A basic principle of Hobson's Imperialism is that the imperial power typically suffers economic consequences for imperialism.

Seeing that the Imperialism of the last three decades is clearly condemned ...in that at enormous expense it has procured a small, bad, unsafe increase of markets, and has jeopardised the entire wealth of the nation in rousing the strong resentment of other nations, we may ask, "How is the British nation induced to embark upon such unsound business?" The only possible answer is that the business interests of the nation as a whole are subordinated to those of certain sectional interests that usurp control of the national resources and use them for their private gain. This is no strange or monstrous charge to bring; it is the commonest disease of all forms of government.
[Imperialism, I.iv.1]

Studies on the Cost of the Iraq War:

• "The Economic Costs of the Iraq War" (PDF) Congressional Budget Office, Sept 2003. This report is 55pp.


• "The Economic Costs of the Iraq War" (PDF) Joseph Stiglitz and Linda Bilmes, NBER (Feb 2006)

Comparative Studies on the Cost of War versus Containment:

• "The Economic Consequences of a War with Iraq" (PDF) William D. Nordhaus, War with Iraq: Costs, Consequences and Alternatives, American Academy of Arts and Sciences (2002); published prior to invasion, in early '03.
  
  Nordhaus: To begin with, the outbreak of war is itself evidence of some kind of faulty bargaining process, major miscalculation, or impaired collective decision-making on a grand scale. Wars destroy in a few days or months the physical and human capital that has been accumulated over decades or centuries. With hindsight, would the ministers of George III have risked the empire for the principle of levying a tax on tea? Would the southerners have seceded and provoked a civil war if they had known the devastation that would follow? Would the Germans have provoked World Wars I and II? Would Japan have bombed Pearl Harbor? Would the United States have sent half a million men to Vietnam? Economics teaches that trade is a positive-sum game that helps all who participate. By contrast, war is the ultimate negative-sum game in which the spoils of the victors are much less than the losses of the vanquished.

  Nordhaus, having assembled a best-case scenario ($140 billion total cost) and a worst case scenario ($1.9 trillion, with occupation and reconstruction—$500 billion—and impact on world oil markets—$778 billion—accounting for about two-thirds of that estimate), then explains how to interpret these results and why countries typically are prone to underestimate the probable costs of the war.



• "War in Iraq versus Containment" (PDF) Steven J. Davis, Kevin M. Murphy, Robert H. Topel, NBER; published prior to invasion, in early '03. Access is $5. I have not read this paper and do not plan to. Free link

  They explicitly considered a continued policy of containment... Allowing for a 3 percent chance that the Iraqi regime would evolve into a benign government in any future year and a 2 percent real interest rate, the economists reckoned that the cost of pursuing a containment strategy was $258 billion to $380 billion. "This dwarfs any reasonable estimate of U.S. war costs," they wrote at the time. Their anticipated price tag for the war, which they considered conservative, was $125 billion (CBO estimate—JRM).

  Professors Davis, Murphy and Topel have revised their figures in a new National Bureau of Economic Research working paper, "War in Iraq Versus Containment." Their estimated war costs have increased to a range of $410 billion to $630 billion, reflecting reality there... Consider[ing] what the cost of containment would have been had the United States not gone to war....[they] now says it is in "the range of $350 billion to $700 billion."
  [Alan Krueger, 2006 ]

  It is unreasonable for one to assume that additional information has become available suggesting that the cost of containing the Iraqi regime would actually have been far greater, than was surmised in 2003.

In my next installment I shall discuss the relative weights assigned to these estimates. Alan B. Krueger's inventory of estimates of the cost of the invasion includes some objections, such as the argument that Stiglitz's $2.2 trillion estimate involves double counting on some elements:

Another study of Iraq war costs, by Linda J. Bilmes of Harvard and Joseph E. Stiglitz of Columbia, comes up with an eye-catching estimate of $2.2 trillion, assuming the United States is no longer in Iraq in 2015. This is arguably too high for several reasons. First, it counts future interest payments on the debt created by military spending as well as the direct expenditures. (This is analogous to counting both the sale price of a house and the cost of future mortgage payments as the cost of buying the house.)

Second, it counts elevated military recruitment costs that incorporate a premium for higher risk of death or injury because of the war as well as the predicted direct cost of the deaths and injuries; this is double counting if the risk premium is adequate. Finally, it ascribes a big increase in the price of oil to the war, and, as a result, a loss to the American economy of almost half a trillion dollars.

A common deception perpetrated by movement conservatives (MCs) is to insist that defense spending, as opposed to all other categories of government spending, has a multiplier stimulus effect ("Military Keynesianism"). The same MC ideologues will insist, on every other occasion, that Keynesianism is both (a) a crackpot theory now totally discredited, and (b) a euphemism for socialism. The problem with this sort of self-deception is that none of these zealots ever know anything about the theory, and refuse to learn how to apply it in a coherent way. Fiscal stimulus multipliers have long been computed for the US economy, and Stiglitz used them to adjust the raw estimate of direct costs ($1269 billion) downward ($1189). As we can see, this impact is slight because Stiglitz assumed that the US economy is presently operating at close to NAIRU, so fiscal stimulus will be slight. Under such conditions, "cost-switching" will have the greater impact as industrial managers adopt less efficient resource allocations.

As for increased recruitment costs, Kreuger really puts his foot in his mouth. He assumes that, assuming the ephemeral risk premium is correctly calculated (i.e., the economic cost Stiglitz calculates arising from killed or wounded soldiers), it would be fully accounted for in the presumed future costs of recruiting new soldiers. The reasoning is that, if the costs to the economy of so many dead soldiers is $29 billion (high-end, p.15), and so many injured soldiers ($110 billion) is accurate, then recruits will tend to make a guess about this risk to themselves, which will on average be correct (a fundamental precept of Rational Expectations, BTW). This will therefore appear in the increased cost of recruitment, since Kreuger assumes the military will pay out about $141 billion more to soldiers to induce them to join. Kreuger's assumption is absurd.

1. First, assuming soldiers (on average) correctly estimate the risk premium of serving in war, they would apply it to future conflicts. The economic costs of death and injury are computed for this war, and hence, these killed and wounded.


2. Second, Kreuger assumes the economic costs are the only costs, from the POV of a recruit. The premium you would need to pay me to offset a heighted risk of death or injury, however, is greater than the risk-weighted economic costs of that injury/death, since my life is worth more to me than it is to the labor market. Kreuger may push the matter by arguing that the youth may not be able to decline recruitment because market distortions have reduced his alternatives to a Hobson's choice; but that merely ensures the cost will be borne by the youth, not transferred to the rest of society.


3. Thirdly, the cost of recruitment is not confined to a risk-weighted premium paid to inductees; if Kreuger thinks so, he ought to get another job. The costs of massively increased advertising, campus presence (advertising), massively increased payouts to educational institutions for an increasingly predatory and unpopular presence (marketing), training recruits who prove unacceptable for service, and administrative costs, has to be included.

(Part 2)

[Imperialism] [Iraq] [Economics]