Tuesday, November 13, 2007

Opportunity Costs. A Lot.

You are going to hear a lot about this story in the next few days:
The US wars in Iraq and Afghanistan are costing nearly double the amount previously thought, according to a report set to be released by Congress.

Democrats say the wars have cost $1.5 trillion - almost twice the requested $804bn (£402bn) - because of "hidden costs", the Washington Post reports.

That figure would amount to $20,000 for an average US family of four, it adds.

And some of the figures cited in the report were labelled speculative by funding experts, the Post says.

Among the indicators contributing to the higher cost of the conflicts are higher oil costs and payments to war veterans.
Those are the actual costs, mind you, hidden but real and not budgeted for. The Democrats who are issuing the report today estimate that, by the invasion's end, those will more than double.

But what's not talked about, the costs that aren't covered, are the opportunity costs.

When a business makes a decision regarding a major investment, one thing it takes into account is what else they could do with the resources they need to commit to that investment, how much money they have to subtract from other investments, and what those investments might yield instead.

These are called "opportunity costs." If the new investment produces a greater return, then the new investment is made. If it takes too much from other opportunities and doesn't produce enough, it is not made.

Think about the Iraq invasion in this regard: how many National Guardsmen would have been available for Katrina, or the recent rash of California wildfires? Would the I-35 bridge have collapsed and killed as many if the NTSB had been fully funded to even their 2000 levels? How many people have lost vital services because of budget cutbacks to pay for this debacle?

$750 billion, the actual direct costs attributed to Iraq and Afghanistan, buys a whole lot, but wait, there's more! Money makes money, so that $750 billion dollars isn't just $750 billion, it's $750 billion plus whatever return that money would have gotten. Let's say that $10,000 of that money went to help someone who was let go from work in 2002. That person finally lands a job (thanks to the fact that the government is spending domestically and not lining Halliburton's pockets), and makes $30,000 a year, paying about $14000 a year in taxes (including payroll taxes).

Money earned back in the first year = $4,000, or 40% return on that investment. Now multiply that by the 20 million or so who were out of work at that time and you begin to grasp the magnitude of what was lost, as people rolled off the unemployment lists and still couldn't find work, yet weren't paying taxes (but still using other services, like say that bridge on I-35).

And so on. Science funding, medical research, renewable energy development, education...hell, even the value of the dollar, have all been severly handicapped by the Bush administrations ill-advised...OK, idiotic venture into Iraq.

In 2004, The Center For American Progress published a report detailing the opportunity costs of the Iraq invasion to that point. As of the date of that report, CAP estimated that the $144 billion pledged could have financed at least 16 projects that could have secured the American homeland far more effectively than this lunacy.

Well, here's what it would be now:
Cost of the War in Iraq
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(h/t John P., who does a masterful job of detailing precisely how to fit all this into perspective, so give him so love and go read his blog for that...I'll wait...)

Mind you, that's still just the actual recorded figures of monies laid out (or budgeted) for the invasion. Double that for the hidden costs today's report will detail.

Now triple that figure and you can get a clear picture of what this invasion is taking out of America: $5 trillion dollars, roughly.

The current nation debt is "only" $10 trillion. If you ever thought this invasion was a good idea, and if someone had presented that number to you...half our current national debt, which means we'll be paying just for the invasion alone into the 22nd Century, would you have thought it was worth it?

I didn't, and still wouldn't.