Article published Monday, June 16, 2008, at Fox News.

ANALYSIS: Is It Really a '$3 Trillion War'?

By John R. Lott, Jr.

What is the cost of the Iraq and Afghanistan wars? To many, the answer, at least from 2001 through 2007, is $473 billion – about a quarter of total defense expenditures over those years. It has averaged less than one percent of GDP.

$473 billion is probably an underestimate simply because the fighting has already lasted past 2007 and some wounded veterans will require long-term care. But how much more is it?

In a new book, The Three Trillion Dollar War, Joseph Stiglitz and Linda Bilmes argue that this emphasis on what the government has already spent dramatically understates the true cost of the war. At roughly six times the defense department’s numbers, their $3 trillion estimate has generated much news coverage and controversy.

Stiglitz, the former chairman of President Clinton’s Council of Economic Advisors and Nobel Prize winner, told FOX News by telephone from Spain that his message has been getting a “very positive reaction” in Europe. Many are angry over how the Bush administration “misrepresented the facts that got us into the war.” Other countries that stayed out of the war are “very relieved that they hadn’t gotten involved” when they hear how large the costs of the war have been. He claims, “the British are very sorry for their complicity in selling the war.”

According to the authors, the normal reliance on total operational costs for the military leaves out many important costs. Among them are: the future costs of running the war ($669 billion), the future costs of taking care of wounded veterans ($630 billion), the loss of life for soldiers killed or injured ($337 billion), interest payments on loans to cover the federal deficit ($616 billion), and the increased cost of gasoline at the pump and its impact on the economy ($800 billion).

But what to count and how to value these various items is highly controversial. Even opponents of the war have expressed doubt over how Stiglitz and Bilmes have added up the numbers.

For example, Richard Zerbe, Associate Dean at the University of Washington School of Public Affairs and president-elect for the International Society for Benefit-Cost Analysis, opposes the war, but is concerned that their analysis is “clearly double-counting the costs. It should be obvious.” He also has difficulties with the values attached to some of problems created by the war.

Regarding veterans who are disabled and unable to work, Zerbe says that it goes too far to attach the same loss to those soldiers as to soldiers who have died. He feels that the Stiglitz and Bilmes analysis has “too narrow a view of life, way too production orientated.” Zerbe argues that just because these disabled soldiers can’t work doesn’t mean that they place no value on living.

To get an idea of how large Stiglitz and Bilmes’s numbers are, compare them the Congressional Budget Office’s Matthew Goldberg, the Deputy Assistant Director for National Security, offered last October. Goldberg testified that the future medical care costs, disability compensation, and survivors’ benefits up to 2017 would likely range from $10 to $13 billion. (Since the Democrats control congress, they control the Congressional Budget Office.) But with these authors putting their estimate of total costs of veteran injuries at over $900 billion ($630 billion from taking care of the wounded and $273 billion from the harm done to wounded and injured soldiers), it is hard at first to believe that they are talking about the same thing.

Edgar Browing, one of the most cited public finance professors and the author of the forthcoming book “Stealing from Each Other: How the Welfare State Robs Americans of Money and Spirit,” is even more critical than Zerbe. He notes that, “$473 billion is the most defensible estimate of the cost of the war over the first five years. Everything beyond that is padded. They invent unrealistic scenarios, double count, and the like.”

One simple example involves Stiglitz and Bilmes counting both the expenditures on the war as well as the interest payments paid on the money borrowed to finance those expenditures. As far as the taxpayers are concerned, they care about what they have to pay. If the money is borrowed, you can’t count both the current expenditure and the future interest payments because taxpayers don’t have to pay directly now for the current expenditures. It is only when they pay off the interest that they will really pay the bill.

The same issue arises when they count both the salaries and benefits paid to the soldiers plus the costs of their medical care on the one hand – all part of the non-disputed operational costs -- and also attaching additional value of life lost to those soldiers who have been killed or injured. Risky jobs such as being a police officer or stunt man require higher pay and benefits to compensate for the chance of being killed or injured. Indeed, it is this very premium that economists use to calculate the loss from police officers getting killed. Economists traditionally count either one of these costs that Stiglitz and Bilmes include, but not both at the same time.

Given their unorthodox method of counting costs, Stiglitz and Bilmes were asked whether any other economists used the same approach to evaluate these interest costs or values of life and injury, but they were unable to identify anyone. Bilmes responding by telling FOX News that, “this book is not an academic paper. It is a book about the cost of the war.”

On oil prices, Stiglitz and Bilmes argue that “the longer [the war] has dragged on, the higher the prices have gone. This certainly suggests the war has something to do with the rising prices. On this almost all oil experts agree.” But, again, even those who oppose the war disagree with this claim. Peter Hartley, a professor at Rice University who specializes in energy economics, told FOX that in fact the opposite was more nearly the case: “Almost all oil experts would disagree.”

Hartley said that the “increase in prices from the war is only temporary. You can only change prices by changes in supply or demand. The only supply and demand changes that they could point to from the war are some temporary changes from uncertainty.”

Al Harberger, an economics professor at UCLA and the current president of the International Society for Benefit-Cost Analysis, mentions another concern about the book. Interest rates enter into calculating the costs of the war not only in terms of interest payments on loans, as we have already discussed, but also how to put into current day dollars costs that may not be born for a decade from now.

Harberger argues that a too low interest rate makes it look like the future expenditures on the war look larger today than they really are. Higher interest rates mean that you don’t have to put aside as much money to pay for those future costs. In Stiglitz and Bilmes’s case, they use an interest rate below what it costs the government to borrow money. Harberger says that the opposite is true, the rate should be higher and you have to figure out what private investment you are giving up by loaning money to the government.

Surprisingly, Stiglitz and Bilmes’ book never mentions or responds to well-know responses from other academics who have criticized their earlier published claims. The most notable critics are Stephen Davis, Kevin Murphy, and Robert Topel, professors at the University of Chicago. Even Davis, Murphy, Topel’s worst case estimate of the costs of the war run up to $1 trillion in today’s dollars, with their most realistic estimates at less than half that amount.

Then there is the huge cost for the Iraqi people. Possibly the most controversial claim in the book involves their estimate that well over one million Iraqis will have died from the US invasion by the year 2010. Without any caution or hesitation, they rely on an extremely controversial study published in the medical journal, Lancet. Stiglitz and Bilmes took Lancet’s estimated 654,965 deaths from the American involvement in Iraq from March 2003 to July 2006 and assumed that Iraqis would continue dying at that the same yearly rate through March 2010. The Lancet number is over 10 times the number of Iraqi deaths claimed by the Iraqi and US governments.

Concerns have been raised about whether Iraqis surveyed were honest and provided accurate information or whether they may have given politically motivated answers to exaggerate “’crimes’ committed by the Americans.” Some survey experts have attacked the survey for not doing the most basic things to “prevent fabrication” of the data. For instance, there was no effort to trace death certificates to confirm claimed deaths. The survey was conducted and overseen by Riyadh Lafta, a child-health official in Saddam Hussein's ministry of health, whom some claim was biased. Others have questioned why the original surveyors' reports and the raw data have never been released to other researchers.

Still others expressed concern that the timing of the survey’s release immediately before the 2006 election was political motivated and that the funding for the survey by George Soros was only discovered long after the publicity for the results had subsided.

While acknowledging these objections to the survey conducted by Lafta, Bilmes told FOX News that their estimate of over one million civilian deaths was an underestimate of Iraqi causalities, 92 percent of which were supposedly killed by bullets, bombs, or U.S. air strikes. She said that the numbers showed that “the costs of the war far outweigh any possible gain.”

Perhaps what is most surprising about the extensive news coverage the book has received is that critical comments by other economists have received no coverage in the media. A search of news stories on “The Three Trillion Dollar War” did not show a single economist being quoted as disagreeing with their estimate of the cost of the war.

Professor Browning tried to put the costs of the war in some perspective: “[the war] is expensive, but it isn’t anywhere near as expensive as other programs that the government does. The war on poverty over the first five years of the war was over $3 Trillion.”

As Bilmes said, the media frenzy over their book has been “crazy.” That is not surprising, since three trillion dollars is a lot of money. Yet, serious objections to their estimates cut across the political spectrum. Others place the best cost of the war estimates at a sixth of what Stiglitz and Bilmes claim.

* John Lott is the author of Freedomnomics and a senior research scientist at the University of Maryland.

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