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NARR: Mishkin says war is an investment:
SOT: and then the question is, like any investment, is the government spending paying off, yes or no?
NARR: To answer that question, Mishkin says you have to do a cost-benefit analysis that goes beyond economics:
On the benefit side,
How much has the war made the world more peaceful and America more secure?
On the cost side,
How much death, destruction and pain has it caused?
But you also have to ask the question economists are especially good at answering:
How much money has the Iraq War cost?
SOT: It's cost a lot of money. It's certainly cost a lot more than the initial estimates coming from the administration.
NARR: The White House estimated the war would cost around 60 billion dollars.
So far, the US government has spent around 250 billion on the war,
and long term costs will be much higher.
At least a trillion dollars over the long haul,
according to the study by Bilmes and Stiglitz.
And that's their conservative estimate,
assuming the US gets out of Iraq by around 2010.
That includes another 200 billion for future war operations,
100 billion in increased defense spending,
and 90 billion to care for severely injured veterans.
When America spends money on the Iraq War,
it loses the opportunity to spend money on other things.
Mishkin and other economists call that opportunity cost.
SOT: If you have government spending it crowds out private investment or government spending in some other area. Instead of spending money on fighting in a war you could spend it on education, which is an investment in the future.
NARR: Mishkin's Columbia colleague, Joseph Stiglitz, wrote the study with Harvard's Linda Bilmes. He says war spending squeezes the budget, and that hurts the American economy.
SOT: We are actually making cutbacks on basic investments that will leave our country weaker.
NARR: Stiglitz says the rise in oil prices caused by the war will as well. His study says those higher oil prices will cost America at least 180 billion dollars.
SOT: That is a very big drag on the economy, and on the global economy. The irony, of course, is that the higher oil prices are going to the Middle Eastern countries that are behind a lot of the terrorism. So we are, by the way we conducted the Iraq War, actually may enhance the income of those financing terrorism.
NARR: According to the study, the interest on the increased national debt caused by Iraq War spending should run around 100 billion dollars. Stiglitz says paying off the deficit will cost America dearly.
SOT: At some point, those lending money will say, look at, this is not a good gamble. This country is not only borrowing, but it's borrowing to give a tax break to the richest Americans, borrowing to finance a sinkhole in Iraq.
NARR: But Mishkin says running a deficit to finance a war sometimes makes sense.
SOT: Look, World War II was enormously costly. Was it worth it? You're damn right it was worth it. We had huge government deficits, it made complete sense, because the alternative would have been to tax everyone into oblivion. Instead, we said we're actually doing an investment in the future, protecting the world and the American way, and we don't want to have just the current generation pay for it, they should also have people in the next generation pay. So my father fought in World War II, do I want him to pay the full cost of it? No.
NARR: The costs of war are high, but Mishkin says the benefits are sometimes higher. And analyzing just dollars and cents won't be enough
to figure out whether the Iraq War has been worth fighting.
I'm Matt Hirshberg, Columbia Radio News.