Economics of the Iraq War

The first Gulf War was interesting in many ways. Baudrillard called it a war that "did not take place," suggesting that it was closer to a media event than a true conflict. It certainly showed the power of computers and television, and above all, of economic influence. It is one of the few wars to have come close to paying for itself.

The second Gulf War is, of course, very different, and a bustling cottage industry attempts to quantify its consequences. A sign in my liberal hometown (the crowd laughs with Stephen Pinker as he details Republican efforts to scrub profanity from the airwaves) records the number of dead U.S. servicemen, but the last I checked they had given up. As for Iraqis, an influential Lancet study estimated roughly 600,000 additional deaths as a result of the war, a figure that may be too high by a factor of four. By way of comparison, anywhere from 100,000 to 1.5 million Iraqis died as a result of economic sanctions and perhaps a million died during the Iran-Iraq conflict.

Accounting for the economic costs is also popular; though the fate of the Iraqis is given far less weight. Stigliz's estimate is fairly popular--.7-1.5 billion dollars directly, from which it's a hop skip and a jump to 3 trillion in total, indirect costs. There are many things to fault in his accounting--can we really blame the bulk of increase in oil prices entirely to the Iraq War?--but that's a post of its own. However, one of the biggest exclusions is the opportunity cost, since leaving Saddam in power to the present day presents unique costs. The AEI estimates long run net economic costs, taking some of this into account, on the order of one trillion.

One interesting perspective comes from Murphy and company, which tries to explicitly compare containment with intervention from a point of view before the conflict. I'm skeptical of anything Murphy says as he's a genius capable of convincing me of anything, but he makes a good case that containing Hussein bears costs too.

Whatever the case, ex post costs turn out to be large. But though budgeted costs by the Treasury are on the order of two or three hundred million dollars, there appears to be a relative comfort with the costs of Iraq--compare with Black Hawk Down for instance. I certainly expected a greater outcry, but costs relative to GDP and previous wars are low and are either borne by a disproportionate few or financed through debt. Plus there's no chance of a cost-benefit calculation when terrorism is involved.

One lingering puzzle I have is the relative lack of money on politics. By all accounts, this is going to be the most expensive election on record, with campaign spending of, what, 500 million? That's nothing compared with the magnitude of the costs of Iraq. Or of higher corporate profits resulting from the war--Halliburton went from a net loss in 2002 to profits of 3.5 billion in 2007, and also saw around a 300% appreciation in stock price. They would have done well regardless, but clearly the vast discretion given to the Presidency means that getting your guy to the top moves around billions if not trillions of dollars--yet the office itself goes for mere millions? Maybe campaign donations are stricter than I thought, or people are failing to coordinate their political efforts, or money is simply not that valuable in winning an election. Either way, some market is inefficient, and there's probably a successful trading strategy somewhere. At the very least, there should be more bad fiction on this subject beyond The Manchurian Candidate.