In a military town such as San Diego, we're all too aware that there have been many casualties in the Iraq war, which marked its fifth anniversary this month.
Foremost among them are the deaths of more than 4,000 U.S. troops and an estimated 90,000 Iraqi civilians since the war began in 2003.
But there have been other casualties, as well. Economic casualties. The rising price of oil, the growing national debt, the declining value of the dollar, the deteriorating infrastructure and the weakening economy have all been exacerbated by our “war of choice” (the congressional term for whatever it is we're doing in Iraq).
That's not to say the invasion of Iraq is the only cause of our economic woes. The crash of the housing market and the tightening of credit would have occurred even if we had never gone after Saddam Hussein.
In general, however, the massive amount of money spent on the war has made our economic problems much worse than they would have been otherwise. That's because one of the primary casualties of the war has been the value of the dollar.
In previous wars, presidents have raised taxes and sold war bonds to support the troops. In this war, the Bush administration lowered taxes and sold hundreds of billions of dollars' worth of Treasury bonds to investors overseas, raising our foreign debt to the point where we are by far the biggest debtor nation in the history of the world.
Nobel Prize-winning economist Joseph Stiglitz estimates that $1 trillion of the $2.5 trillion in U.S. debt outstanding is related to the Iraq war. Over the next decade, he says, that number will double to $2 trillion. Although some economists quibble with his math, there is no disagreement that the Iraq war has boosted the national debt.
“We've had a very floppy fiscal policy, and Iraq is absolutely part of that,” said Ross Starr, an economist at the University of California San Diego.
“We basically financed the war on an international credit card,” said Steven Kosiak, director of budget studies at the Center for Strategic and Budgetary Assessments in Washington, D.C.
The massive amount of bonds flooding into the world market had the effect of devaluing the dollar at the same time that Iraq-related expenses were pushing the federal budget deficit to all-time highs.
“Spending $12 billion a month on Iraq while cutting taxes year after year obviously had an impact on our economic standing, hampering our ability to remain an economic powerhouse,” said Brian Katulis, a senior fellow at the Center for American Progress. “You shouldn't keep increasing spending if the numbers don't add up.”
The deficit was aided by the loose money policies of the Federal Reserve, which pushed interest rates to 40-year lows shortly after the war began.
Even before the war, the Fed was lowering rates to counteract the effects of the collapse of the dot-com investment bubble. But the decision to push the rate down to 1 percent – well below the official rate of inflation – was at least partly attributable to the war. And those low interest rates led to the dramatic rise and fall of the housing market, in addition to fueling the decline in the dollar.
The dwindling value of the dollar has made things more expensive for all Americans, but it's particularly noticeable in the price we're paying for gasoline. Stiglitz, a former economist for the World Bank, estimates that the Iraq war has added at least $5 to $10 to each barrel of oil because of a loss of Iraqi oil production and concerns about the stability of the region.
Other economists say that an even greater impact has come from the decline in the value of the dollar, which is at least partly an outgrowth of the war.
Many of these economic problems could have been foreseen. In an article I wrote for The San Diego Union-Tribune on the eve of the invasion in 2003, a number of economists warned of the potential costs of the war.
At the time, Californians were angry because war jitters had driven the average price for a gallon of gas to the then-astronomical price of $2 per gallon.
Sung Won Sohn, then an economist for Wells Fargo Bank, noted that anytime there is a conflict in the Middle East, oil prices hit record figures. He warned that the longer the war lasted, the higher the prices would go.
Alan Gin, an economist at the University of San Diego, said that all the initial economic effects of the war would be negative. “The biggest worry is getting bogged down in a long war,” he added.
John Nofsinger, an economist at Washington State University, discussed the perils of paying for the war with public debt.
“The government is about to spend a lot of money that it just doesn't have,” Nofsinger said. “If that money were to be spent on building useful projects in the United States, you might expect some economic stimulus would occur. But this is not the kind of spending that produces stimulus.”
So how much will the war ultimately cost?
Most estimates go well into the trillion-dollar zone.
Focusing mainly on the direct expenses of war – armaments, payrolls, defense contracts, insurance, short-term care for the wounded – the Congressional Budget Office last October pinned the cost for the wars in Afghanistan and Iraq at between $1.2 trillion and $1.7 trillion through 2017.
A report by the Joint Economic Committee of the U.S. Senate last November estimated that the total cost of the war in Iraq – including indirect costs such as the rising price of oil, the lost productivity of troops and the cost of extended care for veterans – had already hit $1.3 trillion and would top $2.8 trillion by 2017.
In his book “The Three Trillion Dollar War: The True Cost of the Iraq Conflict,” which was released this month, Stiglitz says $3 trillion is a conservative figure. By the time all the costs are totaled up, he says, expenses could well top the $5 trillion inflation-adjusted price of World War II.
San Diego State University finance professor Dan Seiver, who studied under Stiglitz at Yale, doesn't believe the price tag will get quite that high.
“But even if it's just $1 trillion, that's a lot of money,” Seiver said. “And we're spending it at a time when we need to improve our education system, our infrastructure and our health care system.
“Those things would make our economy grow stronger and faster. But instead, the money is being spent in Iraq,” Seiver said.
Last November's Senate report noted that at that time, the government was spending more than $400 million per day in Iraq. By its calculation, a single day of money spent in Iraq equals the amount it would cost to hire 5,500 teachers for a year or 9,000 police officers.
“If we just saved the money instead of spending it, we could have made our deficits smaller, which would have been better for our economic health,” Seiver said.
As it is, our economic health is just another casualty of war.
Dean Calbreath: (619) 293-1891; dean.calbreath@uniontrib.com
