F itful spring sunshine is warming the neo-gothic limestone of the Houses of Parliament in central London, and the knots of tourists wandering round them, but in a basement cafe on Millbank it is dark and quiet, and Joseph Stiglitz is looking as though he hasn't had quite enough sleep. For two days non-stop he has been talking - at the London School of Economic (LSE), at Chatham House (international affairs think tank), to television crews - and then he is flying to Washington to testify before Congress on the subject of his new book. Whatever their reservations, representatives will have to listen, because not many authors with the authority of Stiglitz, a Nobel prize-winner in economics, an academic tempered by four years on Bill Clinton's Council of Economic Advisers and another three as chief economist at the World Bank (during which time he developed an influential critique of globalization), will have written a book that so urgently redefines the terms in which to view an ongoing conflict.
The Three Trillion Dollar War reveals the extent to which its effects have been, and will be, felt by everyone from Wall Street to the British high street, from Iraqi civilians to African small traders, for years to come.
Some time in 2005, Stiglitz and Linda Bilmes, who also served as an economic adviser under Clinton, noted that the official Congressional Budget Office estimate for the cost of the war so far was of the order of US$500 billion. The figure was so low, they didn't believe it, and decided to investigate. The paper they wrote together, and published in January 2006, revised the figure sharply upwards, to between US$1 trillion and US$2 trillion. Even that, Stiglitz says now, was deliberately conservative: "We didn't want to sound outlandish."
PHOTO: AFP
So what did the Republicans say? "They had two reactions," Stiglitz says wearily. "One was Bush saying, 'We don't go to war on the calculations of green eye-shaded accountants or economists.' And our response was, 'No, you don't decide to fight a response to Pearl Harbor on the basis of that, but when there's a war of choice, you at least use it to make sure your timing is right, that you've done the preparation. And you really ought to do the calculations to see if there are alternative ways that are more effective at getting your objectives. The second criticism - which we admit - was that we only look at the costs, not the benefits. Now, we couldn't see any benefits. From our point of view we weren't sure what those were."
Appetites whetted, Stiglitz and Bilmes dug deeper, and what they have discovered, after months of chasing often deliberately obscured accounts, is that in fact Bush's Iraqi adventure will cost America - just America - a conservatively estimated US$3 trillion. The rest of the world, including Britain, will probably account for about the same amount again. And in doing so they have achieved something much greater than arriving at an unimaginable figure: by describing the process, by detailing individual costs, by soberly listing the consequences of short-sighted budget decisions, they have produced a picture of comprehensive obfuscation and bad faith whose power comes from its roots in bald fact. Some of their discoveries we have heard before, others we may have had a hunch about, but others are completely new. There will be few who do not think that whatever the reasons for going to war, its progression has been morally disquieting; following the money turns out to be a brilliant way of getting at exactly why that is.
Next month America will have been in Iraq for five years - longer than it spent in either world war. Daily military operations have already cost more than 12 years in Vietnam, and twice as much as the Korean war. America is spending US$16 billion a month on running costs alone in Iraq and Afghanistan; that is the entire annual budget of the UN. Large amounts of cash go missing. The defense department's finances, based on an accounting system inaccurate for anything larger than a grocery store, are so inadequate, in fact, that often it is impossible to know exactly how much is being spent, or on what.
I ask what discoveries Stiglitz found the most disturbing. He laughs, somewhat mirthlessly. "There were actually so many things - some of it we suspected, but there were a few things I couldn't believe." The fact that a contractor working as a security guard gets about US$400,000 a year, for example, as opposed to a soldier, who might get about US$40,000. That there is a discrepancy we might have guessed - but not its sheer scale, or the fact that, because it is so hard to get insurance for working in Iraq, the government pays the premiums; or the fact that, if these contractors are injured or killed, the government pays both death and injury benefits on top. Understandably, this has forced a rise in sign-up bonuses (as has the fact that the army is so desperate for recruits that it is signing up convicted felons). "So we create a competition for ourselves. Nobody in their right mind would have done that. The Bush administration did that ... that I couldn't believe. And that's not included in the cost the government talks about."
Then there was the discovery that sign-up bonuses come with conditions: a soldier injured in the first month, for example, has to pay it back. Or the fact that "the troops, for understandable reasons, are made responsible for their equipment. You lose your helmet, you have to pay. If you get blown up and you lose your helmet, they still bill you." One soldier was sued for US$12,000 even though he had suffered massive brain damage.
Yet on another level, Stiglitz is unsurprised, because such decisions are of a piece with the thoroughgoing intellectual inconsistency of the Bush administration. The general approach, he says, has been a "pastiche of corporate bail-outs, corporate welfare, and free-market economics that is not based on any consistent set of ideas. And this particular kind of pastiche actually contributed to the failures in Iraq." There are the well-rehearsed reasons: ignoring international democratic processes while advocating democracy; pushing forward liberalization before Iraq was ready. Stiglitz's twist on this was the e-mails he was receiving from the US Agency for International Development, complaining about the Treasury being obstructive. "They were saying, 'Can you help us? Because we're trying to get businesses to work, but the US Treasury is trying to tighten credit, so there's no money in this country.'"
Then, of course, there is the administration's insistence on "sole-source bidding" - awarding vast, multi-year contracts to Halliburton, for example, instead of putting them out to tender. "An academic might say, 'How can you be a free market, yet demand single-source contracting?'" asks Stiglitz now, mildly.
This is not pure neocon ideology at work, says Stiglitz: "Ideology of convenience is a better description." It is an ideology illustrated even more clearly in another fact that Stiglitz can't believe - that Bush put through tax cuts while going to war. In Stiglitz and Bilmes's reading, this was downright underhanded. Raising taxes, and resorting to the rhetoric of shared sacrifice used in the world wars, for example, would have made Americans more aware of exactly what the war was costing them, and would have provoked opposition sooner. The solution was to borrow the money, at interest of a couple of hundred billion US dollars a year, which, by 2017, will add up to another trillion dollars or so. This government will be gone in nine months; subsequent administrations, and generations, will have to pay it off.
At the same time, Stiglitz and Bilmes argue, the Federal Reserve colluded in this obfuscation, because it "kept interest rates lower than they otherwise might have been, and looked the other way as lending standards were lowered, thereby encouraging households to borrow more - and spend more." Alan Greenspan, by this account, encouraged people to take on variable-rate mortgages, even as household savings rates went negative for the first time since the Depression. Individuals were taking on unprecedented debt at the same time as a long housing bubble made them feel secure.
As we now know, this couldn't continue - in part because of yet another effect of the war. Whatever the much argued reasons for bombing Baghdad, cheap oil has not been the result. In fact, the price of oil has climbed from US$25 a barrel to US$100 in the past five years - great for oil companies, and oil-producing countries, who, along with the contractors, are the only beneficiaries of this war, but not for anyone else. Higher oil prices have a direct effect on family, city and state budgets; they also led to a drop in GDP for the US. When interest rates finally rose in response, hundreds of thousands of home owners found that they were unable to keep up payments, triggering the toxic tsunami of defaulted mortgages that has put the US on the brink of recession and brought down Northern Rock - with all the ramifications for British home owners and banks that that has in turn entailed.
Thus, any idea that war is good for the economy, Stiglitz and Bilmes argue, is a myth. A persuasive myth, of course, and in specific cases, such as World War II, one that has seemed to be true - but in 1939, America and Europe were in a depression; there was all sorts of possible supply in the market, but people didn't have the cash to buy anything. Making armaments meant jobs, more people with more disposable income, and so on. As Stiglitz and Bilmes put it, "Money spent on armaments is money poured down the drain"; far better to invest in education, infrastructure, research, health, and reap the rewards in the long term. But any idea that war can be divorced from the economy is also naive. "A lot of people didn't expect the economy to take over the war as the major issue [in the American election]," says Stiglitz, "because people did not expect the economy to be as weak as it is. I sort of did. So one of the points of this book is that we don't have two issues in this campaign - we have one issue. Or at least, the two are very, very closely linked together."
And it is the world economy that is at stake, not just America's. The trillions the rest of the world has shouldered include, of course, the smashed Iraqi economy, the tens of thousands of Iraqi dead, the price, to neighboring countries, of absorbing thousands of refugees, the coalition dead and wounded. But the rising price of oil has also meant, according to Stiglitz and Bilmes, that the cost to oil-importing industrial countries in Europe and the Far East is now about US$1.1 trillion. And to developing countries it has been devastating: they note a study by the International Energy Agency that looked at a sample of 13 African countries and found that rising oil prices have "had the effect of lowering the average income by 3 percent.
Stiglitz made his name by, among other things, criticizing America's use of globalization as a bully pulpit; now he says flatly, "Yes, that's part of being in a global economy. You make a mistake of this order, and it affects people all over the world."
And the borrowed trillions have to come from somewhere. Because "the saving rate [in America] is zero," says Stiglitz, "that means that you have to finance [the war] by borrowing abroad. So China is financing America's war." The US is now operating at such a deficit, in fact, that it doesn't have the money to bail out its own banks. "When Merrill Lynch and Citibank had a problem, it was sovereign funds from abroad that bailed them out. And we had to give up a lot of shares of our ownership. So the largest share owners in Citibank now are in the Middle East. It should be called the MidEast bank, not the Citibank." This creates a precedent of dependence, "and whether we become dependent on Middle East oil money, or Chinese reserves - it's that dependency that people ought to worry about. That is a big change. The amount of borrowing in the last eight years, on top of the borrowing that began with Reagan - that has all changed the US' economic position in the world."
So quite apart from the war, does he think a particular kind of unfettered market has had its day? "Yes. I think that anybody who believes that the banks know what they're doing has to have their head examined. Clearly, unfettered markets have led us to this economic downturn, and to enormous social problems." Combined with the war, whoever inherits the White House faces a crisis of epic proportions. Where do they go from here?
Stiglitz has been approached by Barack Obama as a possible adviser should he reach the White House, although he says, "I've gone beyond the age where I would want to be in Washington full time. I would be interested in trying to help shape the bigger picture issues, and in particular the issues associated with America positioning itself in the new global world, and re-establishing the bonds with other countries that have been so damaged by the Bush administration."
I suggest, as devil's advocate, that to count costs in the way he has, and to advise retrenchment, might be seen as encouraging America to return to isolationism. "No. I think that's fundamentally wrong. The problem with Iraq was that it was the wrong war, and the wrong set of issues. Obama was very good about this. He said, 'I'm not against war - I'm just against stupid wars.' And I feel very much the same way. While we were worried about WMD that did not exist in Iraq, WMD did occur in North Korea. To use an American expression, we took our eye off the ball. And while we were fighting in Iraq, Afghanistan got worse, Pakistan got worse. So because we were fighting battles that we couldn't win, we lost battles that we could have." To discover that those lost battles included better healthcare for millions of Americans, a robust world economy, a healthier and more independent Africa, and a more stable Middle East, seems worth a bit of green-eye-shaded number crunching.
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