Wednesday, October 24, 2007

$2,400,000,000,000 is only Direct Expenditures

$2,400,000,000,000 is a whole lot of money. It is a year's revenue for the US government, and it is four years worth of trade deficits.

The Congressional Budget Office is estimating that is the cost of US involvement in Iraq until 2017 once we include the interest on the debt that we as a nation are taking on to pay for the war, as there is nothing more important than cutting taxes in wartime. And there are three things I want to unpack for this.

First, this estimate was requested by the Congressman Spratt, the Democratic Committee chair, and he requested two very interesting scenarios:

In the first scenario, the number of personnel deployed in Iraq, Afghanistan, and elsewhere in the war on terrorism would average about 200,000 in fiscal year 2008, decline to approximately 100,000 personnel, on average, in 2009, and then reach 30,000 at the beginning of fiscal year 2010. CBO previously estimated that this case would require $440 billion in funding over the 2008–2017 period. On the basis of the Administration’s funding request for 2008, that projection could total $485 billion over the same period.

In the second scenario, deployed forces would average about 200,000 in fiscal year 2008 and then decline to an average of 175,000 troops in 2009. Troop levels would decline steadily each year thereafter until the beginning of 2013 when the number of deployed troops would reach 75,000. In July, CBO estimated that such a case would require $879 billion in funding over the 2008–2017 period. A projection formulated on the basis of the Administration’s budget request for 2008 could total $966 billion.8 [emphasis mine]

I am not sure what the intent of the second scenario request --- was it to show the unsustainability of such a deployment pattern through the next two presidential administrations as an argument for change or at least an excuse to do nothing in domestic policy, or an argument that this is something, that no matter who is elected in 2008 and 2012, we'll be paying for....

The second thing that leapt out at me is a continuation of the first, keeping sixteen to twenty two brigades in combat, which is what the second option entails, for the next three to five fiscal years is unsustainable given current force structure. The National Guard is mobilizing more often and with less equipment than it should (units deploying to Iraq will go as well equipped as planned due to a combination of stocks in theatre and cannibalizing non-mobilized units), and fifteen month tours are unsustainable.

Finally, this estimate is by the CBO's initial study limited to direct expenditures. This is an honest but low ball estimate of the total costs involved invading Iraq and then maintaining significant combat forces in that country. Right now it looks like global crude oil production has at least plateaued, if not peaked. Some critics of Peak Oil will argue that there are at least several million more barrels of easily accessible crude is available but not being pumped or exported. Iraqi production shut-ins due to sabotage from the Kurdish fields and production slowdowns in the south due to mal-investment constitute a majority of this 'surplus' crude that is not on the market. The counterfactual world of no invasion would probably have led to at least marginally higher exports which means marginally lower oil prices. Furthermore, if one believes that the general instability, increased system sabotage technical capacity and anti-Americanism has led to an increase in risk premium of even a few dollars per barrel, current price levels given identical supply and demand are again higher than a non-invasion counter-factual.

Oil prices are an easy secondary opportunity cost to identify, but throw in a little bit of dynamic modeling of [minimal] crowding out and interest rate pressures due to the increased debt, which leads to marginally less economic acticity, and the secondary costs as well as the more prominent opportunity costs foregone become significant.

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