A Yale economics professor criticized the administration of President George W. Bush for underestimating the economic costs of the war in Iraq at a presentation in Temple University’s Kiva auditorium last Thursday.
Speaking before an audience of hundreds of Temple faculty and students, William Nordhaus, who is also an economic advisor to the Congressional Budget Office (CBO), said that most analyses of the war costs “fail to take into account non-military factors.”
“When most people think of what the war costs they don’t consider indirect costs,” said Nordhaus, who published a study late last year on the economic effects of a war in Iraq.
“These include factors such as rising oil costs, drops in consumption spending and investment spending and unemployment.”
Nordhaus characterized war as having the opposite effects of sound economic policy.
“Economics is like pizza,” he said. “You take little bits from here and there: people, raw materials, method of production, and you come up with some fantastic pizza. It’s about making things better for people.”
By contrast, Nordhaus said, war is a negative-sum game.
“You put in little bits from here and there and then you blow everything up.”
Nordhaus also warned that the United States was not well prepared for the costs and complications of rebuilding Iraq after the war.
“We’re very good at military action, but we’re not so good at nation building,” he said.
“We’ve got a Department of Defense, but we don’t have a department of occupation and peacekeeping.”
The CBO has estimated that military costs for the war with Iraq would fall somewhere between $50 billion and $140 billion, Nordhaus said.
From the conduct of the war so far, he forecasted actual military costs “would be about mid-range between those two figures.”
But Nordhaus warned that research conducted before and after the war started indicated that rebuilding Iraq and other indirect costs could be much more expensive.
He said that a worst-case scenario is one in which the U.S. economy continues to sputter after the war, terrorist attacks drive up the costs of homeland security and a U.S. occupation force is stuck in Iraq for at least a decade.
The final costs of the war could run as high as $2 trillion over 10 years.
“That comes to about $20,000 per average American household over a 10-year period,” Nordhaus said.
Nordhaus dismissed the Bush Administration’s estimate that rebuilding Iraq and installing a new Iraqi regime would take anywhere from half a year to eighteen months.
“That estimate is wildly optimistic,” Nordhaus said. He said that it had taken much longer to rebuild Japan, Germany and Korea after wars had engulfed those nations.
“We were in Japan for seven years, we were in Germany for eight years and we’re still in Korea today,” he said.
“Rebuilding Iraq isn’t going to happen overnight.”
Nordhaus also took issue with the idea that the war would lead to an economic boom, as was the case with World War II.
He said military spending no longer makes up a significant portion of the Gross Domestic Product (GDP), which is the total goods and services produced by the country, and would therefore not produce a widespread economic boost.
“World War II led to tremendous growth in terms of our [GDP],” he said. “But after the first Persian Gulf War we actually had a recession.”
The Temple University audience did not question any of Nordhaus’ statements, but one student asked if the economic costs were worth toppling Saddam Hussein’s regime.
“I did not come up with a cost-benefit analysis,” Nordhaus replied.
“But I haven’t seen enough evidence either way to determine whether the costs of the war are worth it.”
Jerome Montes can be reached at email@example.com.