The Financial Cost of War

Steve Inskeep talks with Douglas Holtz-Eakin, former director of the Congressional Budget Office, about the cost of war in Iraq. Holtz-Eakin says fighting terrorism in Iraq and Afghanistan is costing the United States $6-7 billion each month.

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STEVE INSKEEP, host:

A couple of noted economists put out a report this week on the cost of the war in Iraq, and that report says staying in Iraq through the year 2010 would cost the US more than $1 trillion, which is a long way from the Bush administration's original estimate of around $50 billion for the war. We discussed the difference and other matters with Douglas Holtz-Eakin, who has reviewed every dollar earmarked for Iraq for three years. Until last month, he directed the non-partisan Congressional Budget Office.

Mr. DOUGLAS HOLTZ-EAKIN (Council on Foreign Relations): I have the dubious honor of presiding over the largest dollar deficits in federal history, and I promise you, it's not my fault.

INSKEEP: But you did count the numbers as they went along.

Mr. HOLTZ-EAKIN: But I did add them up.

INSKEEP: Now a huge part of that red ink, of course, has the war in Iraq. Can you tell me how much this war is costing us?

Mr. HOLTZ-EAKIN: The budget shows 6 or $7 billion each month for the war in Iraq and Afghanistan, and that's, I think, the appropriate tip-of-the-iceberg estimate that anyone would use.

INSKEEP: Tip of the iceberg?

Mr. HOLTZ-EAKIN: Past that, wars impose other costs. It means that our economy shifts toward the production of war material and things like that, and that's a--we give up something in the process.

INSKEEP: What about health care for returning soldiers, an expense that might last for years, if not decades?

Mr. HOLTZ-EAKIN: We've seen very sharp increases in veterans' costs, really for two reasons. One is there are more soldiers injured in the conduct of their duties. And we have also seen during the course of Iraq and Afghanistan conflicts. The Congress enhanced the benefits.

INSKEEP: This week, some economists from Harvard and Columbia universities put out a study estimating the total cost of the war, assuming the war goes for several more years, as everyone expects, that it will end up costing between 1 and $2 trillion--with a `T.' Does that sound like a reasonable number?

Mr. HOLTZ-EAKIN: It depends how much you bake into that cake. No one anticipates that we will maintain the same presence in Iraq that we have now for three more years, simply because the toll on the troops has simply been too great. So it's hard for me to imagine you'll get 1.3 trillion in checks written out of the federal Treasury. Depends how they did the study.

INSKEEP: You were working at the White House for a couple of years and then you were, the last three years, working for Congress. Had your bosses in either place made sufficient allowance for what the war seemed likely to cost and what it has been costing over time?

Mr. HOLTZ-EAKIN: The real dollars showed up when I was at the Congressional Budget Office, and we've done a series of estimates of likely costs of prosecuting the war. So there have been attempts in the congressional budgeting to build into the budget resolution, the formal planning document, allowances for costs of war in Iraq and Afghanistan. On the other hand, the administration's submissions continue to leave this out of the base budget and ask for the money on a supplemental basis.

INSKEEP: Why would you do that? Why would you take it out of the regular budget process and periodically come back to Congress and look for another huge chunk of money?

Mr. HOLTZ-EAKIN: Not a question I can really answer. You'd have to ask the White House.

INSKEEP: Is there...

Mr. HOLTZ-EAKIN: They've taken that strategy...

INSKEEP: Is there a reasonable financial reason to do it?

Mr. HOLTZ-EAKIN: I don't think you want to defend this on the basis of plain vanilla budgeting. Plain vanilla budgeting says you have a reasonable expectation you'll spend money, and one could build into a budget an allowance for emergencies. The difficulty is if you assign precision to the number. You're essentially saying, how many troops will we have over there and for how long? I'm sure that's something that would be politically difficult. One's defense of using supplementals is you never put it into the base budget and so you don't have to worry about taking it back out.

INSKEEP: Lawrence Lindsey, who worked for the White House before the war, forecast a war that would cost a couple of hundred billion dollars, which now appears to have been low, but at the time he was criticized, and administration officials instead said no, 50 or $60 billion. Was 50 or $60 billion ever a plausible figure for the cost of this war?

Mr. HOLTZ-EAKIN: I honestly don't know. I'm not an expert in military operations, so if you had asked me the question in 2001, you know, suppose we went to Afghanistan and Iraq, what would it cost? I don't know how exactly I would have put a price tag on it. Certainly we heard some estimates from military experts that a bigger troop force would be needed, and you hear criticism now that we didn't have enough bodies on the ground. If people would have known that beforehand, then the cost clearly would have been higher.

INSKEEP: Could any economist honestly have looked at the numbers, looked at the different scenarios and said, `$50 billion and we're done'?

Mr. HOLTZ-EAKIN: I think $50 billion would have gotten us in and out.

INSKEEP: Had it been a very quick war.

Mr. HOLTZ-EAKIN: Right. In fact, the war was relatively quick.

INSKEEP: The invasion...

Mr. HOLTZ-EAKIN: Yes.

INSKEEP: ...the occupation.

Mr. HOLTZ-EAKIN: So I guess what I'm trying to say is I don't know where you draw the line on war and what comes after it. And I don't know how I would have made that decision before the fact. Looking back now, it seems easy to say, `Oh, my God, that was too low.' But among experts in that area, there is a deeply held belief that occupation is a very troop-intensive operation.

INSKEEP: Which means a very costly...

Mr. HOLTZ-EAKIN: And it will be more costly, no doubt.

INSKEEP: Douglas Holtz-Eakin, a former adviser to the Bush administration. He spent three years directing the Congressional Budget Office and is now a policy expert at the Council on Foreign Relations.

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