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The Economic Costs of the Iraq War: An Appraisal Three Years after the Beginning of the Conflict


Linda Bilmes


Harvard University - Harvard Kennedy School (HKS)

Joseph E. Stiglitz


Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

January 2006

KSG Working Paper No. 06-002

Abstract:     
Three years ago, as America was preparing to go to war in Iraq, there were few discussions of the likely costs. When Larry Lindsey, President Bush's economic adviser, suggested that they might reach $200 billion, there was a quick response from the White House: that number was a gross overestimation. Deputy Defense Secretary Paul Wolfowitz claimed that Iraq could "really finance its own reconstruction," apparently both underestimating what was required and the debt burden facing the country. Lindsey went on to say that "The successful prosecution of the war would be good for the economy." Many aspects of the Iraq venture have turned out differently from what was purported before the war: there were no weapons of mass destruction, no clear link between Al Qaeda and Iraq, no imminent danger that would warrant a pre-emptive war. Whether Americans were greeted as liberators or not, there is evidence that that they are now viewed as occupiers. Stability has not been established. Clearly, the benefits of the War have been markedly different from those claimed. So too for the costs. It now appears that Lindsey was indeed wrong - by grossly underestimating the costs.... The Congressional Budget Office has now estimated that in their central, mid-range scenario, the Iraq war will cost over $266 billion more in the next decade, putting the direct costs of the war in the range of $500 billion. These estimates, however, underestimate the War's true costs to America by a wide margin. In this paper, we attempt to provide a range of estimates for what those costs have been, and are likely to be. Even taking a conservative approach, we have been surprised at how large they are. We can state, with some degree of confidence, that they exceed a trillion dollars.

Number of Pages in PDF File: 37

Keywords: Economics - Macroeconomics, International Affairs/Globalization, International Security, Public Management

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Date posted: January 12, 2006  

Suggested Citation

Bilmes, Linda and Stiglitz, Joseph E., The Economic Costs of the Iraq War: An Appraisal Three Years after the Beginning of the Conflict (January 2006). KSG Working Paper No. 06-002. Available at SSRN: http://ssrn.com/abstract=832646 or http://dx.doi.org/10.2139/ssrn.832646

Contact Information

Linda Bilmes (Contact Author)
Harvard University - Harvard Kennedy School (HKS) ( email )
79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-495-4753 (Phone)
617-496-2554 (Fax)
Joseph E. Stiglitz
Columbia Business School - Finance and Economics ( email )
3022 Broadway
814 Uris Hall
New York, NY 10027
United States
(212) 854-0671 (Phone)
(212) 662-8474 (Fax)
HOME PAGE: http://www.josephstiglitz.com
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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