The administration placed an initial price tag on the Iraq war this week. The roughly $75 billion request includes $62 billion earmarked for the Defense Department. This is not much money relative to an $11 trillion economy. But it is important for voters to understand what is — and what is not — included in this sum.
Some observers, for example, have compared the $75 billion request to offhand war cost estimates such as the $200 billion figure mentioned by Lawrence Lindsey when he was still the president’s key economic adviser, or to the $1 trillion to $2 trillion mentioned by a few non-government economists such as William Nordhaus. These comparisons are misleading in a number of ways.
First of all, the administration’s request is for funds to be spent during the current fiscal year, which began Oct. 1, 2002, and will end Sept. 30 of this year. Only six months remain in this period.
Any expenses related to the war or to the occupation and rebuilding of Iraq after Sept. 30 will fall into the next fiscal year and will presumably be included in the President’s budget submission for 2003-’04.
Second, much of the total expense of our military forces currently in Southwest Asia is covered by previous appropriations and would be paid in any case. Active-component military personnel would get their pay and basic benefits whether they were still at Fort Bliss or Fort Stewart or if they are in Iraq as at present. They would eat and they would train. Training involves ammunition, fuel, repair parts and expendable supplies.
Such expenses are not negligible. Sending a National Guard or Army Reserve artillery battalion to a weekend live-fire exercise at Camp Ripley or Fort McCoy can burn up $200,000 in ammunition, fuel and so forth. Of course, in a shooting war situation, military units use up vastly more fuel, ammunition and supplies than in training. But the supplemental appropriation only needs to cover the marginal cost “above and beyond” what would be required for normal training.
The Iraq war has been characterized by the unusually high levels of reserve-component forces called to active duty, including both Air Force and Army units from Minnesota and Wisconsin. The pay and benefit costs for these units will be about six times as much per year as if they were at their local training stations putting in 12 weekends and two weeks of annual training.
Nor does the president’s request include funds to replace equipment destroyed in the fighting. Weapons-system acquisition costs are separate from operations and maintenance. The helicopters and other equipment being lost in Iraq already were paid for in prior years. At some point they will have to be replaced, or we will have to get by with less equipment in the long run. But that economic cost does not appear in any account for this fiscal year.
The administration obviously expects the fighting to be over in “weeks or months” even though “days” is no longer in the cards. If we do secure effective control of Iraq before the end of September and there is no ongoing insurrection, large military expenditures in future fiscal years may not be necessary.
The question of whether the administration’s request is adequate to cover marginal expenses for the next six months is an open one. Historically, governments tend to spend far more money on fighting than they are willing to acknowledge before the fact. I personally would be surprised if the $62 billion earmarked for the Defense Department will cover things, but that is an uninformed hunch. I have no access to any detailed information.
Efforts to push some of the costs off till the next budget cycle or after the next election are fairly common. One time-honored way to do so is to not replenish stocks of ammunition or spare parts until some time in the future.
The United States, like many other nations, maintains substantial “war stocks” of bombs, shells and cartridges as well as of spare parts and other materiel. The rationale is that it would be highly dangerous to wait until a war actually began to crank up production lines for needed items. These war stocks have been paid for in the past. One can use up most of such stocks in fighting without immediately replenishing them. Only when they are restored to normal levels is it necessary to appropriate funds. That could be delayed until well after the 2004 elections.
Finally, this week’s request covers only direct government expenditures related to the war. It does not factor in any positive or negative effects of the fighting on U.S. output or income. That larger “economic cost” as opposed to government “budgetary cost” is what Nordhaus and others have attempted to estimate. The president’s request to Congress doesn’t add much information to this broader question of how U.S. households will bear the total cost of the war.
© 2003 Edward Lotterman
Chanarambie Consulting, Inc.