“The Accountant who Roared”

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From the April Edition of o2138 Magazine

Thursday, 10 April

The Accountant Who Roared

For students of politics, the Iraq war serves as “a case study” in government failure, say Joseph Stiglitz and Linda Bilmes [A.B. ’80, MBA ’84] in their new book, The Three Trillion Dollar War: The True Cost of the Iraq Conflict. Indeed, Bilmes, a professor of public policy at the Kennedy School and CFO of the Commerce Department during the Clinton administration, sees the budgeting quagmire as an academic challenge as well as a personal cause.Since publishing her first estimate of the war’s cost in January 2006, Bilmes has testified before Congress advocating both fiscal transparency and a better deal for veterans. As Americans have come to face the sticker shock of the war, she has also become an in-demand TV pundit and appeared in the Oscar-nominated documentary No End In Sight. Fresh from a round of TV interviews about The Three Trillion Dollar War, the mother of three teenagers spoke with 02138 from her home in Belmont, Mass.

Your book was timed to the five-year anniversary of the American invasion of Iraq. Going into this project, what sort of impact were you looking to make?Joe [Stiglitz] and I had two objectives: one was simply to lay out what the total cost of war will be, once we’ve paid all the long-term costs. The second objective was to show how our veterans are being shortchanged. That particularly got to me, because not only is the situation very disturbing, it’s entirely fixable. This is about processing, in a timely fashion, the claims of people who serve our country.

You knew this would be a volatile topic, and you’ve had a number of critics, particularly in the Pentagon.

The Bush administration attacked us when the book came out, saying that Joe is a coward. I had my run-in with them last year about my estimates of the numbers of wounded. They said our numbers are exaggerated, but that’s what they’ve said all along. When their own economics advisor Larry Lindsey said [in 2002] that the war would cost $200 billion, they fired him. We’ve tried to be very conservative in our numbers—we could easily have made higher estimates. As we lay out in the book, there are two issues: the cost of war, and how we’re borrowing to pay for it. This is the first war in U.S. history that we haven’t raised taxes to fund—this war is going on the credit card.

What sparked your interest in the war budget?

I was teaching an accrual accounting class at the Kennedy School, and my students asked me how you’d go about measuring the cost of the war. My students have been amazing through this whole process. I had a disabled Iraq war veteran, John Horton, who worked for me and wouldn’t take money for it.

In the introduction you acknowledge Murray Bilmes, your father. What influence has he had in your decision to write on the war?

I think about it in terms of my dad. He died this summer, and it’s sad that he didn’t get to see the book. He served in the Army during World War II and got his Ph.D on the GI bill. Today, the tuition benefit pays about half of tuition and no living stipend. On top of that—what is truly unbelievable—they require every enlisted person to pay $1000 during their first year of service if they want to ever be eligible for education benefits. If you don’t pay in your first year, you’ve opted out. To deny veterans an education because when they’re 18 they didn’t get around to paying the $1000, it’s absurd. I know, having two teenagers, that they may not see the value of an education at that age.

In the book you draw a direct line between the poor quality of veteran care and the fiscal mismanagement of the war. For disabled veterans the VA system sounds like something from Kafka.

Right now, if you’re a veteran coming home, getting your benefits is like filling out a college application: You have to get all the different pieces of paper together, and they won’t look at it until you have all the things that you need. This is a difficult process, even if you’re not coming back with brain damage or post-traumatic stress disorder. We should do away with the entire system, accept prima facie the disability claims of all returning veterans, and audit claims later on to deter fraud.

You must have run into a lot of roadblocks in this project. Which was the biggest?

One of the greatest difficulties in writing this book was utter lack of transparency in the Pentagon’s accounting. They’ve flunked their financial audit for as long as there have been audits. Having cleaned up a massive balance account problem at the Commerce Department, I am familiar with how difficult this is. It means you have big chunks of money you can’t trace or account for.

In the book you make the comparison to the popular outrage during the Enron scandal, versus the outrage over this accounting scandal. Do you think the Pentagon needs its own Sarbanes-Oxley Act?

For the private sector, Congress has demanded that those running companies, CEOs and CFOs, take personal responsibility for the integrity of financial data being presented about the company. If you had a version of the Sarbanes-Oxley Act in operation for the government, then Rumsfeld and Wolfowitz and others at the Pentagon would be held responsible for the financial malfeasance during this war.So yes, I think the Pentagon needs a mini version, though I would not impose criminal penalties —you could require that the secretary of the department produce a clean financial statement, and certify that the numbers are correct.

You mean they don’t do that already?

What happens every year is that auditors come in and say they cannot validate the Pentagon’s financial data, and the inspector general issues a statement saying that it’s a mess. In the Pentagon they don’t know their own inventory, facilities costs, how much money is flowing to different accounts. I’m not only one who’s criticized this—the Comptroller General who just stepped down, David Walker, has been a huge critic.

Do you think reformers have been stymied by the Pentagon’s secrecy?

I think the Pentagon needs a cultural shift —they need to get religion on this subject. Poor information leads to poor decisions.

Latest MIT research on brain trauma in Iraq

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May/June 2008

Part I: Brain Trauma in Iraq
Thousands of U.S. soldiers have survived powerful explosions. Many are returning home with brain injuries that could result in lingering disabilities.
By Emily Singer
Read more here

The $3 Trillion War

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An excerpt from the book, in Vanity Fair, April 2008 issue – Read the full excerpt here.

On March 19, 2008, the U.S. will have been in Iraq for five years. The Bush administration was wrong about the need for the Iraq war and about the benefits the war would bring to Iraq, to the region, and to America. It has also been wrong about the full cost of the war, and it continues to take steps to conceal that cost.

In the run-up to the war there were few public discussions of the likely price tag. When Lawrence Lindsey, President Bush’s economic adviser, suggested that it might reach $200 billion all told, Secretary of Defense Donald Rumsfeld dismissed the estimate as “baloney.” Deputy Defense Secretary Paul Wolfowitz went as far as to suggest that Iraq’s postwar reconstruction would pay for itself through increased oil revenues. Rumsfeld and Office of Management and Budget Director Mitch Daniels estimated the total cost of the war in the range of $50 to $60 billion, some of which they believed would be financed by other countries.

For fiscal year 2008 the administration has asked for nearly $200 billion to fund the wars in Iraq and Afghanistan. If Congress provides the money, as it almost certainly will, then the total appropriated for direct operations in these two countries (including reconstruction, embassy costs, enhanced base security, and foreign aid) since the wars began will come to roughly $800 billion. It is extremely difficult to disentangle the Iraq and Afghanistan numbers, but Iraq is by far the larger endeavor and accounts for about three-fourths of the total. By the administration’s own reckoning, then, the cost of the Iraq war, counting only the money officially appropriated, will soon be some $600 billion, or more than 10 times Rumsfeld’s original number.

An excerpt from the book, in Vanity Fair, April 2008 issue – Read the full excerpt here.

War at Any Cost? The Total Economic Costs of the War Beyond the Federal Budget

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Written testimony of Joseph E. Stiglitz for the Joint Economic Committee, February 28, 2008

Thank you for this opportunity to discuss with you the economic costs of the Iraq War. March 19 marks the fifth anniversary of what was supposed to be a short venture to save the world from the threat of weapons of mass destruction—which simply weren’t there. It is now the second longest war in America’s history, and, after the all-encompassing World War II, the second most costly, even after adjusting for inflation. In terms of costs per troop, it is by far the costliest—some eight times as expensive as World War II.

Download the full testimony here as PDF.

The Economic Costs of The Iraq War: An Appraisal Three Years After the Beginning of The Conflict

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Three years ago, as America was preparing to go to war in Iraq, there were few discussions of the likely costs.  When Larry Lindsey, President Bush’s economic adviser, suggested that they might reach $200 billion, there was a quick response from the White House:  that number was a gross overestimation.(2)   Deputy Defense Secretary Paul Wolfowitz claimed that Iraq could “really finance its own reconstruction,” apparently both underestimating what was required and the debt burden facing the country.  Lindsey went on to say that “The successful prosecution of the war would be good for the economy.”(3)

Many aspects of the Iraq venture have turned out differently from what was purported before the war:  there were no weapons of mass destruction, no clear link between Al Qaeda and Iraq, no imminent danger that would warrant a pre-emptive war.  Whether Americans were greeted as liberators or not, there is evidence that that they are now viewed as occupiers.  Stability has not been established.  Clearly, the benefits of the War have been markedly different from those claimed.

So too for the costs.  It now appears that Lindsey was indeed  wrong—by grossly underestimating the costs.  Congress has already appropriated approximately $357 billion for military operations, reconstruction, embassy costs, enhanced security at US bases and foreign aid programs in Iraq and Afghanistan. This total, which covers costs through the end of November 2005, includes $251bn for military operations in Iraq, $82bn for Afghanistan and $24bn for related foreign operations, such as reconstruction, embassy safety and base security.(4)  These costs have been rising throughout the war. Since FY 2003, the monthly average cost of operations has risen from $4.4bn to $7.1 bn – the costs of operations in Iraq have grown by nearly 20% since last year (whereas Afghanistan was 8% lower than last year).(5)   The Congressional Budget Office has now estimated that in their central, mid-range scenario, the Iraq war will cost over $266 billion more in the next decade, putting the direct costs of the war in the range of $500 billion(6).

from Bilmes, Linda, and Joseph E. Stiglitz. “The Economic Costs of The IRAQ WAR:  An Appraisal Three Years After the Beginning of The Conflict.” Paper prepared for presentation at the ASSA meeting, 2006

Download the full paper here as a PDF.

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