Greg Young Aditya Mehta Eric Garcia 5/24/20151California Lutheran University: School of Business.

Greg YoungAditya MehtaEric Garcia

04/18/23 1California Lutheran University: School of Business

To gain an understanding of the true costs of the Iraq War to the United States through the framework of an economist. Develop a respectable value for budgetary costs. Define and put a monetary value on the Social

Costs. Macroeconomic costs- Oil, Interest on Debt, etc.

Develop an understanding of what the United States is giving up by pursuing war in Iraq. Expenditure Switching.


What does the war mean to an average American Citizen. Is there relief in sight based on the next

presidential election. The United States dealings with other

foreign nations. (Trade and Security Issues)

Budget Deficit

04/18/23 California Lutheran University: School of Business 3

Spending to date – $646 billion, Congressional Budget Office

Total estimated spending thru 2017 Best case $1.7 trillion. More probable $2.7 trillion. Congressional Research Service

estimate


Estimates in Percentage change per year.

Source: CRS report for Congress, updated February 8th 200804/18/23 5California Lutheran University: School of Business

The monthly “burn rate” or the war has been rising 4.4 billion in 2003 8 billion in 2006 12 billion in 2007 to an estimated 16 billion in 2008


Conservative estimate 521 billion

Realistic moderate estimate 913 billion


Conservative estimate 132 billion

Realistic moderate estimate 404 billion


Sunk costs ?

Increasing demand for VA support

13,822

56,703

103,544

155,272

209,308

263,000

2003 2004 2005 2006 2007 2008

VA Health Care Each Year, FY 2003-2008

Source: U.S. House of representatives budget committee, based on U.S. department of veterans affairs.


Best case $422 billion

Long-term $717 billion

31% of soldiers who have returned filed disability claims and expected to increase

Corporations are required to put money away, why shouldn’t the government?


We face a rapidly rising monthly cost to fund the war currently over 12 billion/month. Estimated 16 billion/month in 2008

Better estimates will follow upcoming presidential election


Obama: Bring home 2 regiments of troops per month. All combat brigades home within 18

months Cease building of permanent bases Protect embassy and diplomats Keep selected troops in Iraq to carry out

targeted strikes on al Qaeda Aggressive diplomatic efforts will be made. Provide at least $2 billion to expand

services to Iraqi refugees.http://www.barackobama.com/issues/iraq/04/18/23 12California Lutheran University: School of Business

Phased Redeployment. draw up a clear, viable plan to bring our

troops home starting with the first 60 days of office

provide the highest quality health care Securing Stability

American aid efforts direct aid to the Iraqi people

Diplomatic Initiative regional stabilization group develop and implement a strategy to

stabilize Iraqhttp://www.hillaryclinton.com/issues/iraq/04/18/23 13California Lutheran University: School of Business

Bolster Troops on the Ground Greater military commitment is necessary to

achieve long-term success in Iraq Implement New Counterinsurgency

Strategy More robust counterinsurgency strategy American forces must clear areas occupied

by insurgents, stay, and hold these areas Strengthen the Iraqi Armed Forces and

Police accelerate training and equipping of Iraqi

armed forceshttp://www.johnmccain.com/Informing/Issues/fdeb03a7-30b0-4ece-8e34-4c7ea83f11d8.htm04/18/23 14California Lutheran University: School of Business


Increased Recruitment Benefits - New sign up bonus $50000- Illegal immigrants sign up;

$20000 quick ship bonus.citizenship for members of

immediate family. Increased Reenlistment Benefits

-Experienced military personnel get up to $150000 for reenlistment.



Budgetary and Social Economic Costs

Total Operations to Day $646 $646 (Spent to date)

Future Operations $521 $913 (Future Operations only)

Future Veterans' Costs $422 $717 (Hidden Medical+ Veterans

Disability + Veterans Sosical Security)

Other Military Costs/Adjustments $132 $404 (Hidden Defence + Future Defence

reset + Demobilization,

less no-fly-zone savings)

Total Budgetary Costs $1,721 $2,680

Social Costs Total $295 $415

Total Budgetary and Social Costs $2,016 $3,095

Total Budetary, social, and $2,203 $4,995 Macroeconomic Costs

(Without Interest)

Interest costs $613 $816

Total (With Interest) $2,816 $5,811

US indebtedness at end of 2008 excess of $900 billion

Including cumulative interest on the debt-financed war borrowing, exceeds $1.1 trillion


3,988 US soldiers have been killed in combat

Government pays $500,000 to families (death benefit + life insurance)

Value of a Statistical Life (VSL) $7.2 million

Rough estimate of loss to U.S. economy is $28 billion due to loss of labor resource


29,395 soldiers have been injuredValue of Statistical Injury (VSI) – lost

to the economy $6.1 million each


Going through equipment six to ten times faster than normal peacetime rate.

$250-375 billion to rebuild the entire armed services

404 Billion - Stiglitz


Adverse effects Higher oil prices Growing deficits Expenditure switching towards Iraq Supply-side effects of lost resources

Iraq war expenditures crowd out government investments.


Individuals are risk aversive9/11SafetyTrade barriers


© 2008 Organization of the Petroleum Exporting Countries

Yearly Basket Price

1995 16.86

1996 20.29

1997 18.68

1998 12.28

1999 17.48

2000 27.6

2001 23.12

2002 24.36

2003 28.1

2004 36.05

2005 50.64

2006 61.08

2007 69.08

2008 92.15

A significant proportion of the increase in the price of oil resulted from the war


A realistic moderate estimate assumes that $10 per barrel is the price increase due to the war & and the duration of these high oil prices is 8 years.

The U.S. imports around 5 billion barrels a year.

A $10 per barrel increase translates into an extra expenditure of $50 billion per year.

Over the 8 years projected in the realistic moderate estimate, that is $400 billion extra expenditure on oil imports.


Spending $50 billion more on oil every year leads to a reduction in American GDP & incomes.

The extent to which a change in oil imports translates into a change in total output is the oil import multiplier.

The realistic moderate estimate uses a multiplier of 2

GDP has gone down $50 billion x 2 or $100 billion, for 8 years – and we arrive at a total estimated reduction in GDP of $800 billion


Increased government spending of say $1 million, increases national output by an amount greater than $1 million, by a factor which is called the expenditure multiplier.

Multipliers used to measure the effect of spending on GDP differ according to the type of spending.

In a realistic moderate estimate we use a multiplier of 0.4

Switching just $800 billion over the 15 years we project we will be engaged in Iraq, to domestic investment would result in an increased GDP of $800 billion x 0.4 or $320 billion


No fly zone no longer enforced Money to be spent on schools,

transportation going to war


Alternative Ways to Spend the $432 Million We Spend In Iraq Every Day

Current Potential

Enrollment Enrolemnt

Per Year Per Year

People Insured through SCHIP 6,400,000 513,000

Head Start Participants 909,200 58,000

Pell Grants 5,000,000 163,700

Border Patrol Agents 12,300 10,700

State and Local Police 580,700 14,200

Teachers 6,800,000 9,300

Cost in Billions Best Case Realistic- Moderate Macroeconomic Costs Oil Price Impact $187 $800 Budgetary Impact $0 $1,100 Subtotal Macro Economic Costs $187 $1,900


Best case $1.7 trillion More probable $2.7 trillion

Health Care: Long-term $717 billionDemobilization: $12 Billion per

month Future Operations: $717 BillionU.S. Debt after 2008: reaching $900

billion


Costs of planning war All costs borne by other countries,

including Iraq All costs of increased insecurity Consequences of Loss of credibility Value of reduced capability of responding

to national security threats elsewhere in the world

Value of reduced capability of responding to domestic situations (Hurricane Katrina)


http://www.hillaryclinton.com/issues/iraq/

http://www.barackobama.com/issues/iraq/

http://www.johnmccain.com/Informing/Issues/

Stiglitz, Joseph, and Bilmes, Linda. The Three Trillion Dollar War. New York London: W.W. Norton & Company, 2008.

Organization of the Petroleum Exporting Countries, 2008

Wallsten, Scott. “The economic cost of War in Iraq”. AEI Brookings Joint Center for Regulatory Studies, “2005”

Congressional Budget Office, http://www.cbo.gov04/18/23 32California Lutheran University: School of Business

Greg Young Aditya Mehta Eric Garcia 5/24/20151California Lutheran University: School of Business.

Documents

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iraq war

conservative estimate