Iraq war helped weaken economy. Of course.

In the (highly recommended) discussion among three economists  -- Stiglitz, Ip, and Holtz-Eakin this morning on WAMU, an emailer to the show wrote:

"When President Bush took us to war, there were few voices with concerns about the costs and the rising deficit.  Supporters of the war like AEI [American Enterprise Institute] were pooh-poohing this, saying the amount was only a small portion of GDP and not a problem.  Now when Obama wants to save the economy, the rising deficit is suddenly a big problem.  How about some consistency?  A failing economy is much more dangerous to the US than Iraq ever was."

Joseph Stiglitz responds:

"Well, obviously I'm very sympathetic with that question!  The original estimates of the costs of the Iraq War were $50 to $60 billion.  By this year -- or 2008 -- we were spending that amount every three to four months up front, not including the cost of disabilities of the people coming back.  40 to 50% of our troops coming back are partially or totally disabled.  It was a crime that was committed.  The total cost that we've estimated -- in the book with Linda Bilmes -- is that the budgetary cost of the war will be in the order of $1.5 to $2 trillion, and the total cost to the economy in the order of magnitude of $3 trillion or more."

The moderator then asks:  "Is it the war which has gotten us to where we are economically?"  Stiglitz replies:

"The war contributed.  I think we should be quite frank about it.  And the war is now hampering what we can do.  Everybody's talking about worrying about the size of our national debt.  The war has added significantly to the national debt.  But the war affected us in another way.  I'll just take a second to try to explain how it made the downturn worse.  Basically the war -- I believe --  was one of the factors giving rise to rising oil prices.  Rising oil prices weakened our economy.  We were spending hundreds of billions of dollars to buy imported oil, more than we otherwise would have.  The weaker economy forced the Fed -- in a short-sighted way -- to try to keep the economy going through lax monetary policy and lax regulations.  It was a short-sighted policy.  In a sense it worked:  we were living off borrowed money and borrowed time.  The economy kept going.  But it increased the amount of household debtedness, and household indebtedness is the source of our current problems."