Obama prides himself on the fact that he was the only one who opposed the war in Iraq to begin with it, claiming he will bring the troops back home promptly . Hillary and McCain, on the hand, are more concerned about withdrawing from Iraq to soon. From a purely economic perspective, which of the presidential candidates' policies is superior?
I came across an interesting paper that conducted a cost-benefit analysis of the war in Iraq. I will refer to this paper during my presentation on the presidential candidates' foreign policy, so if you have some spare time feel free to peruse it so that we can have an interesting discussion on Wednesday.
In a nutshell, the paper points out that while the U.S. treasury allocated $212 billion, there are also direct economic costs to the war not included in this budgetary allocation (for example, the costs of lives lost, injuries, and lost civilian productivity of the reserve troops). On the hand, believe or not, the war generated cost savings, mainly the costs associated with enforcing UN sanctions and Saddam Hussein's brutal regime.
The paper thus monetize the direct and avoided costs of the war through 2015. These are rough estimates, but nevertheless can provide useful figures when analyzing policy regarding the Iraqi war.
In terms of figures, the researchers estimated that the total cost of the war for the US during the first two years reached $225 billion, with avoided costs estimated around $32 billion (Net Present Value adjusted to 2005 dollars). That is quite expensive, more than $100B year. However, the authors estimated the costs of the war from 2005 to 2015 to be $349 billion, with avoided costs of $85 billion. That is, a net cost of $260 Billion over a 10-year period, or roughly speaking $26 billion a year in 2005 dollars.
From a purely economic point of view, policy makers should consider the costs already incurred in Iraq as sunk costs. In addition, policy makers should consider what is the cost of the alternative, that is, withdrawing from Iraq. It might certainly be the case that withdrawing from Iraq will cost American tax-payers more than $26 Billion a month.
Thus, the future president should consider what is the return on investment (ROI ) associated with $26 billion a year over, say, a 10-year period. Put differently, given the costs of the alternatives and disregarding sunk costs, Americans should ask whether bringing the troops home without delay is really the most efficient, prudent policy that will yield the highest ROI?
This is where I should point out that the paper fails to monetize the indirect costs of the Iraq war. It doesn't consider other intangibles like macroeconomic impacts, the effects on oil price, the value of a stable democracy in Iraq, etc. So I guess it all comes down to how much we value and what probability we assign to a prosper, democratic Iraq (or alternatively what will be the costs associated with withdrawal).
Going back in History to 1945, I think the coalition forces did an outstanding job transforming what used to be a Nazi dictatorship into one of the world's strongest democratic nations and a close ally to the US. Moreover, this democracy has also spread out the values of freedom, respect, and the rule of law, bringing about other democracies in the region (Eastern Germany, Romania and other Eastern European countries, even Russia ). For me, the prospect of rapid democratization process in the middle east, similar to the one we are now witnessing in Eastern Europe, is priceless. But I am not a presidential candidate.
1 comment:
I find attempts (like this one) to quantify the cost of the war in economic terms both fascinating and provocative. While supposedly "objective" they are in fact hugely political. The numbers that studies estimate are inevitably reflective of which factors are chosen to be included in the valuation--human lives lost, democracy created, toppling Saddam, families broken apart, etc.
In a recent installation in White Plaza--Eyes Wide Open--for instance, American Friends Service Committee presented an estimate for the cost of the war as well. However, the number they came up with, $720 million/day, is significantly different than the one cited in the paper you reference. This is clearly due to the fact that both estimates took different factors into account.
I think this issue highlights an interesting aspect of economics in general--while we often try to argue that our field is rational, that the logic is obvious, our conclusions inevitably rely on the factors we choose to take into account. And those factors are necessarily subjective. While it's glaringly obvious in issues like this one, I think it holds true generally as well. And that's without even getting into how we can start to value things like democracy in the Middle East or the cost of a human life in monetary terms.
Also, in terms of the argument you present, I would say that the value of the thousands of human lives are perhaps not worth the "democracy" we are creating. More than that, I would argue that a true democracy cannot be established through a war like this one (or any war really). I don't agree that the examples of "democracy" you cite in Eastern Europe are as successful as you claim. But of course, like I said, this is all subjective.
Back to economics, I find myself wondering why we aren't considering how else this same money could be spent to achieve the same goals (if we even agree that democracy should be established, but now I'm opening too large of a can of worms...) What if we funneled this money instead to humanitarian aid? Economic development? Job creation? So many studies have been done to show the linkages between poverty and conflict, as well as repressive regimes. I'd argue that that is a more efficient (not to mention more humane) route.
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