Iraq War Will Cost More Than $2 Trillion

By Linda Bilmes and Joseph E. Stiglitz
The Milken Institute Review

Friday 03 November 2006

Two scholars, one a Nobel Prize winner, revisit their estimate of the true cost of the Iraq war - and find that $2 trillion was too low. They consider not only the current and future budgetary costs, but the economic impact of lives lost, jobs interrupted and oil prices driven higher by political uncertainty in the Middle East.

In January, we estimated that the true cost of the Iraq war could reach $2 trillion, a figure that seemed shockingly high. But since that time, the cost of the war - in both blood and money - has risen even faster than our projections anticipated. More than 2,500 American troops have died and close to 20,000 have been wounded since Operation Iraqi Freedom began. And the $2 trillion number - the sum of the current and future budgetary costs along with the economic impact of lives lost, jobs interrupted and oil prices driven higher by political uncertainty in the Middle East - now seems low.

One source of difficulty in getting an accurate picture of the direct cost of prosecuting the war is the way the government does its accounting. With "cash accounting," income and expenses are recorded when payments are actually made - for example, what you pay off on your credit card today - not the amount outstanding. By contrast, with "accrual accounting," income and expenses are recorded when the commitment is made. But, as Representative Jim Cooper, Democrat of Tennessee, notes, "The budget of the United States uses cash accounting, and only the tiniest businesses in America are even allowed to use cash accounting. Why? Because it gives you a very distorted picture."