Prior to the US invasions of Iraq, officials in the Bush administration estimated that the war would be between $100 and $200 billion.

This month, it is five years on from that invasion and George W. Bush's America looks no closer to reaching a withdrawal from a conflict it has now spent more time in than either of the world wars.

Have Your Say: Has America's spending on the Iraq and Afghanistan wars been justified by the results so far?

And while many Americans have been counting the social and political cost to their country, others are beginning to tally the frightening economic costs of the Iraq war.

Enter, Joseph Stiglitz - Nobel laureate and former chief economist of the World Bank.

While the Bush administration is currently tallying the cost of that war at $500 billion, Stiglitz this week upturned the apple cart, putting the cost of the wars in Iraq and Afghanistan at more than $3 trillion in a new book with Linda Bilmes,

None of this is, of course, welcome news as the world stands perched on the nervous brink of economic slowdown, a slowdown Stiglitz says has been created by the war and its role in creating the sub-prime and credit crunch crisis in the US

A mistake of this order, he says, will not only take years and even decades to fix in the US - its effects will spread across the globe.

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TRANSCRIPT

This month marks five years since the US invasion of Iraq, a conflict that's now lasted longer than either of the two world wars. At what cost, human, social, political and economic many Americans have begun asking. Enter Joseph Stiglitz, Nobel laureate and firebrand former chief economist of the World Bank. Professor Stiglitz and his co-author Linda Bilmes put a price tag on the Iraq conflict in their new book, 'The Three Trillion Dollar War'. You heard me, US$3 trillion! Not only that, Stiglitz links the cost of the Iraq misadventure to the overall economic slowdown in the US, the global credit crunch, the toxic mortgage market and the subprime loan crisis, including here in Australia. George Negus spoke with Professor Stiglitz earlier this week.


GEORGE NEGUS: Professor, 'The Three Trillion Dollar War'. That's quite an apocalyptic title to say the least. What did you mean? And I imagine that the reaction from George Bush and co would have been less than ecstatic.

PROFESSOR JOSEPH STIGLITZ, AUTHOR “THE THREE TRILLION DOLLAR WAR”: That's right. The US$3 trillion refers to the true cost of the Iraq conflict and the cost only to the American economy. If we included the cost to the rest of the world we would be more than doubling that total. Obviously, George Bush never wanted a conversation on this subject. When he went to war, one of his senior advisers, Larry Lindsay, said it was going to cost US$100 billion to US$200 billion and he was fired. The Administration came back with the number around US$50 billion, no more than US$1 billion or US$2 billion for reconstruction. The rest would be paid by Iraq itself.

GEORGE NEGUS: Professor, we live in a country where we still talk about billions. How can we picture that US$3 trillion? What does it mean in real terms?

PROFESSOR JOSEPH STIGLITZ: Well, actually the war has introduced a new way of thinking about every aspect of government expenditures. A couple of years ago, the President went to the American people and said, "We have a major problem in social security. It's going to go bankrupt." Well, for one-sixth of an Iraqi war you could have put on sound financial grounds the social security system, retirement program, for our aged for the next 50 to 75 years. The President vetoed a measure to provide healthcare insurance for our children. America, you know, is a country where we don't have public health insurance and children of poor families do not have health care. He vetoed it, saying that we couldn't afford it. But we were talking about actually just days, days of what this war is costing. The President says, effectively, we don't have money for all these social needs. The reason is we're spending so much on the Iraq war.

GEORGE NEGUS: Professor, what you seem to be saying is that this war has been executed, they have been literally shooting the economy in the air, if you like, in Iraq. This war's being executed at the expense of almost every other area of American public life. Is it that bad?

PROFESSOR JOSEPH STIGLITZ: Yes, it is. It is. There is another unusual thing about this war, very unusual, in fact. In every other war, when America went to war, there was a discussion, how much of the burden of that war should be shifted on to future generations? In this war, we didn't have that discussion. This is the first time, probably in almost any country's history, where as you went to war you had a tax cut, a tax cut for the rich and that has meant that this war has been totally, totally financed by deficits. And that means in turn, we estimate that by 2017 the US national debt will be US$2 trillion larger than it would otherwise have been, just because of the war. And there will still be bills due because of the huge costs of paying disability, healthcare benefits for our returning veterans, 40% of whom, or more, are likely to be disabled.

GEORGE NEGUS: Professor, you seem to be saying that America if you like, if not already in a recession, teetering on the edge of one, that this great cost of the war in Iraq has, in fact, created the financial and economic crisis in America at the moment, including the subprime lending crisis.

PROFESSOR JOSEPH STIGLITZ: Very much so. In fact, you know, the discussion in America has been about there being two issues, the war and the economy. And I've argued in fact in many ways there is only one, and that's the war, because the war is linked to the economy. High oil prices mean that we are sending hundreds of billions of dollars over to Saudi Arabia, Kuwait, other oil exporters, and that means that money is not here at home to be spent to stimulate the economy. The expenditures on Iraq don't stimulate the economy as much as expenditures, similar expenditures here at home, and don't create the foundations for future economic growth. The huge deficits are weighing down on the economy. All this would have meant the economy would really it was really suffering, and we hid it over, just like the Bush Administration hid most of the other so many of the other aspects of this war. We had loose monetary policy, lax regulation. So anybody looking at the situation realised that this was not sustainable.

GEORGE NEGUS: What about the knock-on effect globally? We are feeling the effects of the subprime crisis here in Australia, for instance. What about the global knock-on effect? Is the rest of the world being affected as we speak by this American crisis?

PROFESSOR JOSEPH STIGLITZ: Absolutely. We exported our toxic mortgages, our subprime mortgages. Banks all over the world bought these toxic mortgages and now there is a credit tightening because of the lack of transparency associated with these very risky products, especially as they got bundled together in these very complex products. Global risk premiums have increased. There are several channels by which the global economy is now suffering, because of the mistaken - the big economic mistakes made in the United States, and these in turn were linked very directly to the Iraq war.

GEORGE NEGUS: I'm finding it very hard to describe you either as a prophet of doom or the answer to a maiden's prayers, Professor. I mean, do you have any answers? You've spelled out the woes, do you have any answers? It seems to me, from what you're saying, that no government in America at the moment regardless, Republican or Democrat, could resolve this problem easily or quickly.

PROFESSOR JOSEPH STIGLITZ: That's right. This problem is not going to be resolved easily or quickly by any government, but there are some things that could actually address it to make the downturn less severe and make the social and economic consequences less severe. We estimate that over 2 million Americans, for instance, will lose their home. The President and the Congress have agreed upon a stimulus package, but because of the President's insistence, this is not a well-designed stimulus package. A well-designed stimulus package, for instance, would have had much more emphasis on unemployment benefits. These people spend the money when you give it to them. He vetoed that. He's vetoed the ability to do something about the massive foreclosures, and so unfortunately we are probably going to have to wait for a year from now until we have a new person in the White House to deal with these problems. And in the meanwhile, the problems are going to fester, and the problems are going to get deeper. And I wish this weren't the case, but regrettably that is the reality.

GEORGE NEGUS: You have your critics of course. Kenneth Rogoff from the IMF has said that your views are highly controversial and, at worst, snake oil. And other people have suggested that you're just a scaremonger, you're scaring the country into a downward economic spiral. How do you answer your critics? Because your claims are, in fact, quite outrageous to many people.

PROFESSOR JOSEPH STIGLITZ: Well, in fact, they are really now become sort of the mainstream within the economics profession. Almost everybody except Wall Street, who is trying to keep things keep the optimistic spin and to try to turn attention away from their mistakes, has talked about really the deep nature of the problems. Let me just ask you a question. How could you not think something was amiss when you were writing mortgages, when the financial system was writing mortgages with no money down, or almost no money down, when house prices were reaching new heights, particularly for lower-income Americans, when income, real income of medium income, that means most Americans saw their real income declining. Something was amiss in this picture! Just think about the following, if house prices are so high, people have a 95% or 100% mortgage. If house prices go down, they're going to walk away from those mortgages. That means those who have bought these mortgages are going to have a problem.

GEORGE NEGUS: Professor, if we could finish on this note. Barack Obama, who is now the Democratic frontrunner in the presidential campaign, has said that he wants you on his team if he makes it to the White House. Why shouldn't we see 'The Three Trillion Dollar War' and yourself as an elaborate job application? Do you see yourself in the White House next to an Obama or a Clinton?

PROFESSOR JOSEPH STIGLITZ: I've actually done that. I was chairman of the Council of Economic Advisers under President Clinton and the economy in those years did very, very well. I would rather actually do what I've been doing the last few years being back in academia, writing, commenting, being what you might call a 'grey beard' and talking about what I think America needs to do and I think what other countries need to do to address the problems that we face, including the problems of growing inequality, growing poverty.

GEORGE NEGUS: But if an Obama or a Clinton were to approach you, seeing as you've spelled out this problem, don't you feel some sort of obligation to assist them solve it?

PROFESSOR JOSEPH STIGLITZ: Oh, I definitely would. And I have been giving them advice, I have been talking about how to design a good stimulus package. So clearly, I would want to help in trying to resolve some of the difficulties, the great difficulties that our country is going to be facing and the world will be facing as a result of the disaster of recent years.

GEORGE NEGUS: Professor, good talking to you. We could have talked a lot longer, but unfortunately we'll have to leave it there. Thank you very much for your time.

PROFESSOR JOSEPH STIGLITZ: Well, thank you.

GEORGE NEGUS: Professor Joseph Stiglitz from New York. And for those of you, like yours truly, still trying to get your head around the whole idea of that US$3 trillion figure, the Prof has estimated that not three, but just one trillion dollars could have paid for 8 million houses or apartments, or 15 million public school teachers, or health care for 530 million children for a year, or scholarships to university for 43 million students.

Credits

Interview Producer/Researcher
JANE WORTHINGTON

Editors
WAYNE LOVE
STEPHEN HARROP