One of the major questions that I asked in my book Catastrophe: Risk and Response (Oxford University Press, 2004) is what can be salvaged of cost-benefit analysis in situations of enormous uncertainty. I think a lot, and refer the reader of this blog to chapter 3 of my book for explanation. The war in Iraq (not discussed in my book) provides a test case for this proposition.
Apparently the Administration did not conduct a cost-benefit analysis before deciding for war. Maybe it thought the benefits so obviously great that no reasonable estimate of cost would exceed them. I believe that the Administration's only public estimate was that the war would cost no more than $60 billion and that some of this expense would be defrayed (as in the 1991 war with Iraq) by other countries. The estimate seems to have assumed that the probability of a short, cheap (i.e., $60 billion maximum), victorious war was 1.
A responsible cost-benefit analysis would have costed alternative scenarios (such as short-victorious war, long-victorious war, long-losing war, and long-breakeven war), attached a probability or, more plausibly, a range of probabilities to each, and summed the expected costs generated by multiplying each cost estimate by its associated probability or range of probabilities. Benefits to be valued would include (1) elimination of Iraq's weapons of mass destruction, (2) a demonstration of U.S. military prowess that would intimidate hostile nations such as Iran and North Korea, (3) cost savings from eliminating the containment regime (the no-fly zones and sanctions enforcement designed to box in Saddam Hussein), and (4) improvement in our military capabilities as a result of wartime experience. (1), (3), and (4) seem susceptible of quantification, though (1) would have been overestimated by virtually everyone because of the widespread and highly plausible, but erroneous, belief that Iraq had an active WMD program. (2) could probably be ignored on the ground that it was likely to be offset by adverse reactions to our embracing a doctrine of preventive war. I would have given no weight to the Wolfowitz project of promoting democracy in the Arab region, as it is completely uncertain whether democracy in that region is in the interests of the United States. We have certainly not been pleased with the result of the democratic election in Palestine that has brought Hamas to power. We would not like to see the Muslim Brotherhood take power in Egypt, though it may be the most popular political group there. We were distinctly displeased with the result of the Iranian presidential election.
I would also ignore the effect of the Iraq war on our struggle against international terrorism. I imagine the effect is negative, but there is too much uncertainty to try to quantify it.
In a paper first published in March 2003, very shortly before the war began, the economists Steven Davis, Kevin Murphy, and Robert Topel conducted a limited cost-benefit analysis. It was basically just a comparison between the cost of going to war and the cost of continuing the containment policy. They estimated the former as $125 billion maximum and the latter as between $380 billion and $630 billion. The gravest weakness of their analysis was the failure to consider war alternatives to the short, cheap, victorious war that the Administration assumed. They recently updated their paper and raised their estimate of the cost of the war to $323 billion, while allowing (no doubt chastened by their original underestimate) for the possibility that it might go higher. This seems too low since the budgetary cost of the war is already $250 billion and increasing at the rate of $6 billion a month. The costs can of course be capped at any time by U.S. withdrawal from Iraq, but then the benefits of the war would have to be written down to zero except for the important and curiously ignored benefit that consists of having one‚Äôs armed forces engaged in a recent war. The lessons of war cannot be duplicated by peacetime training, planning, and analysis.
Linda Bilmes and Joseph Stiglitz in a recent paper estimate the cost of the Iraq war as being between $1 trillion and $1.2 trillion. As Becker points out, the estimate is based in part on entirely speculative estimates concerning the impact of the war on the price of oil. My own view, moreover, is that higher oil prices are a very good thing from the standpoint of combating global warming, though I would prefer to see them brought about by high taxes on fossil fuels, which would have the additional benefit of reducing the wealth of oil-producing nations. The Bilmes and Stiglitz paper usefully emphasizes, however, the costs resulting from the unexpectedly long deployments of our troops. Apparently, as they point out, these were not anticipated and thus impounded in military salaries and benefits, and as a result the nation is having to incur increased recruitment and other personnel costs in order to maintain the armed forces at the desired level. With the dubious (as Becker notes) cost items subtracted from the Bilmes-Stiglitz estimate, the total is still a sizable $840 billion, which as Becker points out approaches the high end of the Davis-Murphy-Topel current estimate.
I have two disagreements with Becker. First, I do not think that a comparison of U.S. military deaths in Iraq and Vietnam is meaningful. Partly because of increased media coverage, there is much greater sensitivity to casualties today than there was in the Vietnam era (or think back to the Civil War--twice as many deaths as in World War II, in a population less than one-fourth as large). Apparently the Administration has decided that it is imperative to reduce the number of U.S. military deaths in Iraq, even though the total for 2005 was only 846, compared to 14,000 in 1968, the critical year of the Vietnam war.
Second, I would not count the welfare of Iraqis in a cost-benefit analysis of U.S. warmaking. I do not think most Americans want to sacrifice American lives and resources for the sake of foreigners. There is some American altruism toward Iraqis, and to that extent increasing the welfare of Iraqis is a benefit to Americans, but, in my view, only to that extent. And I think it is quite slight.
All this said, I do not think a decision to go to war should be based on cost-benefit analysis. It would terrify the world if powerful nations conducted cost-benefit analyses of whether to go to war. There are 192 nations besides the United States; should we ask the Defense Department to advise us which ones we should invade because the expected benefits would exceed the expected costs? Might a conquest of Canada produce net benefits for the United States? Rather, our policy should be to wage only defensive wars, though that would include aiding allies that have been attacked, which was a reasonable basis for our entry into the Vietnam war, though the results were deeply disappointing.
I also do not think a nation threatened with attack should base a decision whether to defend or surrender on cost-benefit analysis. Rather, it should commit itself to fight regardless, as such a commitment will in most instances greatly increase the expected cost of the attack. That is the economic logic of revenge and the basis of our policy of massive retaliation during the Cold War.
I said that the Administration did not conduct a cost-benefit analysis of the war in Iraq, and I have also said that I do not think a decision to go to war should be based on such an analysis. But in the case of a war that though in a broad sense defensive is also optional because there is no immediate threat of attack by the enemy, cost-benefit analysis has an important role to play. After 9/11, the danger to be anticipated from Saddam Hussein's possessing weapons of mass destruction, though uncertain, had to be reckoned greater than before. And by virtue of the no-fly zones and the sanctions, the United States was already in a quasi-war with Iraq. Against the background, the decision of the Administration to obtain a United National resolution demanding that Iraq re-admit the inspectors whom it had ousted in 1998 was reasonable and had the support of most nations. Enforcing the demand required the United States to station large forces in Kuwait and elsewhere in attack range of Iraq. In March 2003 the United States had the choice of permitting Saddam's cat-and-mouse game with the inspectors to continue, or invading. That was the point at which a careful cost-benefit analysis might have indicated the desirability of holding off on invading for a month or two, although a significant cost would have been that it would have given Saddam more time to prepare and that having to fight in hot months would have impeded the invasion to a degree.
In addition, once the decision for war was taken, cost-benefit analysis of alternative scenarios--in particular of the possibility of a long war that we would lose or draw--might have indicated net benefits from committing more troops to the invasion and its immediate aftermath in order to prevent the rise of an insurgency.