Iraq War: $25,000 per US household

The Economist reports on a study by two economists on the costs of the Iraq War for American households. The study wasn’t simply a look through the government balance books to look for direct financial costs: it also looked at the knock-on impact on oil prices, number of deaths or injuries caused (and perhaps controversially putting a financial value on these lives), bonuses paid to recruits who were put off by the war and also the opportunity cost (see my previous post on cost-benefit analysis).

The opportunity cost is the benefits to the USA which would have been gained if it didn’t go to war in Iraq: for example the money which went to the war might have funded better education or healthcare insurance.

The study was carried out by Joseph Stiglitz, a Nobel prize-winner in economics and Linda Bilmes, budget and public finance expert from Harvard. They found the total costs were $3 trillion. The Economist asks:

SUPPOSE that, five years ago, George Bush had asked every American household to stump up $25,000 to pay for an imminent war on Iraq. How would they have responded?

Of course, this study doesn’t conclude that the Iraq War was a bad idea. To weigh that up, you need to look at the benefits which were gained. We now know Saddam doesn’t have weapons of mass destruction. Is that knowledge worth $3 trillion?

What I really want to get across is this: economics and cost-benefit analysis offers a much better way of analysing whether government policies have been successful. It’s great to have an opinion based on what is published in the media but things are not always as they seem. Cost-benefit analysis offers a logical method to evaluate the consequences of a policy.

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