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Hormats: Iraq War Historic for Lack of Cost Transparency

Council on Foreign Relations

Interviewee: Robert D. Hormats, Vice Chairman, Goldman Sachs International
Interviewer: Lee Hudson Teslik, Assistant Editor, CFR.org

March 28, 2008

The total economic costs of the wars in Iraq and Afghanistan are hotly disputed. Experts disagree even on the basic point of whether the wars will have a positive or negative economic impact. The wars’ budgetary costs have well outpaced initial White House estimates, though the total costs remain somewhat shrouded by the fact that war-spending has been funded almost entirely through debt—and has been paid for through budgetary supplements, and thus excluded from the U.S. Defense Budget. Robert Hormats, the vice chairman of Goldman Sachs International and the author of a book on U.S. war financing, argues for more transparency in war financing. He notes that the run-up to the current wars stands in sharp contrast to the planning periods before other wars in that there was very little national debate on how war costs would be financed.

There’s a fair amount of discussion going on right now about the overall economic costs of the two U.S. wars, in Iraq and Afghanistan. There are some rather contradictory numbers bouncing around, from those used by the Congressional Budget Office (PDF) to those used by Joe Stiglitz in his new book, to the estimates in a recent report by congressional Democrats has been getting a fair amount of attention. From a bird’s eye view, what’s your take? How significant are these wars to the U.S. economy?

Well, you can look at it two ways. As a portion of GDP [gross domestic product], this war is very cheap, in the sense that, for instance, World War II at its peak was between 35 and 40 percent of GDP in a given year. And this war at its peak is between 1 and 2 percent of GDP, in terms of budgetary costs.

Read the rest of this article on the cfr.org website.

Copyright 2008 by the Council on Foreign Relations. This material is republished on GlobalSecurity.org with specific permission from the cfr.org. Reprint and republication queries for this article should be directed to cfr.org.