Joseph E. Stiglitz
Author and Nobel Prize-Winning Economist
Tuesday, March 18, 2008 3:00 PM
"When congressional Democrats called a hearing last month to explore the costs of the Iraq was, their star witness was... Joseph E. Stiglitz, the Nobel Prize-winning Columbia University economist who is giving the White House heartburn with his forceful argument that the true price of the Iraq conflict will far surpass even the hundreds of billions of dollars already tallied."
Joseph E. Stiglitz, author and economist, was online Tuesday, March 18, at 3 p.m. ET to discuss his book, "The Three Trillion Dollar War," which was reviewed in
The Iraq War Will Cost Us $3 Trillion, and Much More (Article by Linda J. Bilmes and Joseph E. Stiglitz, Washington Post Outlook, March 8)
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A transcript follows.
Joseph E. Stiglitz: Hello,
Glad to be hear today. I'm writing from New Zealand--a country that decided from the beginning that the War was wrong, and chose not to participate.
Arlington: Do you believe the Iraq war spending has had any negative effects on the value of the dollar and/or the economic problems we are facing now?
Joseph E. Stiglitz: There is a clear and strong link between the economy's present woes and the war. The war was at least one of the factors contributing to rising oil prices--which meant Americans were spending money on imported oil, rather than on things that would stimulate the american economy. Hiring Nepalese contractors in Iraq, moreover, doesn't stimulate the American economy in the way that building a school in America would do--and obviously doesn't have the long term benefits.
These negative effects on the economy were covered up with a flood of liquidity from the Fed. That,plus lax regulation, led to a housing bubble, a consumption boom--but we were living on borrowed money. It was inevitable that there would be a day of reckoning, and it has now come. We will be paying the costs "with interest".
Moreover, because we chose to finance the way by borrowing, our deficits and debt has soared, and this means we have less room for maneuver, less money available to stimulate the eocnomy in the way needed.
It will be years before we dig ourselves out fully from under this mess.
washingtonpost.com: Please stay with us. We are experiencing technical problems in Auckland, N.Z. We will be resuming in just a few minutes.
Lansing, Mich. : Is your point the war costs too much or benefits will be too small? If it is cost, how do we prevent future "faux crisis" from occurring? If benefits, what more could be garnered that isn't?
Joseph E. Stiglitz: The war has been very, very expensive--partly because the Administration tried to keep the apparent costs down. But the benefits have been elusive at best--partly because the ostensible reasons for going war were unconnected with reality--no weapons of mass destruction, no connections with 9/11.
Washington, D.C. : Dr. Stiglitz,
There has been some argument over the trillion dollar amount you cite in your book. Could you tell us a bit about your research in computing these numbers?
Joseph E. Stiglitz: The basic methodologies we employ are standard--we add up the budgetary costs, and we then add in those aspects of the costs beyond the budget that can be quantified. Obviously, since we are talking about costs that extend into the future, one has to make assumptions, but our assumptions are, in fact conservative, and there has been very little challenge to the basic picture.
For instance, one of the main reasons our numbers are larger than those of the Congressional Budget Office is that they only calculate costs through 2018--but the costs of disability and caring for veterans will extend for decades. Veterans costs for WWII didn't peak until forty years after the war had ended. Leaving out these future costs is leaving out a big number.
Some critics have suggested that there were other factors that contributed to the increase in the price of oil. We agree; that is why we only included $5 to $10 for seven to eight years, a small fraction of the $85 increase in the price of oil.
We used data from the Gulf War to extrapolate costs of disabilities--but in fact, our troops returning from Iraq have many more and much worse disabilities than those returning from that 30 day venture. Again, we believe we have been very conservative.
The bottom line: the true numbers are likely to be much greater.
Harrisburg, Pa.: Are you familiar with the Comptroller General's economic forecast for 50 years from now. He claims at the rate we're going, Federal debt repayments will equal the entire Federal budget and that we will need to find some combination of reducing spending, increasing revenues, and increasing productivity (equal to about 50 million additional employees at a time retirement rates are higher than the rates of new employees entering the workforce)in order for economy to survive, What are your perspectives on these forecasts?
Joseph E. Stiglitz: The country has large unfunded liabilities (social security, health care), and there will have to be some adjustments to these problems. What is scary though is how much worse things have gotten in the last eight years, and the war is one of the main factors. The national debt will have increased by approximately 50% in just eight years! We will have created a new unfunded entitlement--disability and health care benefits for the huge number of disabled veterans returning from the Iraq war.
In fact, for just about 1/6 of the cost of an Iraq War, we could have put the social security system on sound financial footings for the next 50 to 75 years. The problems can be managed--but not if we continue to fight this war for another 80 years.
San Francisco, Calif.: A trillion here, a trillion there, pretty soon we'll be talking about real money.
Could you address the opportunity costs of the war? For example, health care reform is a major issue in the presidential election, and three million dollars could've gone a long way towards funding it. Social Security is another example.
Joseph E. Stiglitz: That is the right way of asking the question. As a rich country, we can, in some sense, "afford" the war. But spending money on the war means that we are not spending money on other things that we could have spent the money on.
One of the real costs of the war is that our security is actually less than it otherwise would have been (ironic, since enhancing security was one of the reasons for going to war). Our armed forces have been depleted--we have been wearing out equipment and using up munitions faster than we have been replacing them; the armed forces face difficult problems in recruitment--by any objective measures,including those used by the armed forces, quality has deteriorated significantly.
Economically, we are gain weaker. Millions of americans have no health insurance--including many poor children. if they do not get the care they need, they may become scarred for life; but the President vetoed the children's health insurance bill--evidently we couldn't afford it. But we were talking about just a few days fighting in Iraq.
The list of what we could have done with just a month or even a few days fighting in Iraq is long. These are called the opportunity costs of the war. In our book, we give many examples of these opportunity costs.
Newport, R.I.: Your book is exceedingly hard on Washington in general and the administration in particular. What have been the personal costs for speaking truth to power? (i.e., has it driven you all the way to New Zealand?!)
Joseph E. Stiglitz: Fortunately, America remains a robust democracy, where most individuals are not afraid to speak out. What we have done in Iraq has, however, compromised out standing as an advocate of basic human rights--the prime minister of one country responding to criticism of America for its human rights put it, it was liking having Dracula guard the blood bank.
The loss of America's moral standing has been one of the great losses of this war.
Philadelphia, Pa.: Who holds our debt, when do they expect repayments, and does it appear we will be able to make the repayments? What happens if we can't repay the debt?
Joseph E. Stiglitz: Increasingly, America has had to turn to foreigners to finance its debt--not surprising since household saving in the last two years has plummeted to zero. China is one of the largest holders of American debt.
We could, of course, always make the payments, simply by printing more money (we simply promise to pay people by giving them dollar bills), but that could set off inflation.
More likely, though, is that these debt obligations will simply erode America's standard of living in the future. Money spent to service the debt is money that we don't have to spend on consumption's goods, or on investment in our future.
It is unlikely that others would even demand their money back overnight, for doing so would lead to the value of the dollar plummeting; what they would get back with be worth little. But what we are already seeing is an erosion of confidence of the dollar, which is seeing the dollar fall in value.
Arlington, Va.: I wish this book had come five years ago. As one of the 30 percent of the population that was against this war from the beginning, I have to say I just wish these sorts of points were being raised LOUDLY five years ago.
Joseph E. Stiglitz: I find it scandalous not only that there was so little discussion of the costs of the war before we went to war--this was, after all, a war of choice--but even five years into the war, the Administration has not provided a comprehensive accounting of the war. We should not have had to write this book, and it should not have been so difficult for us to get the numbers. We should not have had to use the Freedom of Information Act to get some of the critical numbers.
Dallas, Tex.: How did the FIONA affect your information and research during the writing of your book? Also, please discuss your views on the privatization (contractors) of the Iraq war regarding our troops and the U.S. economy. Thank you for your unprecedented, vital, and interesting book about how the Iraq invasion/occupation will be an economic force on our country and for future generations.
Joseph E. Stiglitz: This war has been the most "privatized" war in America's history. It has seen the most extensive use of contractors. The contractors have increased the costs; but they have been necessary--the military simply could not have done it on their own. we would have had to increase the size of the military. But the Bush Administration wanted America to believe that it could have a war, essentially for free, without raising taxes, without increasing the size of the armed forces.
The contractors have been especially expensive because so much was done with single source bidding--i.e. no competition; some with cost plus--whatever they charged, the government paid; and the government's auditing was simply inadequate.
But there is another even greater cost: the attempt to minimize cost and maximize profits often interfered with our true mission in Iraq. We should have been working to get jobs for Iraqis, but the contractors found it cheaper to import Nepalese and others. This increased resentment, contributed to unemployment, and to our losing the hearts and minds of the Iraqis.
Jacksonville, Fla.: My husband is a 24-year-old combat veteran of OIF and OEF who testified in Winter Soldier near Washington, D.C., this past weekend to the failings of the Veteran's Healthcare Administration. How would the fact that 10,000 veterans have committed suicide upon returning home to the U.S. affect your calculation of the cost of the war? How much value should be assigned to each human life lost? The military gives us $500,000 if our loved ones die in battle, and nothing if they come home dead inside. To me, my husband's life is more valuable than then entire war debt, and no one could ever compensate me for what we both lost. Thank you.
Joseph E. Stiglitz: You have emphasized one of the tragic costs of this war to which we did not give adequate attention. We noted the psychological problems facing many of the returning veterans--of the 700,000 returning veterans, more than a 100,000 have been diagnosed with problems, but the numbers are likely to get worse, as those with multiple deployments return. We should have valued the loss of life as a result of these suicides, using the same procedures we used for the loss of those who died in combat.
This is another example showing that our numbers were excessively conservative.
Arlington, Va.: What can us average Americans do to address this issue?
Joseph E. Stiglitz: One thing that one can do is to demand that your congressman or woman demand a full accounting from the Administration of the costs, demand that five years into the war we stop funding the war with emergency funding, demand that we put aside now money for the returning veterans, so that their future health care benefits are not subject to the whim of some future congress. We end the book with a set of recommendations. These should be taken up now.
washingtonpost.com: This concludes our discussion with Joseph Stilt. Thank you for joining in.
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