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The full cost of war: body bags and budgets vs the opportunity cost

By John Quiggin - posted Thursday, 15 May 2003

The war in Iraq exemplifies two striking features of the style of warfare that has been adopted by the United States and, inevitably, by its allies. The first is the lopsided ratio of casualties. In the main phase of the Iraq war, the US lost 137 soldiers and Britain 37 (happily no Australians were killed).

By contrast, the Iraqi casualties will never be counted, but are almost certainly in the tens of thousands. Hospital estimates from Baghdad and Basra suggest between 1,000 and 2,000 civilian fatalities in both places. Given the sophistication of modern weapons, these unintended deaths are presumably few in relation to the carnage inflicted on the Iraqi army, and particularly on Republican Guard divisions that simply disintegrated under sustained bombing.

The other striking feature of modern war is its expense. President Bush has been allocated $US73 billion for the war in Iraq but the total cost appears likely to be much higher. The money spent directly on the war itself seems to have been around $US50 billion, a substantial sum given that active combat lasted only a few weeks. The cost to Australia, as included in the Budget, will be A$645 million.


Is there any way of making sense of these numbers? The economic concept of opportunity cost provides one approach. Consider, for example, the alternative option of allocating the money to improved health care or public safety. Under current conditions, marginal health care and public safety interventions in the United States typically cost around $5 million per life saved. Thus, if the direct war budget of $50 billion had been allocated to public health instead, the lives of around 10,000 Americans could have been saved.

This is far from being a hypothetical choice. At the very moment when the Federal Congress was voting funds for the war in Iraq, hard-pressed state governments were cutting benefits for the working poor under the Medicaid program, including subsidies for lifesaving drugs. Both sides have paid a high price in lives for this war.

Exactly the same issues arise in Australia. Because the greater cost-effectiveness of our health system roughly cancels out the lower value of our dollar, the marginal cost of health care interventions is also around $5 million per life saved, implying that the money spent on the Iraq war could have saved around 129 Australian lives. And of course, as in the US, federal spending on defence comes at the expense of state spending on health and other education services.

Depending on what is ultimately discovered about Iraq's weapons of mass destruction, this may turn out to be a small price to pay. At this stage, however, it appears that any weapons that were not destroyed before the war have been looted in the ensuing chaos. Benefits on this account are likely to be small or, if the weapons get into the wrong hands, possibly negative.

In the absence of large-scale discoveries of weapons, attention has focused on the undoubted benefits of overthrowing an evil and oppressive dictator. This is a form of foreign aid and can usefully be compared to other aid programs. The total budget of the USAID, the main US agency for development and humanitarian assistance is US$8.7 billion for the coming year. That is, the money already spent on the Iraq war could have doubled USAID's budget for the next five years.

It seems certain, however, that the war will herald a sustained increase in military expenditure of at least $US100 billion per year. A more reasonable comparison, therefore, is the ambitious proposal of the Commission on Macroeconomics and Health, led by Harvard Economist Jeffrey Sachs. The Commission aimed to achieve, for all poor countries, a two-thirds reduction of 1990 child mortality levels, a three-fourths reduction of 1990 maternal mortality ratios and an end to the rising prevalence of major diseases, especially HIV-AIDS.


As the Commission pointed out, in addition to the humanitarian benefits of saving as many as 8 million lives per year, reductions in mortality are directly correlated with a reduced frequency of military coups and state collapse. These provide the breeding ground for terrorism and dictatorship and ultimately lead, in many cases, to US military intervention. The estimated cost for the Commission's seemingly-utopian program over the next decade is estimated at between $US 50 billion and $US 100 billion per year.

War is sometimes necessary in self-defence. But when war is adopted as an instrument of policy, it is often counterproductive and almost never cost-effective.

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Article edited by Merrindahl Andrew.
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This article was first published in The Australian Financial Review on 8 May 2003.

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About the Author

Professor John Quiggin is an Australian Research Council Professorial Fellow based at the University of Queensland and the Australian National University.

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