Where Did All the Dollars Go?

Linda J. Bilmes ’80 knows the value of a dollar. A lecturer in public policy at the Kennedy School of Government, Bilmes spends much of her time helping small towns balance their budgets, and she knows how cuts in federal financing can reverberate at a local level. Even the smallest amounts can make an important difference, she says. In Somerville, Mass., for instance, just an extra seven dollars allows another child to participate in an after-school basketball program.

Doing this kind of local finance work, Bilmes says, “You see the connections between the big billions and trillions and the hundreds and thousands.”

It was the big trillions that brought Bilmes into the spotlight this past year, when her estimation that the Iraq war would cost America, as a mid-range projection, $2.2 trillion, made headlines across the world.

“It’s impossible to evaluate the cost and benefits of the war if you don’t have an accurate picture of what the cost is,” she says.

Bilmes collaborated with Nobel prize-winning economist Joseph E. Stiglitz of Columbia University to calculate the mind-boggling quantity. They presented their findings at a conference in Boston this past January.

Bilmes and Stiglitz say their estimate is four times the projections from the Congressional Budget Office (CBO). But that CBO sum only takes into account the direct costs of waging the war, according to Bilmes’ paper, and it does not include the money the government must spend to replace worn military equipment or care for disabled veterans. A CBO spokeswoman declined to comment on the matter.

As well as calculating the broader budgetary costs to the federal government of waging war in Iraq, Bilmes also added more elusive macroeconomic costs to the estimation. The loss of young Americans to the war and the increase in oil prices linked to the conflict both drag down the economy, according to the paper. In Bilmes’ moderate projection of the total economic cost, these factors bring the price tag of the war to $2.2 trillion.

Bilmes says she began her analysis last spring, after some of her students asked her how much the war was costing America. Before the war, Lawrence B. Lindsay, then the director of the Bush administration’s National Economic Council, had said the war’s cost could reach between $100 billion and $200 billion, but other Bush officials called that figure excessive. Bilmes says she could not find any economist who had dealt with the question methodically postwar, so she investigated herself. When Bilmes published an article about her initial findings in The New York Times, Stiglitz contacted her to ask if they could collaborate on further analysis.

Both her students’ interest and the wide publicity she has received since she reached her trillion-dollar conclusion, Bilmes says, is “a reflection of the fact that worldwide a lot of people had a feeling that this [war] was costing a great deal more than had been totaled up.”

As well as fielding questions from journalists around the world—including a special interview with an Italian TV journalist Bilmes called the “Oprah of Italy”—Bilmes has also met with politicians interested in her conclusion. She briefed two potential Democratic presidential candidates—John Edwards and Mark Warner—on her findings here in Cambridge.

Bilmes, who served as chief financial officer of the U.S. Department of Commerce under President Bill Clinton, says that the investigation was not motivated by her personal political beliefs. “It’s not a partisan thing,” Bilmes says.

But, she asks, “Even if one takes the view that there are some benefits of being in Iraq, what is the cost-benefit that you’re looking at if you were spending $2 trillion?...Are we getting good value for that investment?”

Perhaps if members of Congress had been given a similar cost estimate of the conflict before the nation went to war, they might have acted differently, Bilmes and Stiglitz write in their paper.

“I think it’s unacceptable to be spending this much money on Iraq without greater accountability for the money and greater certainty that the benefit is worthwhile,” Bilmes says.

The $2-trillion sum is so huge it is often hard for people to grasp, Bilmes says. In comparison, she says, the U.S. spends only $6 billion a year on disease control and $5 billion a year on cancer research.

For a comparison that might ring truer to the Commencement Day crowd, the sum could fund four full years of Harvard tuition for 11.5 million undergraduates—more than the total number of full-time college students in the U.S.

Or, it could pay for the entire world population to enroll in Somerville’s after-school basketball program—47 times over.

—Staff writer Lois E. Beckett can be reached at lbeckett@fas.harvard.edu.