SENSibility 5: War in Iraq and Afghanistan to cost US $2.4 Trillion by 2017

Ouch! According to a recent Congressional Budget Office (CBO) report, the combined cost of the wars in Iraq and Afghanistan will reach US$2.4 trillion by 2017. The Iraq War will take the lion’s share of that estimate (approximately $1.9 trillion). This is hardly a surprise, given the that US is currently spending $11 billion a month on the Iraq War alone.

This CBO figure is higher than most previous cost estimates because it includes the interest charges on the money borrowed to finance the wars. The CBO estimates that those interest charges alone could wind up costing the US treasury $700 billion between 2001 and 2017. Of course, this does not include actually paying back the debt itself. Spread out over the 16 years between 2001 and this year, both wars will cost the US treasury $150 billion a year. And this does not include cost escalations beyond current rates of spending.

So here we have an interesting angle to the debate over the Iraq War in the US (Afghanistan is not in the public eye in America as much as it is here). In addition to the deaths and human suffering, the damage done to the reputation and political credibility of the US, and the danger of regional instability in the central Middle East, the Iraq War debate now includes the long term economic price to be paid by the US down the road. As Representative James McGovern (Dem. Mass.) said recently: “To put it all on our credit cards with no accountability, with no plan to pay for it, I think is the height of irresponsibility. It will be just one more toxic legacy of this disastrous war we will have to leave to our kids to clean up.” McGovern might have mentioned the clean up task faced by future US presidents as well: after all, two full presidential terms will expire before 2017.

Keeping these figures in context cuts in a number of ways. First, the Gross National Product of the US in 2006 was over $13 trillion, so the total costs of both wars have to be seen in the context of the scale of the US economy. Total US federal government spending in 2006 was $2.6 trillion, so the total costs of both wars by 2017 may approach the entire spending of the US federal government for 2006. That is a little scarier from a budget perspective. However, this is still not the whole story. In 2006, the US government spent $250 billion on welfare, $127 billion on education, and $583 billion on health care. If we assume for the sake of argument that the US will spend $150 billion a year between 2001 and 2017 on war costs, that starts to provide some indication of the resources being devoted to the war effort relative to other areas of government spending.

Of course, if there was no war we would not see the $150 billion devoted to education or health care. And remember that all these costs are being incurred while one of the largest tax cuts in US history is being implemented. But there is no doubt that war costs are tightening the purse for other types of spending, and will place future administrations in a tough bind. After all, current US federal public debt is already a little over $5 trillion. That is going to get a lot worse very quickly. Not good news for the future of the US economy, and not good news for a future President.

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