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Capital Commerce
Is the Iraq War Costlier Than Doing Nothing?
November 14, 2007 12:15 PM ET | Pethokoukis, James | Permanent Link
The Democratic study on the "real costs" of the wars in Iraq ($1.3 trillion) and Afghanistan ($300 billion) from 2002 through 2008 will almost assuredly lead to a common perceptual pitfall. An explanation: Let's assume that the numbers on Iraq are more or less accurate. And let's stipulate for a moment that when you take into account "hidden costs" such as interest payments on new debt to pay for the war, the expense of long-term healthcare for our injured warriors, and the impact of higher oil prices, the total cost of Iraq is indeed twice what the White House has requested from Congress.
Should we then assume that by not waging the war, Uncle Sam would be a trillion dollars to the better? That would be a questionable assumption, a product of a sort of "static analysis" that assumes if you change one critical factor, all the rest stay pretty much the same. Professional futurists, like the ones at the Big Oil companies, know better than that. They give clients a range of scenarios based on different values for different variables. And that is also what three economists at the University of Chicago's business school did in 2006. They looked at the costs of not going to war with Iraq back in 2003. Their study instead examined the costs of containing Iraq.
Advocates for forcible regime change in Iraq expressed several concerns about the pre-war containment policy. Some stressed an erosion of political support for the containment policy that threatened to undermine its effectiveness and lead to a much costlier conflict with Iraq in the future. Others stressed the difficulty of compelling Iraqi compliance with a rigorous process of weapons inspections and disarmament, widely seen as a critical element of containment. And others stressed the potential for Iraqi collaboration with international terrorist groups. To evaluate these concerns, we model the possibility that an effective containment policy might require the mounting of costly threats and might lead to a limited war or a full-scale regime-changing war against Iraq at a later date. We also consider the possibility that the survival of a hostile Iraqi regime raises the probability of a major terrorist attack on the United States.
Factoring in all those contingencies, the authors find that a containment policy would cost anywhere from $350 billion to $700 billon. Now when you further factor in that 1) a containment policy might also have led to a higher risk premium in the oil markets if Iraq was seen to be gaining in military power despite our efforts to box it in, and 2) money not borrowed and spent on Iraq might well have been spent on something else given the White House's free-spending ways, it's easy to see that doing a cost-benefit analysis on "war vs. containment" might have left administration officials with no clear-cut economic answer. (The GOP counter to the Dem proposal can be found here.)...
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We also consider the consequences of the war-versus containment choice in two other respects: the economic well-being of Iraqis, and the loss of Iraqi lives. Based on our analysis, we conclude that the war will lead to large improvements in the economic well-being of most Iraqis relative to their prospects under the policy of containment. This conclusion follows from some basic observations. First, the Iraqi economy was in terrible condition before the war, and it would have remained in a sorry state under the policy of containment. Second, the regime of Saddam Hussein was an economic failure of tremendous proportions. The available evidence suggests that real income per capita fell by roughly 75 percent as a consequence of Saddam's misrule. In addition, much of Iraq's greatly diminished output was diverted to an oversized military, an apparatus of terror and repression and the relentless glorification of Saddam. Third, the removal of sanctions, the expansion of petroleum exports, large-scale reconstruction aid, and the reintegration of Iraq's economy into the world economy provide a strong basis for economic gains--even in a society with serious institutional weaknesses. If, over the course of a generation, Iraqis recover even half of the economic losses they suffered under Saddam Hussein, then they will be significantly better off in material terms as a consequence of forcible regime change.
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