4 ece-8 e 34 -4 c 7 ea 83 f 11 d 8. htm

6/13/2021 California Lutheran University: School of Business 15

Increase Defense Spending Increased Recruitment Benefits - New sign up bonus $50000 - Illegal immigrants sign up; $20000 quick ship bonus. citizenship for members of immediate family. Increased Reenlistment Benefits -Experienced military personnel get up to $150000 for reenlistment. 6/13/2021 California Lutheran University: School of Business 16

Budgetary Costs Budgetary and Social Economic Costs Total Operations to Day $646 $521 $913 $422 $717 $132 $404 $1, 721 $2, 680 $295 $415 Total Budgetary and Social Costs $2, 016 $3, 095 Total Budetary, social, and $2, 203 $4, 995 $613 $816 $2, 816 $5, 811 (Spent to date) Future Operations (Future Operations only) Future Veterans' Costs (Hidden Medical+ Veterans Disability + Veterans Sosical Security) Other Military Costs/Adjustments (Hidden Defence + Future Defence reset + Demobilization, less no-fly-zone savings) Total Budgetary Costs Social Costs Total Macroeconomic Costs (Without Interest) Interest costs Total (With Interest) 6/13/2021 California Lutheran University: School of Business 17

Interest Payments on Debt US indebtedness at end of 2008 excess of $900 billion Including cumulative interest on the debtfinanced war borrowing, exceeds $1. 1 trillion 6/13/2021 California Lutheran University: School of Business 18

Economic Cost of Military and Contractor Fatalities 3, 988 US soldiers have been killed in combat Government pays $500, 000 to families (death benefit + life insurance) Value of a Statistical Life (VSL) $7. 2 million Rough estimate of loss to U. S. economy is $28 billion due to loss of labor resource 6/13/2021 California Lutheran University: School of Business 19

Economic Cost of the Seriously Injured 29, 395 soldiers have been injured Value of Statistical Injury (VSI) – lost to the economy $6. 1 million each 6/13/2021 California Lutheran University: School of Business 20

Accelerated Depreciation of Military Hardware Going through equipment six to ten times faster than normal peacetime rate. $250 -375 billion to rebuild the entire armed services 404 Billion - Stiglitz 6/13/2021 California Lutheran University: School of Business 21

Macro-economic effects of War in Iraq Adverse effects Higher oil prices Growing deficits Expenditure switching towards Iraq Supply-side effects of lost resources Iraq war expenditures crowd out government investments. 6/13/2021 California Lutheran University: School of Business 22

Security Individuals are risk aversive 9/11 Safety Trade barriers 6/13/2021 California Lutheran University: School of Business 23

Oil A significant proportion of the increase in the price of oil resulted from the war Yearly Basket Price 1995 16. 86 1996 20. 29 1997 18. 68 1998 12. 28 1999 17. 48 2000 27. 6 2001 23. 12 2002 24. 36 2003 28. 1 2004 36. 05 2005 50. 64 2006 61. 08 2007 69. 08 2008 6/13/2021 92. 15 © 2008 Organization of the Petroleum Exporting Countries California Lutheran University: School of Business 24

Direct costs to the U. S. economy A realistic moderate estimate assumes that $10 per barrel is the price increase due to the war & and the duration of these high oil prices is 8 years. The U. S. imports around 5 billion barrels a year. A $10 per barrel increase translates into an extra expenditure of $50 billion per year. Over the 8 years projected in the realistic moderate estimate, that is $400 billion extra expenditure on oil imports. 6/13/2021 California Lutheran University: School of Business 25

Oil import multiplier and the GDP Spending $50 billion more on oil every year leads to a reduction in American GDP & incomes. The extent to which a change in oil imports translates into a change in total output is the oil import multiplier. The realistic moderate estimate uses a multiplier of 2 GDP has gone down $50 billion x 2 or $100 billion, for 8 years – and we arrive at a total estimated reduction in GDP of $800 billion 6/13/2021 California Lutheran University: School of Business 26

Expenditure multiplier and the GDP Increased government spending of say $1 million, increases national output by an amount greater than $1 million, by a factor which is called the expenditure multiplier. Multipliers used to measure the effect of spending on GDP differ according to the type of spending. In a realistic moderate estimate we use a multiplier of 0. 4 Switching just $800 billion over the 15 years we project we will be engaged in Iraq, to domestic investment would result in an increased GDP of $800 billion x 0. 4 or $320 billion 6/13/2021 California Lutheran University: School of Business 27

Macro-economic Counterfactuals No fly zone no longer enforced Money to be spent on schools, transportation going to war Alternative Ways to Spend the $432 Million We Spend In Iraq Every Day People Insured through SCHIP Current Potential Enrollment Enrolemnt Per Year 6, 400, 000 513, 000 909, 200 58, 000 5, 000 163, 700 Border Patrol Agents 12, 300 10, 700 State and Local Police 580, 700 14, 200 6, 800, 000 9, 300 Head Start Participants Pell Grants Teachers 6/13/2021 California Lutheran University: School of Business 28

Macroeconomic Costs Cost in Billions Oil Price Impact Budgetary Impact Subtotal Macro Economic Costs 6/13/2021 Best Case Macroeconomic Costs Realistic- Moderate $187 $0 $800 $1, 100 $187 $1, 900 California Lutheran University: School of Business 29

Summary Best case $1. 7 trillion More probable $2. 7 trillion Health Care: Long-term $717 billion Demobilization: $12 Billion per month Future Operations: $717 Billion U. S. Debt after 2008: reaching $900 billion 6/13/2021 California Lutheran University: School of Business 30

List of Omitted Costs of planning war All costs borne by other countries, including Iraq All costs of increased insecurity Consequences of Loss of credibility Value of reduced capability of responding to national security threats elsewhere in the world Value of reduced capability of responding to domestic situations (Hurricane Katrina) 6/13/2021 California Lutheran University: School of Business 31

Sources http: //www. hillaryclinton. com/issues/iraq/ http: //www. barackobama. com/issues/iraq/ http: //www. johnmccain. com/Informing/Issues/ Stiglitz, Joseph, and Bilmes, Linda. The Three Trillion Dollar War. New York London: W. W. Norton & Company, 2008. Organization of the Petroleum Exporting Countries, 2008 Wallsten, Scott. “The economic cost of War in Iraq”. AEI Brookings Joint Center for Regulatory Studies, “ 2005” Congressional Budget Office, http: //www. cbo. gov 6/13/2021 California Lutheran University: School of Business 32