Costs of War...

October 24, 2004
ECONOMIC VIEW
Counting the Hidden Costs of War
By ANNA BERNASEK

IT'S often said that truth is the first casualty of war. During a presidential campaign, that may be more apt than ever. Consider a seemingly simple question: What is the cost of the Iraq war to the United States? President Bush and Senator John Kerry have given different answers, but both candidates have ignored what may be the biggest cost item: the war's impact on the overall economy.

After all, the real cost of war is not only the money spent but also the economic effects, good or bad. For example, World War II led to huge levels of production and employment in the United States, while the Vietnam War dragged down economic growth as it wore on.

So, after 19 months of conflict in Iraq, how has the war affected America's economy, and what about the future?

Of course, calculating the net effect of a continuing war is neither easy nor exact. That's why many analysts are reluctant to try. But a few knowledgeable economists have made reasoned estimates, and the results are surprising.

The economic cost incurred so far may be as large as - or larger than - what has actually been spent directly on the war. (While estimates vary, the official figure for spending stands at around $120 billion since the conflict began.) And there are likely to be major economic costs as long as the war continues.

But start with the economic impact to date. Two economists, Warwick J. McKibbin of the Brookings Institution and Andrew Stoeckel of the Center for International Economics in Australia, have calculated that the war may have already cost the United States $150 billion in lost gross domestic product since fighting began in March 2003. That is close to one percentage point of growth lost over the past year and a half. If that figure is correct, the nation's annual economic growth rate, which has been 3.7 percent during this period, could have been nearly 4.7 percent without the war.

Where does that $150 billion figure come from? The study took into account factors like higher oil prices, increased budget deficits and greater uncertainty. When analyzing the effects of uncertainty, the authors estimated the impact of the war on financial markets, business investment and consumer spending.

Of course, the results of any economic model are open to debate, and the $150 billion estimate is no exception. Some economists, like David Gold at the New School University, argue that the figure may be too low while others, like Mark Zandi of

Economy.com, contend that it's on the high side.

But if Mr. McKibbin and Mr. Stoeckel are correct in their estimate, the real cost of the war to date, including direct spending and lost economic growth, is in the neighborhood of $270 billion.

Most economists would agree that the war has hurt the economy, mainly through higher oil prices and continuing uncertainty. The war's effect on oil prices is hard to disentangle from factors like higher global demand and supply disruptions, but it is commonly thought that the war's role has been significant.

"It isn't a coincidence that we have oil prices breaching the key $50-a-barrel threshold one and a half years into this war," said Stephen S. Roach, Morgan Stanley's chief global economist.

Mr. Zandi says the war has clearly "had a very large impact on our economy and on the psyches of business and consumers." He explained it this way: First, in the period before the war, fear and uncertainty held back the economic recovery. Then, as the initial invasion succeeded, the economy recovered strongly and found its footing again. Now, as the war drags on, higher oil prices and shaky confidence are dampening the pace of growth and job creation.

What really worries economists, though, is the future economic impact. "The longer this war runs, the weaker our long-run growth will be," Mr. Zandi said. That is because spending on things like the occupation and peacekeeping in Iraq does not do anything to bolster the American economy's productive capacity.

And it adds to the growing budget shortfall. "With a budget deficit already at 3.5 percent of G.D.P.," Mr. Roach said, "that's a really big deal."

To see how big the future economic costs could be, consider a study prepared by William D. Nordhaus, a Yale economist. Back in 2002, when the merits of going to war with Iraq were being debated, Professor Nordhaus published a thorough analysis of the potential economic costs. It has become the most influential study on the topic. (Mr. McKibbin and Mr. Stoeckel collaborated with Professor Nordhaus, and they relied on many of his assumptions to build their

model.)

Professor Nordhaus calculated how much output the economy would lose, based on two possibilities: a quick victory or a long conflict. Although he has not updated his results, the long-conflict version has turned out to be pretty accurate so far. He estimated that such a conflict would result in $140 billion in direct government spending, a figure that we are already near. He also predicted that oil prices would spike and that heightened uncertainty would hurt the economy. In addition, he expected large additional costs associated with the occupation and peacekeeping operations as well as with reconstruction and nation-building efforts.

Adding it all together, he came up with a whopping figure of $1.9 trillion in costs during the decade after the invasion.

OF course, any analysis of the war's economic impact over time is not complete without considering the potential future benefits to the United States and the rest of the world. Increased political stability in the Middle East, stable energy markets and diminished global terrorism could pay major dividends. In fact, many people in Washington hope that the benefits will ultimately outweigh the costs, however large.

So far, though, 19 months into the conflict, those kinds of benefits remain beyond the horizon. And until more time passes, estimating the likelihood and magnitude of those benefits lies in the realm of politics, not economics.



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In Harm's Way

October 30, 2004
PROTECTING TROOPS
Along With Prayers, Families Send Armor
By NEELA BANERJEE and JOHN KIFNER

When the 1544th Transportation Company of the Illinois National Guard was preparing to leave for Iraq in February, relatives of the soldiers offered to pay to weld steel plates on the unit's trucks to protect against roadside bombs. The Army told them not to, because it would provide better protection in Iraq, relatives said.

Seven months later, many of the company's trucks still have no armor, soldiers and relatives said, despite running some of the most dangerous missions in Iraq and incurring the highest rate of injuries and deaths among the Illinois units deployed there.

"This problem is very extensive," said Paul Rieckhoff, a former infantry platoon leader with the Florida National Guard in Iraq who now runs an organization called Operation Truth, an advocacy group for soldiers and veterans.

Though soldiers of all types have complained about equipment in Iraq, part-timers in the National Guard and Reserve say that they have a particular disadvantage because they start off with outdated or insufficient gear. They have been deployed with faulty radios, unreliable trucks and, most alarmingly for many, a shortage of soundly armored vehicles in a land regularly convulsed by roadside attacks, according to soldiers, relatives and outside military experts.

After many complaints when the violence in Iraq accelerated late last year, the military acknowledged there had been shortages, in part because of the rapid deployments. But the Army contends that it has moved quickly to get better equipment to Iraq over the last year.

"War is a come-as-you-are party," said Lt. Gen. C. V. Christianson, the Army's deputy chief of staff for logistics, in an interview yesterday. "The way a unit was resourced when someone rang the bell is the way it showed up.

"As we saw this become a more enduring commitment, those in the next rotation had full protective gear, like the newest body armor," he said. General Christianson acknowledged, however, that more work needed to be done to protect vehicles in particular and that broader changes were needed so that the Army and Reserve would be better prepared in the future.

Not all National Guard units are complaining about their equipment. The soldiers in Company C of the Arkansas Army National Guard's First Battalion, 153rd Infantry Regiment, have operated in one of the riskiest parts of Baghdad since they arrived in April.

Capt. Thomas J. Foley, 29, the company commander, and his soldiers bragged in recent interviews that their equipment, from Bradley fighting vehicles to armored personnel carriers, was on par or better than what many regular Army units in Iraq now have.

The improvements are of little solace to many soldiers' families. Progress has been made, but it has been slow and inconsistent, soldiers, families and other military observers said. When 18 reservists in Iraq refused an order to deliver fuel on Oct. 13, they cited the poor condition of their trucks and the lack of armed escorts in a particularly dangerous area.

Families Buy Equipment

Before the 103rd Armor Regiment of the Pennsylvania National Guard left in late February, some relatives bought those soldiers new body armor to supplant the Vietnam-era flak jackets that had been issued. The mother of Sgt. Sherwood Baker, a member of the regiment who was killed in April, bought a global positioning device after being told that the Army said his truck should have one but would not supply it.

And before Karma Kumlin's husband left with his Minnesota National Guard unit in February, the soldiers spent about $200 each on radios that they say have turned out to be more reliable - although less secure - than the Army's. Only recently, Ms. Kumlin said, has her husband gotten a metal shield for the gunner's turret he regularly mans, after months of asking.

"This just points to an extreme lack of planning ," said Ms. Kumlin, who is 31 and a student. "My husband is part of the second wave that went to Iraq."

Critics who say that disparities and shortages persist fault the Pentagon for incorrectly assuming that American troops would return home quickly after the war. As a result, they say, little was done to equip and train the thousands of National Guard and Reserve soldiers who were called to serve in Iraq and who now make up 40 percent of American troops there.

"I am really surprised that planners relied on the best-case military scenario," said Jonathon Turley, a military historian at George Washington University Law School who wrote last year about shortages of body armor. He was then deluged with e-mail messages from soldiers complaining of such shortages, 90 percent of them from the National Guard and Reserve.

Military officials strongly dispute assertions that reservists and National Guard troops have training and equipment inferior to that of the regular Army. "The resourcing and equipping of the National Guard today is indistinguishable from that of active duty soldiers," said Lt. Gen. H Steven Blum. "In no time in history have soldiers gone to battle as well equipped as they have gone into Iraq."

Structured like the regular Army, the National Guard functions as a state militia, typically called out for natural disasters or civil disorder. The Reserve, in contrast, is largely composed of support elements like civil affairs, the military police and supply. Both groups train one weekend a month and two weeks in the summer. The rest of the military does not consider them as well trained, well equipped or well led as the standing Army, and many of these part-time soldiers are also older.

Reliance on Reserves

Under a reorganization of the military after the Vietnam War, support functions were passed from the Army to the Reserve. Historians say the idea was to protect the Army from being sent into another unpopular war because widespread support would be needed to call up the reserves.

In his biography of Gen. Creighton Abrams, "Thunderbolt" (Simon & Schuster, 1992), Lewis Sorley wrote than General Abrams built into the restructuring "a reliance on reserves such that the force could not function without them, and hence could not be deployed without calling them up."

The reliance on the Reserve and National Guard also increased with the shrinking of the active military from roughly 2.1 million at the end of the Persian Gulf war to some 1.4 million today.

But for years, under what is called the Tiered Resourcing System, new equipment went to those most likely to need it - the active Army - while the Reserve and the Guard got the hand-me-downs.

"In addition to personnel shortfalls, most Army Guard units are not provided all the equipment they need for their wartime requirements," said Janet A. St. Laurent of the General Accounting Office in testimony before Congress in April. Ms. St. Laurent noted that many Guard units had radios so old that they could not communicate with newer ones, and trucks so old that the Army lacked spare parts for them.

Army officials concede that the old approach to training and equipping the Guard and Reserve did not prepare them for the new realities of Iraq. Progress appears to have been made in providing modern body armor and some other equipment, families and soldiers say.

The Army says it is on schedule to armor all its Humvees in Iraq by April 2005, despite the fact that only one factory in the United States puts armor on the vehicles. Moreover, the Guard is developing a plan to heighten the training and preparedness of its soldiers, under which a given unit could expect to be deployed every six years.

But the glaring problem for soldiers and families remains the vulnerability of trucks. In a conventional war there would be a fixed front line and no need for supply trucks to be armored. But in Iraq, there are no clear front lines, and slow-moving truck convoys are prime targets for roadside attacks.

Gen. James E. Chambers, the commander of the 13th Corps Support Command, to which the recalcitrant soldiers who refused the assignment are attached, told a news conference in Baghdad: "In Jim Chambers' s opinion, the most dangerous job in Iraq is driving a truck. It's not if, but when, they will be attacked."

Of the Illinois National Guard units now in Iraq, none of the 11 units has suffered as many casualties as the 1544th Transportation Company. Of the approximately 170 men and women in the unit, 5 have been killed and 32 wounded since the unit arrived in Iraq in March and began delivering supplies and mail and providing armed escort to civilian convoys.

Three of the soldiers died during mortar attacks on their base south of Baghdad. The other two were killed when roadside bombs exploded next to their unarmored trucks. Soldiers' relatives said that they expected the Army to outfit the trucks better than they themselves could have, after being told by the military that the steel plates proposed by the families would shatter if hit.

But in fact, most of the trucks in the unit have nothing more than the steel plates that the families offered to have installed in the first place, said Lt. Col. Alicia Tate-Nadeau, a spokeswoman for the Illinois Guard.

3 Meanings of Armored

The Army considers the 1544th's vehicles armored, a word that has a broad and loose meaning in the Iraq conflict. There are three categories of armored vehicles, Colonel Tate-Nadeau said. The "up-armored" ones come that way from the factory and provide the best protection for soldiers. Then come vehicles outfitted with "armor kits," or prefabricated pieces, on the chassis. The last option consists of "whatever the soldiers try to do themselves, from large sheets of metal on their trucks to sandbags on the floor of the cab," Colonel Tate-Nadeau said.

"If we're one of the richest nations in the world, our soldiers shouldn't be sent out looking like the Beverly Hillbillies," said the mother of one soldier in the unit, who, like many parents, asked not to be identified for fear of repercussions for their children.

According to figures compiled by the House Armed Services Committee and previously reported in The Seattle Times, there are plans to produce armor kits for at least 2,806 medium-weight trucks, but as of Sept. 17, only 385 of the kits had been produced and sent to Iraq. Armor kits were also planned for at least 1,600 heavyweight trucks, but as of mid-September just 446 of these kits were in Iraq. The Army is also looking into developing ways to armor truck cabs quickly, and has ordered 700 armored Humvees with special weapons platforms to protect convoys.

Specialist Benjamin Isenberg, 27, of the Oregon National Guard, died on Sept. 13 when he drove his unarmored Humvee over a homemade bomb, the principal weapon of the insurgents, said his grandmother, Beverly Isenberg of McArthur, Calif. The incident occurred near Taji, the town north of Baghdad where the 18 reservists refused to make a second trip with fuel that they say had been rejected as contaminated.

"One of the soldiers in his unit said they go by the same routes and at the same times every day," said Mrs. Isenberg, whose husband is a retired Army officer and who has two sons in the military and another grandson in the Special Forces who was wounded in Iraq. "They were just sitting ducks in an unarmored Humvee."


Carolyn Marshall contributed reporting for this article