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Jamie Galbraith:
Well, good afternoon. I hate to break into all of these conversations, but I am going to do so. This is a very, a particularly special moment in this conference, because I want to welcome a speaker for this lunch who has come to play an important and perhaps in some ways ultimately decisive role in a rapidly expanding area of our national debate. Linda Bilmes was Assistant Secretary of Commerce for Management and Budget in the Clinton Administration. From there she went to the Kennedy School of Government, where she is presently a professor of practice. She first came into our network about a year-and-a-half or so ago with a paper co-authored with Joe Stiglitz which I mentioned last night. I said this was part of our campaign to take over all of the press coverage associated with the American Economic Association. Linda was not here, but I mentioned that if you googled American Economic Association after that meeting on news, you would get 77 stories, of which 74 were about Linda’s work.
What was about? It was about the full cost of the war in Iraq; that is to say, about the predictable long-term consequences of actions that had already been taken and actions that were essentially inevitable as of that time. And of course once one began to do the accounting in those terms, numbers, certainly all but the early numbers of $50 billion or so, all paid for by the Iraqis themselves and already disappeared; the $200 billion, which was a plausible a priori estimate in some ways by Lawrence Lindsay, also fades away; and the numbers go up to the range of a trillion to two trillion. And they rise from there as the situation is prolonged and gets worse.
And it turned out that a very large part of the accounting of this, of the projections, have to do with the long-term care of returning veterans who are injured. As the injury rates are much higher, the survival rates from injuries that would have previously been lethal are much higher, and the costs of care are much higher and go on very far into the future, as these young people face diminished and demanding lives. And Linda got into this, and she will tell you, this issue began to explode, because it’s an issue which was known to the people who are affected by it, but was not known very well by the larger public. And I won’t take my time to tell you this story, because I’m sure you will get it from her— It leads, of course, directly to this exploding scandal of the inadequate preparation for veterans’ medical care and veterans’ care in general that has come to characterize, and in some ways to epitomize and to symbolize and to capture for most people’s everyday experience exactly what was wrong with the decision to go to war in Iraq, and with the entire approach that the administration took to prosecuting that war. So it has become, in some sense, in many ways, I said to Linda last night, the most important thing that we do, the most important that we have done: Her work represents what Economists for Peace and Security is all about. And so I’m really very happy and very pleased, privileged, and proud to introduce Linda Bilmes to you this afternoon.
Linda Bilmes:
Thank you, Jamie, and thank you all for inviting me here to speak today.
There’s a lot of information. I’m always reminded of the old wag, you should not try to cram everything into a speech that you know, because you might succeed.
But I’m Linda Bilmes, and I want to first of all point out that I’m not actually an economist, but I’m really an expert in budgets and public accounting. But I did team up with an economist in the form of Joe Stiglitz last year to write the first paper on the cost of the war. We wrote a subsequent paper in The Milken Review last year, and I’ve written a paper on the veterans’ cost this year.
So what I’m going to try and do today is to discuss how we try to quantify the cost of the war. I’ll focus in some detail on the veterans’ cost and the medical and disability payments to the veterans.
Let me just start by making a couple of general observations about the cost of the war: When a country goes to war, the benefits are typically things like freedom and democracy, and things which are not very easily quantified. But in this war, certainly, which was a war of choice, where we had a lot of choice over the timing and the decision, it should have been possible to estimate what the war would have cost, or at least to take some effort to do that. And apart from a few academic studies, most notable Bill Nordhouse of Yale, no one took a serious look at the cost of a prolonged occupation. Certainly no one in the government did this. In fact, as we all know, Secretary Rumsfeld, when he was asked if it was even possible whether the cost could exceed the $60 billion that he had projected, he dismissed it in that Rumsfeldian way as “baloney.” In fact, things have turned out very differently. The war will cost us between $1.2 and $1.5 trillion dollars in budgetary costs, and another $800 billion in economic costs.
But there is a kind of strange phenomenon even about these costs. An old friend of mine, who is 92, said to me that in his life he notes that countries usually end wars when they have spent enough blood or treasure. But in the current conflict, by fighting this war with a volunteer army supported by contractors, we have essentially been able to turn this cost in blood into a financial cost. It’s basically how much we pay the soldiers and the contractors. And then, by borrowing all the money to fight the war, instead of raising taxes, we’ve deferred even that cost, and passed it on to the next generation. So the cost of the war that I’m about to describe has really not been felt by the population. And you can see it clearly every day in the newspapers. Just picking up today’s USA Today, we see “New Peak for the S&P 500,” and at the same time, that the military needs $25 billion for 22,000 new MRAPs, that’s mine-resistant ambush-protected vehicles, by 2009. Since the initial study that Joe and I did last year, I can honestly say that every single day in the last year-and-a-half, I uncover another additional cost which we’ve not yet even incorporated into our figures.
Before I discuss the cost, let me just review the basic dimensions of the war. Over 1.5 million US servicemen have been deployed to operations in and around Iraq and Afghanistan. To date, about 690,000 soldiers have been discharged, which means that the majority, about 800,000, are still deployed. About half the force has served second or third deployments, or had their tours of duty extended involuntarily. The official death toll is more than 3,700. The number who have been wounded in direct combat is over 26,000. The number of troops who have been wounded or injured including non-combat, and that means, in other words, if your helicopter crashes into a mountain, as opposed to being shot down, if you are electrocuted while you’re stringing barbed wire, if you are burned while being trained in how to detonate explosives, if you have heat stroke or [… meniasis?], is more than 62,000.
Now when I did my study of the veterans’ cost, I ran directly head-on into a kind of state of denial of the Pentagon about this larger number of wounded and injured; so I’ll just describe that to you for a second. It was a very strange situation. Since I was trying to understand the cost, I needed to look at the full number, because it doesn’t matter if your helicopter crashes into a mountain or if it’s shot down. If you’re wounded, either way the Veterans’ Administration is going to be paying for your disability benefits, and your medical care will be seen to.
But if you are in that helicopter and you do crash into a mountain, but you’re not shot down, you don’t show up on the official wounded list, because you’re not wounded in combat. The Pentagon keeps two sets of books, and after I published my paper, Dr. Winkenwender, then Under-Secretary of Health for the Pentagon, actually phoned me up in my office and said, “Where did you get this number?” And I said, “Well, I got it from your website.” And he said, “You did?” So I then faxed him his own website. I thought I was pretty clever, doing that. But a week later a number of veterans’ groups contacted me, and then they said, Did you see what they’ve done? They’ve changed the website.
Now you can still find the total number of wounded and injured on the military website, but you have to know what you’re looking for; because there is no longer a total of what they call non-mortal casualties; you have to add up a number of columns to get there. You have to be able to know that you add up three different places in a fairly confusing form.
But the point is here that the number of casualties is much higher than in previous wars. In Viet Nam, the number of wounded was 2.6 for every fatality; in Korea, it was 2.8; and in this war, if you count only the wounded in combat, it’s 8 to 1, and if you count all the non-combat and combat injuries, it’s 16 to 1. And that is obviously very good news, that so many people are surviving; but it carries a very high price tag.
So now let me turn to talking about the cost of the war. We examined four categories of costs of the war. (There are more, but these are the ones we worked with.) The first category is the running costs. This is what we read about in the newspaper. This is the cost that you see that John Kerry voted for, or he didn’t vote for, and so forth. And Congress has appropriated $500 billion to date for Iraq and Afghanistan military operations, reconstruction, and enhanced security at US bases, including about $380 billion for military operations in Iraq. And one of the things that is striking is that this cost has been rising every month since the war began. In FY 2003, the monthly average cost of operations was $4.4 billion; it’s now $9.8 billion. That’s $10 billion a month, $2.5 billion a week. And people, usually journalists, they say, how can you spend that much money? What are we actually spending it on? Where does it go?
This money goes to a few things that really drive up the cost. One is combat pay. In addition to their regular salary, anyone who is deployed received combat pay. Combat pay has been rising throughout the war.
A second very expensive cost is the high cost of using Reservists. Forty percent of the fighting force are National Guardsmen and Reservists. Reservists are the most expensive way to fight a war, because if you think about it, normally we’re only paying them for one weekend a month in the Reserve; but we have to pay them a full-time salary, plus combat pay, plus they’re mostly older, so they get family leave, housing assistance, family benefits. So it’s the sort of wartime equivalent of treating an ingrown toenail in the emergency room. It’s a very expensive way to fund a war.
Third are the very high cost of contractors and the high security component of contracts. So in other words, we’re using a lot of contractors to support the troops. Contractors have lower long-term costs, because they don’t get as many benefits as active duty troops; but they increase the short-term running costs. We also are well familiar with the fact that contractors now, if you look month to month to month, the same contract for doing the same thing, whether it’s tacking on bulletin boards, or replacing the electricity grid, an increasing share of those contracts is going to security costs, so the cost of the contracts goes up. Other things that are very expensive include fuel—fuel costs of course have hit the military very hard, and the price of oil before we invaded Iraq was $23 a barrel; maintenance costs—equipment is being used up at six times the peacetime rate; repairs of equipment; and moving supplies into remote areas—for example, in Afghanistan, you have many people stationed in very remote areas, and it’s a very high cost to get their supplies there; reenlistment bonuses for special forces are up to $145,000—it is very very hard for the military to retain people, particularly at the sort of staff sergeant level, particularly in certain specialties; and then of course the high cost of medical care in the field. The increased survival rate has come at a very high cost, and the cost of being able to immediately get to somebody to airlift them out, to get them to Landstuhl in Germany, as well as quite extensive care in the field. These are the some of the things that lead to the very high operating cost.
Now moving onto the second level of costs: The second level of costs are the long-term costs that we have already accrued but not yet paid. And one of the great lessons of war, but particularly of this war, is that costs continue long after combat has ceased. But these costs are hidden by the government’s cash accounting system. So when we make a decision to go to war, there’s a commitment not only to pay for battlefield operations, but also to provide long-term medical care and disability pay, to replace depleted military equipment, and to recruit equipment-trained new soldiers to replace the soldiers who are lost. But because of the way we report expenditures, the costs of the war that you see are very misleading.
A good example of this, just to focus our minds for a second, is the first Gulf War in 1991. That war is largely seen as a war that had no cost to us, because the operating costs were paid for by the Allies. But in fact we’re still paying $4 billion a year in disability benefits to soldiers for that war. Four billion dollars—that’s almost as big as the Center for Disease Control’s budget, and that war only lasted for a month. And that cost is increasing because soldiers from the First Gulf War are increasingly applying for disability pay, disability benefits, and medical care related to Gulf War Syndrome. And I haven’t even counted—you could, I just have not calculated it—the amount that we’re paying for First Gulf War veterans in medical care for Gulf War Syndrome. It probably would double it.
Now in the Iraq and Afghanistan wars there are two very large accrued liabilities in the form of health care costs and future disability payments to veterans, and these two items in today’s dollars mean an additional $250-650 billion in cost. In other words,—and I’ll go through in a minute what accounts for the range— this hidden cost alone could well equal the total reported cost, or exceed the total cost of combat operations to date.
I just want to describe how I got involved in writing this veterans paper. After I wrote my first paper with Joe last year, I started receiving hundreds, if not thousands, of emails from people all over the world, but in particular, from soldiers who are stationed in Iraq and Afghanistan now and from veterans, saying, Please look at the veterans issue, please help look at the veterans issue. All of the major veterans organizations contacted me and said, Thank you for looking at this veterans issue; but you took a very cursory look at it. Can you please look at the cost and the situation for veterans in more depth. And I had literally hundreds of emails from veterans and their families saying, My son was in this situation—In fact, I have one here I’ll read you:
Dear Professor Bilmes,
I have sent many letters and talked to senate offices. We seem to be getting nowhere. My nephew, Patrick Feges, was severely wounded in Iraq. He had a visit from President Bush at Walter Reed Hospital, a Purple Heart from Governor Perry, but has to this date received no benefits for 18 months. He has been working with the VA, but letter after letter does not solve the problem. President Bush can use any numbers describing the wounded or the costs, but nothing is going to solve the problem if no one is paying attention or cares.
Thank you,
Kathleen Creasbaum
Patrick’s Aunt
Sugarland, Texas
I have a stack this high of these kind of things. And the last straw on the veterans thing was when I was visited by a group of women, the Gold Star Mothers, who were wearing the gold star for their sons who were lost. And they asked me specifically to look at the veterans’ issues because they said they had promised their sons that if anything happened to them that they would try and fight for the veterans.
So let’s take a minute and look at this veterans issue which is obviously a significant cost issue, but it’s also an issue in terms of the capacity of the country to take care of its veterans. It’s actually, unlike some of the more intractable issues around Iraq, this is an issue that can be fixed. And the will of people sitting in this room and others can actually fix this problem.
So in terms of medical costs, the servicemen who are officially wounded in combat are a very small percentage of the veterans who will actually be using the Veterans Administration System. Of the nearly 700,000 who’ve been discharged, about one-third of them have already gone to a veterans’ hospital or clinic, and of that group, 38 percent have been treated for mental illnesses, particularly post-traumatic stress disorder (PTSD), depression, and substance abuse. Most of these veterans have also applied for disability benefits, and the result is that the VA system is completely overwhelmed by demand for medical care and the demand for disability claims.
Now you understand, the veterans system in this country does two things. It provides the hospitals, the medical care, and it provides the money, the stipends, the claims. First on the claims side, the Veterans Benefits Administration that provides the claims is inundated with claims, so it has a huge backlog. This year they received over 800,000 claims. Secretary Nicholson testified that he expects to receive 1.6 million additional claims in the next one-and-a-half to two years. These include claims both from returning soldiers and claims from soldiers from previous conflicts, for example First Gulf War veterans claiming for Gulf War Syndrome and for conditions that have worsened. My own projections show that we will receive this year between 250,000 and 400,000 claims from Iraq and Afghan veterans.
So this has led to a huge backlog. There are now about 600,000 pending claims at the VA, and this is up from a backlog of 69,000 in 2001. That’s 400,000 brand new claims which are sitting there, have not been touched yet, and another 200,000 that are in sort of back-and-forth paperwork process.
Now when we think about what’s involved in actually processing one of these veterans’ claims, it’s an unbelievably sort of cumbersome paperwork-intensive technologically Stone Age kind of process, and the Veterans Benefit Administration takes 177 days—that’s about six months—to process an initial claim, and two years or more to process an appeal. So the process for figuring out whether a veteran is suffering from a disability is incredibly—and when I explain this to you, you’ll just say this is ridiculously complex; any person sitting in this room spending five or six hours on this could figure out a better system.
But a veteran has to apply to one of the 57 different regional offices, where a claims adjudicator evaluates each one of the veteran’s impairments, and they typically have five, six, seven, eight impairments in each claim, and assigns them a rating for the degree to which they’re disabled for that condition. The simplest claim form is 23 pages long. Claims specialists must determine the percentage disability for each condition in increments of 10. However, conditions are not scaled monotonically from 0 to 100. Mental conditions, for example, are rated 0, 10, 30, 50, 70, or 100. Coronary artery disease ratings are 10, 30, 60, and 100. Spinal conditions are rated 10, 20, 30, 50, and 100. So you have a claims specialists who basically is looking at maybe eight different conditions for a veteran and rating them on this scale. And then if a veteran disagrees with any of this, they go through an enormously protracted appeals process.
The claims from Iraq and Afghanistan are much more complex than in previous conflicts. A Viet Nam era veteran cited an average of three disability conditions. Gulf War veterans filed on average for four. In the current conflict, the claims so far, which, again, are the ones from the very beginning of the war, have an average of five separate disabilities in each claim form. Now this year, one-quarter of the new claims filed cited eight or more different disabilities, and often these involve complex battle-related injuries, as well as traumatic brain injury, PTSD, and complications from chronic diseases.
Now, as you can imagine with this system, there’s a huge amount of duplication, and there’s a huge amount of error, and there’s a huge amount of inconsistency in how it is applied across the board, across all these many centers by the 9,000 people who are adjudicating the claims. And the GAO has issued numerous reports over the years about the flaws and the inconsistencies in this process. I mean they recently found that it takes 99 days to get a claim seen to in Salt Lake City, and 239 days in Honolulu. But ironically, due to the lack of preparation for the veterans returning home, the states with the highest number of returning veterans have the highest backlogs and the longest number of days.
So what happens today is that the veteran comes home, and after they come home, they begin the process of filing for disability. So let’s say that a veteran is discharged because he has back problems from having been in three deployments carrying a 120-pound pack, and he’s also suffering from PTSD because he was trapped for eight hours in a humvee which crashed into another humvee in his convoy--which incidentally would not go on the wounded list, because if the one in front of you is blown up, but you crash into the one that is there, you don’t get on the wounded list. And he also suffers from a partial loss of hearing in his left ear. So that’s the veteran.
Now the full burden of gathering the medical evidence rests on the soldier. He’s the one who has to go to the different doctors and gather all the documentation, and a file, the forms, and so forth. But this is very difficult for many reasons. First of all, he doesn’t receive a medical examination when he’s discharged. He might, but he usually doesn’t, which is kind of incredible, but it’s true. Secondly, the Defense Department, which would have treated him for his initial condition, typically does not share with the Veterans Administraion its records. Some of them are electronic, some of them don’t; but there’s a sort of extreme lack of seamless transition, as were between the Defense Department and the VA recordkeeping. Third, then, this veteran, who’s typically, because half of the soldiers now deployed are from rural communities, has to then travel long distances to get to see veterans specialists in three different areas, and has to go to the back of long waiting lists to get in, even if he doesn’t need treatment, to see the doctors.
So there are thousands of veterans in exactly this situation. Depending on where he is in the country, he can wait months and months and months to get medical appointments. And that’s why, of the nearly 200,000 veterans from this war who’ve applied for disability so far, most of the claims are still somewhere in the process. When they finally get seen, 88 percent of them are approved. But—and this is an important point—veterans receive two years of free health care when they come home; but if they want to continue that health care, they have to apply for disability. So you have a situation where everyone wants to apply for disability so they can continue to receive health care, which is clogging up the disability claims process; and conversely, in order to apply for disability, you need to be seen by a veterans doctor, so that clogs up the veterans health care process, whether or not you actually have an urgent need.
Now this is, as we’ve read, creating bottlenecks and backlogs and waiting lists all through the system. Personally I’ve testified on this on numerous veterans Congressional committees, and I’ve met with Secretary Nicholson and numerous veterans organizations; but the Walter Reed scandal is essentially happening all over the country in out-patient clinics because what happens is the veterans come home and they get treated in a hospital, and then they don’t want to leave their military status because, if they do, they lose all their benefits. They lose their housing benefit, they lose their family benefit, they lose all income. And they know that if they have to start from scratch as a disabled veteran, they’re going to have to go through six months to two years of this whole process.
So now let me return to the cost implications of this. So the cost of providing these disability benefits is projected to be between $75 billion and $150 billion in current dollars; and the eventual cost will depend on several factors, including the number of troops stationed in Iraq and Afghanistan, the length of time they’re deployed, the rate of claims and utilization of benefit programs. When I did my study on the veterans, I looked at it under a number of sort of scenarios based on how long the war would last, ranging from a most optimistic scenario, assuming that all troops were home by 2010, which, listening to Michael last night, seems overly optimistic, and assuming that 44 percent of the current veterans claim disability, which is the number that claimed disability in the First Gulf War.
Now all of my projections are probably very conservative, because I’ve essentially based this on how many people claimed in the First Gulf War, even though in this war, of course, there are much longer deployments, much heavier and more fierce ground fighting, and much more serious casualties. But even under my most optimistic scenario, it turns out that 643,000 Iraq and Afghan veterans will be eventually claiming benefits, and there’s a cost of $67 billion, even if they receive the very lowest possible benefits for that.
And then under the highest scenario that I considered on the disability, I assumed that we eventually had two million servicemen deployed through 2015, that 50 percent of veterans would file some form of disability claim, and that benefits cost would increase at the rate that they have increased, which is a six-percent compound growth rate. And I in all of these things used the monthly benefit that is given to the initial First Gulf War veterans, which is about $6,000. There are many ways you could do this. If anybody’s interested, I have a massive interactive model that I’ve shared with many people and provided to many congressmen to try and get them to actually just look at the long-term implications for veterans.
Now, the health care costs are, of course, much higher. Using a similar set of assumptions, looking at how many First Gulf War veterans are using the VA health care system as their primary health care provider, I projected that the cost of providing medical care to current veterans will be a minimum of $138 billion, and if health care costs continue to rise as they have, more like $400 billion.
The medical consequences of this war are very considerable. In the last couple of months I’ve spoken at several conferences organized around the country by Physicians for Social Responsibility. There was a massive teach-in at UCSF, University of California at San Francisco Medical School last month. They had a thousand people there—doctors and medical students—who were all, like all of us in this room, trying to figure out what could they do. And a lot of them are trying to understand what is PTSD, what is traumatic brain injury, how much is there. No one really knows. And I am working with a large consortium of doctors and poly-trauma critics to try and actually size this problem and figure out how much it actually costs to treat a traumatic brain injury and PTSD properly.
But I think what is clear from the data that has been shown by these doctors and neurologists that I’ve seen is that there’s a very direct correlation between the number of exposures to fire fights and the incidence of PTSD. So the longer people are deployed—this is not surprising, but they have proved it beyond a reasonable doubt—the longer people are deployed, the higher the incidence of PTSD. And mental health costs in the VA health care system are the most expensive costs to treat.
And currently the Veterans Health Administration simply doesn’t have the capacity in providing mental health care. A lot of the disability issues are not necessarily just money problems; they’re structural process problems. On the health care side, it’s money problems. They don’t have enough psychiatrists. They don’t have the triage nurses who can say, This person is going to commit suicide if they don’t get seen right now. They don’t have the neighborhood vet centers. They don’t have the psychologists and social workers.
Now, believe it or not, we’re still just talking about the second cost of the four I mentioned. So I will very quickly run through the rest of them.
Another long-term cost is of course the cost of replacing military equipment. And in an accrual accounting system, the auditors would insist on large increase and depreciation costs, as planes, and tanks, and helicopters, and so forth, are rapidly written off. And even this might underestimate the cost if the military hardware is much more expensive than the previous one.
But none of these costs appear in the official cost that you see of the cost of the war. And we estimate that the funds needed to replace hardware being used up—and this is very conservative; this is like rock bottom; we even got the Congressional Budget Office, which is very conservative, to agree on this one—is between $33 to $90 billion. But that probably way underestimates, because just this month the Air Force said it needs $400 billion to replace its fleet of aircraft, which is being used in extremely difficult conditions. But you can’t count the whole of that cost either, because the fleet was already old when we invaded.
It’s also becoming apparent—another cost—is that the length and the ferocity of the Iraq War will require a substantial expenditure to reset the military in the form of recruiting, training, and restoring full military strength. We estimate that this cost is an additional $27 to $65 billion.
I think the important point about these costs, whether we have underestimated them—I think we’ve been very conservative; but these are costs which are very large and very real. There’s no chance that the government is going to refuse care for veterans, or refuse to replace helicopters. But under the cash-based accounting system, these clusters don’t show up, and so the result is that the total budgetary costs, not even considering the economic costs, are completely underestimated.
Third are economic-social costs, and these are costs which somebody has to pay. Somebody has to pay, but not necessarily the government. For example, taking care of a soldier with brain injury. A soldier who’s on maximum disability benefit gets $44,000 a year. But that’s just a pittance compared to the actual cost of taking care of a brain-injured person, and the rest of that cost is generally paid for by the family, the community, private health insurance, and other parts of society.
We also looked at the wage differential between some of the Reservists and the military pay, and we looked at the value of a statistical life as it is calculated by non-military government agencies, which is about $6 million. So if you are killed in an OSHA accident, or and EPA-related accident, the U.S. government values your life at $6 million for a prime-age male. The military values the life of a casualty on a cost basis at $500,000.
Finally, there are the macro-economic problems. Now here I wish Joe were here, because this is really his part of the study; but the main cost that we included here was a small portion of the increase in oil cost, which was $23 a barrel before the invasion of Iraq. And Joe—and you know, this is exactly the thing that he won his Nobel Prize for, the asymmetry of information—he feels very strongly that the futures markets in 2003 already understood the global demand situation, so they already anticipated the rising demand from China, and India, and virtually everything else that has happened; that the only thing that changed, that was not foreseen, and it was a small blip, was Hurricane Katrina. So he would argue that we should take the entire increase in the price of oil and attribute it to the cost of the war. I, being a conservative budget person, only took five dollars of that; but even that alone has major implications in terms of the economy and the multiplier effects. That alone is a couple of hundred billion dollars of deficit to the economy.
Taken together, the costs outlined here well exceed $2 trillion; but of course we have not included some of the biggest costs, including the cost to Iraq itself, including the cost to other countries, including the cost in terms of long-term damage to the United States and the world.
And I’d just like to close by reading you one of the many many—I have so many to choose from—emails I received from—This is a 19-year-old kid in the 82nd Airborne Division, named Matthew Fecteau. I don’t know how they find my name, but it’s titled “Iraq [Hell/Help?].”
Professor Linda Bilmes:
I was talking to a good friend of mine, and your name did come up. I am currently in Iraq and attempting to help my colonel develop a plan to stop the insurgency [He’s 19]. One question keeps coming up: How we create jobs? What jobs many in the insurgency is the lack of jobs in the country. If we can just develop a way to employ these people, the insurgency would be stopped. We are currently operating around [?] City and could use your advice. We want to get this right and win this war already. Please, any assistance you could give my team would be appreciated.
And I’ll pass around—here’s a picture of this kid. He sent me a picture of himself and his team. You know, I think—I just want to close by saying we all have a responsibility to try and do something. I feel that my role, the thing that I could do, because I, like everybody here, [am] sickened by reading the newspapers every morning, the thing that I could do is that I could put a number on the war. I could do this thing with the cash and the accrual accounting, and that could be my contribution. But it’s not enough, and everyone has a part to play. Thank you.
Q:
Would you entertain a couple of questions?
LB:
I’ve gone way over my time limit, I see.
Q:
Well, I just want to comment on the last thing you said. I’d like to say that if we follow Keynes’s advice [……?].
LB:
Well, we’ve dug ourselves in a big hole here. We’re still not sure how to fill it.
Q:
[…….?] Could you talk a little bit about the kinds of ways different people have reacted to your study? I work in Washington [……?]. But I wondered if you’ve had any serious responses that you found useful from DOD. It strikes me that DOD should be studying these numbers [……?].
LB:
That’s a really interesting question. First of all, generally, we were expecting that we would have a lot of push-back; but we had very little. Generally people, particularly on the budgetary costs, people said, Yeah, that looks about right. Except for the veterans, who said, on our initial study, that they felt our numbers were too low.
We’ve now worked a lot with some folks in the Congressional Budget Office, and I’d say that generally—A lot of the costs that we’re looking at are costs that they do not look at, but generally our estimates for some of the military replenishments and those kind of things are very similar to those. We have gotten them to readjust their thinking about the veterans’ costs. And the one area where I think we have a real dispute with CBO is a cost I didn’t actually talk about, which is the incremental, the non-Iraq-related costs of defense increases.
The Defense Department, since the war began, has increased cumulatively by $325 billion, and we attributed a third of that to the Iraq War. Now we did that on the basis that looking over the past 20 years, if you looked at the increase, we would have expected them to have about $200 billion of an increase. So we attributed about a third basically that could not be explained by ordinary personnel increases, and procurement, and so forth.
Now I feel quite strongly that that is right in the same way I would attribute excess increases under, say, Reagan to the Cold War. The CBO military analysts, they disagree on that one, on that $100 billion. They would explain the entire increase, the entire $325 billion—they say it’s $320 billion, we’re very close on the total amount—they would attribute it entirely to basically long-planned personnel raises, and so forth. And so that’s been the major area of dispute.
Q:
[…?] Part of the problem is cost accounting. Is there any chance that we could ever have a balance sheet for the government where these things would have to be shown?
LB:
There is a balance sheet for the government. The Treasury Department issues a balance sheet every year. They issue it on Christmas Eve, and about five copies are printed—and I’m not kidding. It’s signed by Secretary Snow, and according to that, our national debt is about $50 trillion; it’s not $8 trillion. They look at the long-term liabilities in terms of Social Security, and Medicare, and government employee pensions, and so forth, which are all of our accrued liability. David Walker, the head of GAO, criss-crosses the country trying to raise awareness about the fact that the national debt is actually more than $50 trillion, not $8 trillion. And of course our general economic problems are not the short-term $400-billion deficit; it’s the long-term $50-odd trillion debt. So this does show up there. It’s a small portion of the huge debt. But there is no focus on accrual accounting in Washington. There are countries, including Holland and Australia, New Zealand, that have required a greater focus on accrual accounting, and of course we require— My major field where I normally work is in municipal—[end Side A] –liabilities for their employees. It’s only the federal government which gets away with tucking them under the carpet. And the Defense Department is particularly poor. It stands out in the government. It’s flunked its financial audit every year for the past 10 years, and there are about $30 billion worth of money—I love the Pentagon speak—on which they’ve “lost visibility.”
[end recording]
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