Transcript: Q&A responses by Professor Linda Blimes on the cost of the Iraq War

Excerpts of Q&A responses by Linda J. Blimes, Harvard Kennedy School Professor and co-author of The Trillion Dollar War, on the cost of the Iraq War at the Carnegie Endowment for International Peace in Washington D.C. on March 21, 2013:

I think the number one decision that has led to long-term consequences is that there were 2 main decisions with regards to Iraq.

You know, one was the decision to invade Iraq, and the second was how to pay for it. And the decision that was taken was that we would not – unlike previous wars – we would not increase taxes, we would not do anything special to pay for the war but we would put the war – don’t forget that at the time we had $6 trillion in debt; we have $16 trillion in debt. We had actually less than that – we had $5.8 trillion in debt.

So the decision at that point in 2003 to cut taxes at the same time that we went to war was a major decision that has had long-term consequences. So much of the discussion that happens in Washington now whether it’s the sequester or the budget breakdown or all of the stuff that the Pentagon is dealing with because of the sequester and all that goes back to the fact that the debt has grown so precipitously. And the original decision that sort of triggered the debt – and as anyone with a credit card knows, debt begets debt – was the decision to immediately within the first couple of years add hundreds of billions of dollars through borrowing. And I think this is a very important decision because of the fact that it was unprecedented. You know, it really was a decision that was at odds with the way we had paid for wars throughout history. So it’s hard to argue that we just kind of did what we always did because we did something actually quite different.

I mean, I think some of the decisions like the one I described in the Pentagon about changing the way pay indexing was done were decisions that were taken at the time for specific reason, which was the recruiting shortfall. But we didn’t think about the fact that it would be – and maybe that was the right decision – but there was no conscious decision to think about the fact that if we do this, we will be baking another half a percent increase in the pay rise forever pretty much. And no way of sort of thinking through because in the kind of rush of money that came in with the war and rush of the ability to get Congress to appropriate anything – we didn’t think about that.

We also didn’t think about the fact even though we knew from previous wars that every dollar spent would cost at least another 50 cents in veterans’ long-term costs. We didn’t give Congress the choice of appropriating anything for those long-term costs. So we sort of willfully, purposefully, under – under-priced the war.

…When we wrote “The Three Trillion Dollar War” that was essentially based on forecasting from previous wars – what we expected the long-term costs in veterans and military personnel to be. We’ve now been through – and I personally analyzed 600,000 veterans claims; there are 860,000 claims, so I’m well on the way. And as part of a team at the University of California San Francisco Medical School, where we analyzed the medical, the social and economic costs of each claim, and the Tricare costs that I outlined is part of the sort of new and updated analysis. So when we wrote “The Three Trillion Dollar War”, we came up with the number $3 trillion because no matter which way you counted it, the minimum you could get to was $3 trillion and we didn’t include financial, interests costs in that. If we had included economic costs in that amount, I mean we could have called the book then $4 trillion or $5 trillion. In fact, Joe Stiglitz got in trouble with our publisher for running around the world calling it the $5 trillion war; people would be asking for the wrong book. The minimum now, you know the minimum it could cost is $4 trillion. Many of our costs were accurate but the veterans’ cost in particular and some of the Tricare costs have grown a lot faster than we had predicted. So the minimum. But you know, where the range was kind of $3 [trillion] to $5 [trillion] before, it’s sort of $4 [trillion] to $6 [trillion]. The Brown cost of war study is putting it at $6 trillion. I probably put it at $5 trillion but you know it’s at a minimum it’s at least a trillion higher.

Now, secondly in terms of what to do about it. I mean, I have a number of proposals. On the veterans issue, which is where I have spent a lot of my time, the first major recommendation is that we should be appropriating money into a veterans trust fund at the time that we go to war. So right now we under-price war. We underprice war the same if we said, you know, here’s a car for $20,000 but actually there’s a hidden price tag of another $30,000. So nobody when they actually go into vote in Congress gets to vote on the full cost. I mean, I think we should be appropriating at least an additional 25% for every dollar of war spending. This would have the benefit of, one, making people consider more carefully the actual true cost of war, and, two, putting aside money for the inevitable deferred compensation or veterans’ benefits.

Secondly, I think we should prohibit the use of emergency money for war spending. Emergency money, as I said, is supposed to be restricted to emergencies or new programs. And after 13 years of war, it’s very difficult to argue that this is an unforeseen, unexpected expense. And every year the budget caps that are given in the allocations to Congress are set in a certain structure with a certain amount but emergency money allows you to completely bust those. If we had not allowed the emergency supplemental mechanism to be the vehicle for paying for the wars, we would have had to confront earlier how we were paying for those wars.

Third of all, I believe that the Pentagon needs a top to bottom investment in cost accounting and capital budgeting, which is basic common sense that is done by most cities and states and all private sector businesses larger than a corner grocery store, so they can get a grip on what former Secretary Gates referred to as the 30% of Pentagon costs that could go to overhead.

And we are well aware of the fact that the sequester is a very crude method for cutting budgets. It’s like what I call the cutting off your arm to lose weight method. You know, it works very well but it creates some other problems because of the fact that dieting is very tedious, painful and takes a long time.

And what the Pentagon needs, in particular, is a way of tracking through cost accounting indirect costs. So not just the costs of the final costs of a weapon but all the costs associated with developing it, planning for it, and evaluating it and procuring it and re-evaluating it and auditing it and monitoring it. You know, all of those indirect costs that add so much to the base.

Fourth, on the VA disability claims system. It’s been obvious to me for a long time that the system is completely broken. We have spent, by my counting, at least $20 billion on the bad system. You know, trying to hire people to train them, to invest in the IT system, et cetera. The system is still broken, and that’s because the system is the wrong system. What we should be doing is something closer to what the IRS does with taxes, which is that they don’t audit all the taxes; they just audit some of the taxes. You accept the taxes and you audit some; that enables the system to function. And in the VA, considering that 98% of the claims get approved in the end, we should be simply taking all the new claims, approving them to a minimum level, auditing a small subset, and giving them a final resolution within 5 years. The medical system, Blue Cross Blue Shield, processes 30 million medical claims a year. They do 99% of them within 30 days, and we should be able to do the same thing.

So those are just some of my suggestions.

I think that the team at the VA – Gen. [Eric] Shinseki and Scott Gould – they’re a top rate team. And so the way we should be thinking about it is that even with the best possible leadership at the VA, that we really, really tried hard to make the current system work, it’s not working. Which leads me to think that it’s the system. You know, the system is the graduate school application system. You have to fill in a huge amount of paper work and send it in to someone who then sends you back something that says you’re missing this piece of paper, that piece of paper, whatever. That’s the system. I mean, the system should be basically a system that accepts that we cannot humanly in 57 different regional offices around the country and with 25,000 26-year-old disability claims processors with an attrition rate of 18% a year – we can’t do it. And so we need a different kind of system. What has happened at the VA, as you’re well aware, is part of the problem is that Gen. Shinseki and others have tried to make Agent Orange and others more perceptive to the veterans, to recognize the legitimacy and open access to certain claims, but the capacity of the actual process has not been able to accommodate that. So you have a real mismatch. And their belief is that technology is going to fix the problem but I believe the evidence suggests that it’s not.

One of the reasons that we wrote the book is that people had the sense that we’re spending a lot but it’s sort of very difficult to get your arms around what does a lot mean. And when you come to the reconstruction money, I think that it’s particularly hard to think about.

So just to put in context, for example in Afghanistan we spent $87 billion on Afghani reconstruction most of which as the Pentagon has, as they put it, lost visibility on it. Now, compare that to the national parks where we spent $2.5 billion a year to support all 400 of the national parks, you know, versus the $87 billion. I think if you ask most Americans they would say that’s a bad allocation of resources, you know, national parks versus.

Now, in Iraq, the U.S. portion of the reconstruction funding has been about $61 billion. When we look into sort of the disappearance of that money, what we find is that, you know, it goes back to this issue of accountability. Many of the systems, when you actually go through the Pentagon system contract by contract by contract – there are more than 30,000 contracts – the contracts don’t require any reporting relationship for small contracts. And so you find that reason there are so many small contracts is because there’s actually no documentation required. You find a lot of the contracts that have gone into the reconstruction are classified under what’s called miscellaneous foreign contracts, which is a kind of black hole. I mean, you really have no idea what that money is for. And the question is if you set up a system where contracts under $100,000 don’t require any documentation, contracts under $1 million or, actually, up to $25 million can be called miscellaneous foreign contracts with minimal documentation, it’s – of course there’s going to be disappearances, corruption, profiteering, et cetera, et cetera. I mean, the system invites it. And we’ll never get to the bottom of where all that money has gone but what we can do going forward is think about what kind of accountability mechanisms we set up to allocate, award, track and monitor money.

…I was with Gen. [Stanley] McChrystal last week and he was talking about the “scar tissue” – as he puts it – created by the wars. And one of the things he was saying – he was talking about scar tissue in a number of ways. He was talking about scar tissue that comes, for example, from drone attacks. Whether or not they kill civilians, he says every drone attack creates this sort of scar tissue because people think that they do. And as we were talking afterwards, he was saying that a lot of this reconstruction money has created a sort of scar tissue because it perpetuated and created this idea that we didn’t care about money, throwing money at the problem, corrupt people could get their hands on money. It created this kind of scar tissue, which is another sort of legacy of so much money being thrown at the war with so little accountability.

I would say mixed. We teach at the Kennedy School. For example, we teach a newly members of Congress program every 2 years. This year, I taught – I think we have 56 newly-elected members. And in addition to teaching them budgeting and everything during the day – I mean, I had a whole group of them that met with me privately just to go through some of these issues. A lot of interests in reforming the veterans disability system. A lot of interests in what’s going on in the Tricare and Pentagon health care systems. I mean, a lot of interests in trying to get information. I have a lot of staffers on the Hill who are contacting me and my students all the time trying to get information. I have not seen that translate into somebody who would fall on their swords – so-to-speak – to try and lead a complete transformation in how we think about war costs, and I don’t see anyone who is about to take that charge. I think a number of those who have looked at it carefully – for example, Bob Filner, who was the head of the House Veterans Committee who has very much embraced my reform ideas for the disability system. You know, he left Congress and he’s mayor of San Diego. So some of them have kind of moved on. I would say there is more hope for some reform in the veterans disability area than the overall reform.

Two years ago, when [we] were leading a discussion on the lifting of the debt ceiling, some of the Republicans who were there actually walked out of the room. Now, this year we didn’t have that. So people were more willing to listen. But I think that the extreme wing of the Tea Party typically does not attend the Harvard new members conferences. [Crowd laughter]

The original estimate – when we had the original estimate is $3 trillion – came back to us sort of early on from a former student of mine who was working in the administration and who was a brilliant student and who was fairly senior job at OMB [Office of Management and Budget] had called me, and he said, “I’ve been tasked with setting up a committee to scrutinize all the numbers in your book and to discredit them. I just want to let you know that.” And I said, “Okay. Fine.” And he came back to me 6 months later and he said, “Okay, I want to tell you we’ve been through the book with a fine tooth-comb. We can’t discredit any of the numbers because they’re all our own numbers. So what we are going to argue is that it was worth it.” And in that period came out the comments from President Bush and others that we don’t go to war based on green-eye shaded accountants type of stuff and this kind of thing. And so the argument was not so much around the numbers. And I think that the numbers – the discussions among budget people around is it $1.7 or $1.9 or how much of Tricare do you attribute to the war are minor.

The two main areas of disagreement among economists are, one, should one include the financing costs or not? Should one include the costs – if you say my house costs $500,000, you don’t usually include the cost of your mortgage even though you know you’re going to be paying 5% or whatever.

The second issue is around to what extent the war indirectly contributed to the financial crisis and oil price increase and so forth.

So with the oil price area, what we did was the oil prices went up by $100 a barrel. We only attributed between $5 and $10 a barrel of that increase to the war costs, which is already several hundred billion. So we have certainly from discussing it with mainstream people found pretty strong support for attributing some percentage of that oil price increase to the Iraq war.

On the issue of financing costs. Our feeling is that those are direct budgetary costs. They were unprecedented costs and that to not include – when we made such a radical departure from the way wars have been financed in the past and in the way this war was financed, particularly with the combination of the fact that it was financed off-the-books due to the emergency supplementals, that that should be on the table.

Now, the reason that we called it the $3 trillion war and that I’m saying the minimum of $4 trillion is that if you exclude all interest costs and all financing costs you get the $4 trillion already – you know, not thinking about that. If you don’t include some of the economic costs and you include some of the interest costs, you can also get to $4 trillion. But we don’t double count.

So it’s not right to add everything up together because there might be some double-counting between economic costs and interest costs but there’s a minimum cost that you achieve no matter how you get there.

Now the one cost of the war that I’m careful never to attribute, where I think I’ve seen some people attribute this as a cost of war, is the cost of the G.I. Bill – the new G.I. Bill, which we see as an investment in the economy that will produce net benefits as opposed to a net cost, which is different than money we’ve paid out to a Sri Lankan contractor or money that we’ve paid out to pay for a hip fracture. So that’s the one area I’d make that distinction.

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2 Comments on “Transcript: Q&A responses by Professor Linda Blimes on the cost of the Iraq War

  1. Pingback: Transcript: Q&A with Ambassador Samir Sumaida'ie on the state of Iraq 10 years after the U.S. invasion | What The Folly?!

  2. Pingback: Transcript: Remarks by Harvard Professor Linda Blimes on the cost of the Iraq War on March 21, 2013 | What The Folly?!

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