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Iraq has sustained enormous costs during the conflict, yet economists have made little effort to estimate what those costs might be. Colin Rowat of the University of Birmingham has made a preliminary effort. He has used data from the International Monetary Fund and the Iraq Central Bank to study Iraq's economic shortfall from expectable peacetime levels of GDP.[1] Drawing on Rowat's calculations, Anna Bernasek of the New York Times estimates Iraq's economic losses in 2006 at roughly $24 billion.[2] During the four years of conflict, loss on this scale might have totaled $100 billion or more, a very large sum. But the real cost for Iraqis is much higher than foregone GDP. It must also include the economic costs of the premature deaths, long-term injuries, brain drain, destruction of cities and infrastructure, massive displacement and relocation of people and many other factors. There is much more work to be done by economists on this subject, but in the end it is impossible to measure these tragedies in purely economic terms.

For the United States, the conflict has been extremely expensive – far more so than policymakers first estimated. Office of Management and Budget Director Mitch Daniels announced prior to the war that the cost would be around $50 billion,[3] but as of December 2006 Washington had actually had spent approximately $400 billion in direct government appropriations for the conflict. Clearly, these budget costs will continue to rise far further in 2007 and beyond.[4]

US federal war costs are buried in complex Pentagon budgets, but we know that they have risen from about $4 billion per month in 2003 to more than $8 billion per month in late 2006.[5] In fiscal year 2006 alone, Iraq war spending may have been as high as $120 billion and estimates suggest that 2007 spending could reach $170 billion.[6] To these costs must be added the budgets for Iraq reconstruction grants, the costs of building up Iraq's military forces, the cost of secret intelligence operations, and more.

Future costs of the Iraq conflict will depend on the number of troops deployed, the nature of the military operations and the length of the conflict. With Washington sending 20,000 or more additional troops in the first half of 2007, spending will certainly increase substantially and could rise beyond $12 billion per month in 2007. So the budgetary cost may approach $600 billion by the end of 2007 and could eventually approach $1 trillion.

The US Federal budget figures, large as they are, greatly under-estimate the true cost of the war. Economists Linda Bilmes and Joseph Stiglitz point out that the budgeted costs do not account for the economic effect of military deaths and injuries (over 3,000 US soldiers have died and more than 23,000 have been wounded[7] ) for which death benefits, life insurance and medical treatment will be paid for long into the future.[8] Nor does it include the increased costs of armed forces recruitment, or demobilization costs. A real assessment of the costs, Bilmes and Stiglitz argue, should also take into account a wide array of other costs, ranging from the replacement and depreciation of military equipment[9] to macroeconomic costs such as higher costs of oil, interest paid on the national debt[10] and other long term negative impacts on the economy.[11] Bilmes and Stiglitz put the estimated total cost in a range from $1-2.2 trillion, an estimate they made prior to delivering the paper in January 2006.[12] But in a later version of the paper, published after about nine months, they concluded that the costs were running much higher and that a $2 trillion estimate was "low."[13] The Iraq Study Group report, released in November 2006, used a $2 trillion figure as definitive.[14]

The costs incurred by other Coalition members for their contingents should also be taken into account, but the calculation exercise is exceedingly difficult, given the many small contingents and the hidden budget numbers for many participant governments. The biggest of Washington's partners, the UK, offers some glimpse of other coalition costs. Though the UK government has hidden its Iraq expenditures and did not make them available to Parliament or the public, researchers using the Freedom of Information Act discovered that the UK had spent about £4.5 billion (about $9 billion) for its military involvement in Iraq as of late 2005.[15] According to some estimates, and in spite of substantial draw-down of forces, each additional year in Iraq will cost the UK treasury an extra £1 billion.[16] So UK costs as of late 2006 would total about $11 billion. Such budgeted figures do not take into account costs such as refurbishment or replacement of military equipment that the British Ministry of Defence will eventually have to cover.[17] Nor does it take account of the many other long-term costs including death benefits and health care costs for veterans.

These enormous and upwardly-spiralling war costs soak up precious national resources that could be spent on schools, hospitals, transport, alternative energy and many other citizen priorities. Since the war is financed by Federal budget deficits, future generations will eventually be required to pay the bill.

[1] "Iraqi GDP Since 2003: Some Simple Calculations," draft text provided by the author dated March 30, 2007

[2]Anna Bernasek, "An Early Calculation of Iraq's Cost of War," New York Times (October 22, 2006) This article was based on an earlier version of Rowat's paper.

[3]Cited in: US Department of Defense, Donald Rumsfeld Media Stakeout (January 19, 2003)

[4]James A. Baker III and Lee H. Hamilton et al. "The Iraq Study Group Report" Vintage Books, New York (December 2006)

[5]Ibid. p. 32

[6]Caren Bohan, "Costs for the Iraq War Approach Record – US Official" Reuters (December 19, 2006)

[7] US Department of Defense Personnel and Military Casualties Statistics (February 2007)

[8]Linda Bilmes and Joseph Stiglitz, "The Economic Cost of the Iraq War: An Appraisal Three Years After the Beginning of the Conflict" Paper delivered at the American Social Science Association meeting, (January, 2006)

[9]According to the Washington Post, about 40 percent of US military equipment has been destroyed, amounting to a value of about $17 billion. Ann Scott Tyson, "US Army Battling to Save Equipment" Washington Post (December 5, 2006)

[10] Ironically, the US government pays for the war by deficit financing, which is covered by borrowing from international lenders and investors. Because of a lack of savings within the United States, the US government must borrow from such sources, deepening the net foreign debt of the country in a way that many economists see as potentially destabilizing.

[11]Bilmes and Stiglitz, op. cit.

[12]Ibid., p. 30.

[13]Linda Bilmes and Joseph E. Stiglitz,, "Encore," Melkin Institute Review, Fourth Quarter (2006)

[14]Baker and Hamilton, op.cit. p. 32

[15]Cited in: Iraq Analysis Group, The Rising Costs of the Iraq War (March 2006)

[16] House of Commons, Defence Select Committee, Sixth Report: Chapter 4, Challenges in Southern Iraq (March 16, 2005)

[17]Iraq Analysis Group, Rising Costs.