Costing the Surge, and More…

Given the statements that the U.S. might be “surging the surge”, expect an incremental $40 billion to be expended over the next two years.


From Statement of Robert A. Sunshine, “Estimated Costs of U.S. Operations in Iraq and Afghanistan and of Other Activities Related to the War on Terrorism,” July 31, 2007, Committee of the Budget, House of Representatives.

Cost of the Increase in Force Levels


CBO projected the cost of the recent increase in the number of troops deployed to Iraq and also estimated the total amount of funding that would be required through 2017 to sustain U.S. forces in Iraq, Afghanistan, and other locations involved in the war on terrorism. Compared with DoD’s previously announced plans for 2007, CBO estimates that an additional 30,000 to 40,000 personnel from the four military services have been deployed on the ground in the Iraq theater. Those additional troops will cost about $10 billion, $22 billion, or $40 billion, respectively, depending on whether that increase is sustained for four months, 12 months, or 24 months.

cboiraqt3.jpg

Table 3 from Statement of Robert A. Sunshine, “Estimated Costs of U.S. Operations in Iraq and Afghanistan and of Other Activities Related to the War on Terrorism,” July 31, 2007, Committee of the Budget, House of Representatives

CBO estimates the FY2007 burn rate in Iraq as something close to $10 billion per month (10 bdpm), similar to the figure cited by CRS (see this post).


What is even more interesting to me is the costing out of VA-related expenses.


Spending by the Department of Veterans Affairs for Medical Care,
Disability Compensation, and Survivors’ Benefits


CBO estimated spending for medical care, disability compensation, and survivors’ benefits on the basis of casualty rates for veterans of operations in Iraq and Afghanistan over the 2003–2006 period. Almost $1 billion in supplemental appropriations was provided to the VA in 2007 for medical administration costs, medical and prosthetics research, medical services for veterans of those operations, and
other related purposes. In addition, CBO estimates that the VA will spend another $0.7 billion in 2007 for medical care and disability compensation for veterans of operations in Iraq and Afghanistan, as well as for compensation for survivors of service members who die in those operations.


Under the first scenario, in which the number of deployed troops declines to 30,000 by 2010, the VA would spend more than $9 billion over the 2008–2017 period on medical care, disability compensation, and survivors’ benefits. Alternatively, if deployed forces declined to 75,000 by 2013, as in the second scenario, the VA would spend almost $13 billion for those purposes, CBO estimates (see Table 7 on page 16). The costs of those two scenarios would not vary substantially with changes in the number of months that deployed forces were maintained at the current level before troop levels began to decline.

cboiraqt7.jpg

Table 7 from Statement of Robert A. Sunshine, “Estimated Costs of U.S. Operations in Iraq and Afghanistan and of Other Activities Related to the War on Terrorism,” July 31, 2007, Committee of the Budget, House of Representatives

Note that even with the drawdown to 30,000 troops by FY2010, costs are $1 billion in that year. Doesn’t seem like much, but since these costs are likely to rise in nominal terms over time, the cumulative cost will be substantial. Suppose we take a conservative approach, and assume health and disability costs rise at the same pace as the personal consumption expenditure deflator (pretty unlikely given what we know about health service costs). Further assume that the social discount rate is 3%, and these expenditures continue for 50 years after FY2010. Then the present discounted value of VA expenditures associated with the operations in Iraq and Afghanistan will be approximately $27 billion (in 2010 dollars). Assume VA expenditure inflation exceeds the general PCE by 2 percentage points. Then the PDV is $40 billion.

Technorati Tags: , ,
,, .

StumbleUponLinkedInReddit

27 thoughts on “Costing the Surge, and More…

  1. jg

    $40B over two years to win the war.
    $392B in FY08 for Medicare.
    $615B in FY08 for Social Security.
    http://www.gpoaccess.gov/usbudget/fy08/sheets/27_1.xls
    I am positive that I could find the $40B in the $1,000B in FY08 for Social Security/Medicare. Lots of old folks are well to do, and have no need for Social Security, though they cash the unwanted check anyway.
    C’mon, Professor. Your hang up with the war is not economics-based.
    We’ve got an incipient recession here. Let’s focus, please.

  2. Menzie Chinn

    jg: It’s $120 billion per year in Iraq, in terms of direct costs; $40 billion over two years is the incremental direct costs.

    Social Security is a transfer program. Not outright spending on goods and services. Drastically different in economic terms.

    In the first economics textbook I had, Paul Samuelson taught me that economics was the study of scarcity. $120 billion per year or $40 billion in PDV terms is $120 billion per year or $40 billion per year, incipient recession or not.

  3. Qingdao

    Didn’t I just read that Americans are going to spend $40 billion on pet food this year?

  4. jg

    Transfer programs get a free pass? Money cannot be put to a higher and better use by someone smarter and more energetic, instead of just transferring it to everyone 65 or older? C’mon, Professor.
    Here in San Diego, a lot of Social Security proceeds appear to be spent at gambling casinos by retirees, and the Indian tribal members getting their share of the profits appear to end up buying Escalades with 22″ ever-spinning wheels. Great use of my transfer payment.
    I understand that not everyone supports the Iraqi war. It is expensive. However, the cost of premature withdrawal is, potentially, exorbitant.

  5. Anchoku

    Getting back on track, what is the probability of taxes being raised or benefits cut to pay down government debt? Not that I have too much of a problem with that possibility but the markets won’t like it.

  6. Joseph

    It’s heartbreaking, actually, to think about the trillions of dollars that are being wasted on the worst foreign policy debacle in the history of the country. Money that could have made social security solvent to the end of the century, could have provided health insurance for every child in America, could have been used for medical research to cure diseases, could have been used to research energy technology to replace oil, an opportunity for a better country and a better world flushed away and gone forever.

  7. drumsfeld

    Can you put this in the context of other government discretionary programs such as NASA or the National Science Foundation and total military spending for the same year? I have a hard time wrapping my mind around costs this large in the gigantic government budget that is dominated by military, social security, and medicare funding without some contextual numbers.

  8. GWG

    Jee whiz Joseph, you make it sound like we could have had heaven on earth! Well, you guys had 8 years of a vacation from history (no wars and a huge peace dividend) and what exactly was accomplished? I must have slept through the nirvana. Cheer up though, Mrs. C. is going to provide all of the things you listed and even more once she’s in charge.

  9. Neal

    I feel like Anchoku,above,the war is such a waste of money.
    Our interstate highway system recently celebrtated it’s 50th birthday. According to the article, it would cost approximately $350 billion to build it, in today’s dollars. About the same amount that we have spent in Iraq. Amazing

  10. Menzie Chinn

    jg: As I’ve asserted before, it’s not $120 billion per FY that’s an issue; it’s whether $120 billion per FY is being spent in the right course, so that the benefit-cost ratio exceeds one. On this count, I’m dubious (see e.g., the current pace of political reconciliation in Iraq).

    I didn’t say we shouldn’t be concerned about transfer spending, just that we shouldn’t count the resource cost in the same way, and hence calculate the benefit-cost ratio in the same way.

    By the way, $120 bn per FY is about 0.9 percentage points of GDP at the pace of economic activity recorded over the last three quarters.

    drumsfeld: Here’s a couple of examples. Reauthorization of Head Start would cost $36.9 billion (current dollars) over the FY2008-12 in the House bill (HR 1429), according to CBO. FY2007 Federal R&D expenditures were $137 billion, according to CBO.

  11. Miguel

    “That’s right, let’s spend $37B on Head Start, a program of no proven academic effectiveness (I think it now costs $8-10K per child per year here in San Diego):
    http://lrainc.com/swtaboo/taboos/headst01.html
    From the link:
    “In contrast, the results for white children suggest that the potential gains are much larger than the costs, since even a small decline in the high-school dropout rate has the potential to pay for itself in terms of future wage gains. If the factors preventing African-American children from maintaining the gains they achieve in Head Start could be removed, the program could probably be judged an incontrovertible success.”

  12. jg

    Sorry, Miguel: Head Start was started in the ’60s for inner-city blacks, an outgrowth of the civil rights movement. That black kids see no lasting benefit is an indictment. That white kids benefit is beside the point.

  13. Menzie Chinn

    jg: I think I’ll weight a Nobel Laureate’s analysis pretty highly (he won it for econometrics, after all) pretty highly. In addition, I think the article you cite is a bit more nuanced than you make it out to be, regardless of the original intent of the Head Start program.

    Well, maybe a few more billion for bridge maintenence, air traffic controller staffing, and wetlands restoration plus levee building would be a better alternative use of funds? I think I could come up with some other canddidate purposes we could agree upon.

  14. Miguel

    I am from the other side of Atlantic, then I don’t know much about that, but:
    from wikipedia:
    “Head Start was started as part of President Lyndon Johnson’s War on Poverty. A key part of the Great Society domestic agenda, the Economic Opportunity Act of 1964 authorized programs to help meet the needs of disadvantaged preschool children. A panel of child development experts drew up this program at the request of the Federal Government, and the program became Project Head Start.
    The Office of Economic Opportunity launched Project Head Start as an eight-week summer program in 1965. The project was designed to help end poverty by providing preschool children from low-income families with a program that would meet emotional, social, health, nutritional, and psychological needs.
    Head Start was then transferred to the Office of Child Development in the Department of Health, Education, and Welfare (later the Department of Health and Human Services) by the Nixon Administration in 1969. Today it is a program within the Administration for Children and Families (ACF) in the HHS. Programs are administered locally by non-profit organizations and local education agencies such as school systems. Head Start is a program for children age 3 to 5 in the United States.”
    From the Head Star site
    “The Head Start program provides grants to local public and private non-profit and for-profit agencies to provide comprehensive child development services to economically disadvantaged children and families, with a special focus on helping preschoolers develop the early reading and math skills they need to be successful in school. In FY 1995, the Early Head Start program was established to serve children from birth to three years of age in recognition of the mounting evidence that the earliest years matter a great deal to children’s growth and development.
    Head Start programs promote school readiness by enhancing the social and cognitive development of children through the provision of educational, health, nutritional, social and other services to enrolled children and families. They engage parents in their children’s learning and help them in making progress toward their educational, literacy and employment goals. Significant emphasis is placed on the involvement of parents in the administration of local Head Start programs.”
    I see no reference to “blacks” or “african-americans” in the purpose of Head Start (althoug there is a special program for “native americans”).
    Also, 30% of children in Head Start are black and 40% are white, then the results for whites is more important to consider HS a failure or a sucess than the results for blacks.

  15. Grzesiek

    Menzie says:
    “Well, maybe a few more billion for bridge maintenence”
    Good one; way to play off a tragedy.
    What ever happened to the money in the transportation bill signed approximately two years ago? You know, the one that would allocate $284 billion (plus) for transportation projects nationwide for the next six years.

  16. Anonymous

    Menzie says:
    “Well, maybe a few more billion for bridge maintenence”
    Nice job; playing off a tragedy…
    What ever happened to the $286+ billion transportation bill signed in August of 2005?
    Hey professor, maybe it’s not the money collected, but how and when the money is spent.

  17. Menzie Chinn

    Grzesiek: Would you prefer I close my eyes and ignore it? In any event, I have been thinking about underinvestment in infrastructure for a long time, ever since Aschauer’s work on infrastructure investment rates of return. For an early review of the empirical literature, see Munnell (1992).

  18. Grzesiek

    Menzie says:
    “Would you prefer I close my eyes and ignore it?”
    No, what I would prefer is you not making this an issue of cause and effect. The Transportation bill had plenty of money allocated to infrastructure. That money was either diverted to other special interests or not allocated quickly enough to address the structural inadequacies of this particular bridge.
    In 2005 the I-35W bridge scored a 50 out of 120 rating in a federal highway inspection of structural integrity, which marked the bridge as structurally deficient. My understanding is that MinnDOT had this bridge listed as a bridge in need of repair.
    Your argument, that monies are not available to address infrastructure issues is not the issue; the issue is to spend the money wisely and prioritize the projects in most need of repair.
    Well, I guess you’ve taught me one thing: you’ve provided a concrete example of what Arnold Kling describes as a ‘Type M’ argument.
    Maybe you’d like to enlighten yourself on this particular issue: http://designnews.com/article/CA6464926.html

  19. Menzie Chinn

    Grzesiek: Well, maybe if the money had been allocated earlier, and more policy-level and managerial attention (something which is limited in quantity) had been devoted to infrastructure investment, repair, maintenence, then, the probability of such occurrences would have been lessened. My guess is the expected marginal social benefit probably exceeds the cost. By the way, I’m still for more spending on air traffic controllers, and screening of traffic coming into our ports, which — even if we can’t directly point to a cause and effect — are likely to yield an expected value of net returns greater than zero. Policy-making in the world is a probabilistic affair.

    One question for you. Yes, we need to spend our money wisely. But given the realities of the world (misallocation of funds, waste), would you deny money for body armor if there were waste in a different budget category of defense spending?

  20. wogie

    Grzesiek
    Almost all of that money was earmarke for projects in congressional districts — pork. Not the best way to address infrastructure needs. As a matter of some note, the Highway Trust Fund is now projected to be insolvent before 2011. There hasn’t been a tax increase on gas since 1992.
    Somehow — people have to learn that if you want good, well maintained roads and other infrastructure — we have to pay for it. The Federal Jighway Administration advises that vehicle miles traveled on highways since 1990 increased 38%, while lane miles of road increased a little more than 3%,
    Because of the lack of funds, the Feds are turning to privately built and owned toll roads. Already, the Ohio turnpike was sold to private interests as has the Chicago skyway.

  21. Grzesiek

    wogie says:
    “Almost all of that money was earmarke for projects in congressional districts — pork. Not the best way to address infrastructure needs. As a matter of some note, the Highway Trust Fund is now projected to be insolvent before 2011. There hasn’t been a tax increase on gas since 1992.
    Somehow — people have to learn that if you want good, well maintained roads and other infrastructure — we have to pay for it. The Federal Jighway Administration advises that vehicle miles traveled on highways since 1990 increased 38%, while lane miles of road increased a little more than 3%”
    Tax increase??? You just mentioned that almost all (your words) the money raised went for pork.
    These clowns misappropriate funds and the answer is to tax the people more?
    How about throwing them out of office? Increasing taxes without curbing spending gets you nowhere.
    Menzie says:
    “But given the realities of the world (misallocation of funds, waste)”
    The sad thing is that as a person teaching the future leaders of this country, you seem to accept this as the inevitable. That is inexcusable.
    Oh, and if you want to play the partisan card, go right ahead… There is plenty of pork fat laying around on both sides of the aisle.

  22. John Thacker

    Given the statements that the U.S. might be “surging the surge”, expect an incremental $40 billion to be expended over the next two years.
    Ah, well, at least the Farm Bill expenditures are $40 billion over ten years more than the President requested.
    By the way, I’m still for more spending on air traffic controllers, and screening of traffic coming into our ports, which — even if we can’t directly point to a cause and effect — are likely to yield an expected value of net returns greater than zero.
    I’m highly uncertain about the screening of traffic into our ports. However, I certainly think that it might be a better use of money than the screening of passenger traffic at airports for domestic flights. I’m fairly certain that the expected net returns are less than zero for the amount of security screening that we do. Analysis that suggests otherwise ignores that anyone intent on committing a terrorist act can shift targets and cause similar damage elsewhere.
    It’s heartbreaking, actually, to think about the trillions of dollars that are being wasted on the worst foreign policy debacle in the history of the country.
    Hmm. I must think that many people who judge the expense of wars value human life very low, considering the casualties in various wars. (The numbers of roughly 3500 killed in Iraq compares to 55,000 in Korea or Vietnam. By way of comparison, twice as many US soldiers died in one day in the Tet offensive in Vietnam than have died in Iraq.)
    The US is much richer now, and so spends a smaller percentage of GDP on military defense than even in the late 70s post-Vietnam. However, particular wars are quite expensive because the military chooses to minimize casualties by spending lots of money in other ways. In general, especially since we can do it at a declining cost as a percentage of GDP, I think it’s a good trade off. If spending additional money (not necessarily on body armor) saves lives, then I think it’s absolutely acceptable to fight a rich man’s war.
    By some measures, this war has been very expensive. By others (especially American casualties), it has been very cheap.
    Defense is a rather enormous portion of government spending. OTOH, it’s a decline portion of overall government spending and a declining portion of GDP as well. The (post WWII) pre-1992 low point for military spending as a percentage of GDP was 4.7% in 1978 and 1979. In the last two years spending went back up to 4.0% percent, a mark not seen since 1992′s 4.1%. The recent low water mark was 3.0% in 1999-2001. Post 2001, military spending rebounded, though it has not reached Cold War levels.
    http://www.cbo.gov/budget/historical.shtml

  23. Menzie Chinn

    Grzesiek: I’m a social scientist, so my first responsibility is to observe reality. I don’t approve of waste, and I didn’t say I did. I’d be for implementing real policies (including an effective civil service insulated from political pressures) that work to prevent waste — but just saying waste is bad is not sufficient to effect change (it’s like “just say no” as a public policy). Pork barrel spending — well this is sometimes in the eye of the beholder. For some people, all infrastructure spending is pork barrel, since it should be in their view privately funded.

    I’m not certain denial of reality is a good policy mode. I think a lot of where we are in terms of operations in Iraq are a function of people operating on the basis of “what should be”, as opposed to “what is”.

    I don’t recall identifying a particular party with lack of body armor. If you wish to attribute that failing to a particular party, that’s fine.

    John Thacker: I’m glad to see you agree that expected costs and benefits are what we should be looking at. Then what we should also agree on is that we should put value on studies that quantify the expected costs and benefits. In a previous post, I cited a CBO report on costs associated with a port-related episode.

    On the implicit valuation of human life, I think the cost-of-life calculations used in cost-benefit analyses have been rising over time; hence even if the quantity of casualties is smaller, the implied loss in dollar terms is potentially higher (I haven’t done the calculation, but I believe I cited the relevant statistics in a previous post on Iraq).

  24. John Thacker

    Certainly the military has been behaving as though the cost-of-life is higher (adjusted for inflation), so I largely agree with you. At the same time, if we’re attempting to compare implied losses in the present day, I’m not totally convinced that it makes sense to use the lower cost-of-life from the past and scale for inflation, as opposed to using the present day cost-of-life. I admit that it’s partially a moral objection, but I’m not all that comfortable with counting a smaller implied loss when doing the calculations now simply because there was a lower cost-of-life then.
    Of course, switching from conscription to volunteers helps with the military valuing cost-of-life more– and also makes some of the implied costs of war more visible and explicit. Surely the wars fought with conscription had an extra, hidden and difficult to figure cost to the economy.
    Regarding ports, I also find it somewhat interesting that many people I know who believe that all physical goods crossing the border should be searched, or at least that they should be searched more than presently, tend to be much more negative about intercepting signals that cross the border, as in the current FISA debate.

  25. Joseph

    From Frank Rich on the value of a soldier’s life: “One person who has had enough of this hypocrisy is the war critic Andrew J. Bacevich, a Boston University professor of international relations who is also a Vietnam veteran, a product of the United States Military Academy and a former teacher at West Point. After his 27-year-old son was killed in May while serving in Iraq, he said that Americans should not believe Memorial Day orators who talk about how priceless the troops’ lives are.
    “I know what value the U.S. government assigns to a soldier’s life,” Professor Bacevich wrote in The Washington Post. “I’ve been handed the check.” The amount, he said, was “roughly what the Yankees will pay Roger Clemens per inning.” ”
    Some people may think it crass to put a dollar value on a life, but economists know that it is done every day as a matter of course.

Comments are closed.