Linda Bilmes, Joseph Stiglitz, and Paul Rieckhoff (IAVA) speaking at Harvard University

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“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.

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.

This website is inspired by the book The Three Trillion Dollar War and will continue to tell the story of the costs of this war. Apart from its tragic human toll, the Iraq War will be staggeringly expensive in financial terms. In The Three Trillion Dollar War, Nobel Prize winner Joseph E. Stiglitz and Harvard professor Linda J. Bilmes cast a spotlight on expense items that have been hidden from the U.S. taxpayer, including not only big-ticket items like replacing military equipment (being used up at six times the peacetime rate) but also the cost of caring for thousands of wounded veterans—for the rest of their lives. Shifting to a global focus, the authors investigate the cost in lives and economic damage within Iraq and the region. Finally, with the chilling precision of an actuary, the authors measure what the U.S. taxpayer’s money would have produced if instead it had been invested in the further growth of the U.S. economy. Written in language as simple as the details are disturbing, this book will forever change the way we think about the war.

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