The Hindu Business Line : The black hole called war

There is no free lunch, so too there are no free wars, declares Nobel Laureate Joseph Stiglitz in a new book. “In one way or another, we will pay these bills,” he bemoans in The Three Trillion Dollar War: The true cost of the Iraq conflict ( www.penguin.com ) co-written with Linda Bilmes.

“At the onset of the Iraq war, the US government was already running a deficit,” begins a section on the conflict’s costs to the US Budget. No new taxes have been levied; there were in fact tax cuts especially for the upper-income Americans, shortly after the war started, the authors remind.

“It is not unreasonable to assume, for purposes of budgeting, that all of the funding for the war to date has been borrowed,” they postulate. “We have already added, in our realistic-moderate scenario, almost $1 trillion to our national debt of $9 trillion to pay for the war so far. All this money will need to be repaid — with interest.”

Even as, or if, the war ramps down, payments for disability and healthcare for returning veterans will be ramping up, observe Stiglitz and Bilmes. “Like borrowing to buy a car, the interest payments often rival the cost of the car itself; so too for war.”

They estimate that interest payments, by 2017, will amount to $1 trillion, “the present discounted value of which, in 2007 dollars, is over $800 billion for Iraq and Afghanistan together.”

Perhaps, raising taxes can be an option? Not if the conservatives in the US have their say. Raising taxes has a cost, they argue: “There is a ‘deadweight loss,’ a loss in efficiency, in output, from the diminished incentives from the higher taxes.”

If the US were to decide to someday pay the debts, then the cost to the economy may well be far more than the trillions of dollars of increased indebtedness, the authors ominously expect. “We need to include the extra cost of the burden of taxation to pay off the debt, a burden that the Bush administration has pushed onto our children.”

What if the government decided to postpone repaying the debts, by simply paying the interest due? In that case, taxes will be higher, year after year, forever, with all the consequent costs, the authors caution.

They anticipate that in one way or another, the Americans will be paying for the costs, “today, next year, and over the coming decades — in higher taxes, in public and private investments that will have to be curtailed, in social programmes that will have to be cut back.”

Stiglitz and Bilmes crunch numbers to arrive at $2.3 trillion for the best case scenario and a whopping $3.5 trillion in the more realistic case. Even the ‘realistic’ estimate is only conservative, they note, because the numbers are just the budgetary costs. “They do not include the costs to the economy — the full economic costs of those who have been killed or injured, the cost inflicted by the soaring oil prices, the weaker future growth as a result of investment ‘crowded out’ by the soaring deficit.”

Military budget accounts should be transparent, presented on both cash and accrual bases, with costs not just for the next ten years, but for the next forty, recommend the authors. “The costs of war continue long after combat has ceased, but they are hidden by the government’s cash accounting system… There are a variety of budget tricks (besides cash accounting) by which an administration can obfuscate the real costs.” Another recommendation, among the 18 reform measures proposed in the book, is that the costs of any conflict lasting more than one year should be borne by current taxpayers, through the levying of a war surtax.

Grim read.

D. MURALI

http://BookPeek.blogspot.com

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