In a startling and persuasive new book, The Three Trillion Dollar War: The True Cost of the Iraq Conflict, by Joseph E. Stiglitz, a Nobel Prize-winning economist, and Linda J. Bilmes, a professor at Harvard University’s John F. Kennedy School of Government, calculate that the war has cost the United States as much as $5 trillion to date. The $3 trillion of their title is, to say the least, a conservative estimate.

There is nothing wild-eyed about the methodology Stiglitz and Bilmes employ. The Three Trillion Dollar War is the work of two very smart and experienced experts who have put their learning at the service of the general-reading public. It is hard to imagine anyone capable of independent thought reading this book and not coming to the conclusion that the war in Iraq is a political, strategic, and financial blunder of staggering proportions.

We caught up with Stiglitz by phone in New Zealand recently. What follows is an edited transcript of our hour-long conversation.

Let’s start at the beginning: why did the Bush Administration go to war in Iraq? And why did Congress and the American people go along with it? Those are hard questions to answer. The alleged reasons don’t make any sense. There were no weapons of mass destruction. There were not, until the United States invaded, any connections with Al Qaeda. Anyone familiar with the highly secular nature of Hussein’s Baathist regime would have known that a connection with Al Qaeda would have been inconsistent with Saddam’s political views. The irony, of course, is that while we were worrying about weapons of mass destruction that didn’t exist in Iraq, North Korea became a nuclear power. While we were focusing on a country where there was no connection with 9/11, things went terribly wrong in Afghanistan, a nation strongly connected to the New York and Washington attacks.

What about oil?

The Bush administration never gave that as a reason. Although some people, such as former Federal Reserve chairman Alan Greenspan, said the connection was obvious. That’s just not plausible…well, let me take that back. It is not plausible if you think it through. There probably was a bit of naive geopolitical thinking about oil going on. But we are not living in the 19th century, where one country marches into another and seizes its oil. Oil is an internationally traded commodity. The price of oil is determined by global demand and supply. There is a sort of worst-case scenario where access to any oil at any cost would be vital, but we are not anywhere near that sort of reality. If we went into Iraq to keep the price of oil cheap, then—given current prices—we failed.

Are there any other theories worth considering?

Jacob Weisberg has written a book [The Bush Tragedy] where he suggests there is a link to Bush’s oedipal relations with his father. But that goes beyond economic analysis. And then there is the neocon interpretation that we went to war to force democracy. That, on its own, is a peculiar notion. If you were going to force democracy, why begin there? There are lots of other dictatorships around the world.

By some measures, Bush’s so-called surge appears to be working. Combat deaths are down. The once-hot insurgency appears to have cooled. Senator John McCain, the republican presidential nominee, says this is the road to victory. Cynics, such as myself, see the surge as a way to ensure that the next president will be forced to continue the fight. What’s your view?

I am a bit inclined to your view. The question, I guess, is what lessons can we infer? First, you say the level of violence is down. One has to put this into context. The level of violence is still extraordinary high. And it’s just down from the peaks that it attained at the beginning of 2007. It’s still at the level of 2006. It is not exactly peace and stability.

Secondly, the objective of the surge was to create room to create a viable, stable, political solution to the civil conflict. It hasn’t worked. The political solution has not emerged. So, going forward, you have to ask this: “Are we supposed to maintain our forces there forever? For the 80 to 100 years McCain has talked about?”

Thirdly, part of the surge strategy is to give weapons to various militias and to give them the go-ahead to fight, if they fight on our side. The British did that in the south. Now that the British are leaving, no one is looking at Basra. But if they did, they would see a tremendous amount of Shiite-on-Shiite violence. The surge could well be creating the preconditions for even more serious Shiite-Sunni conflict in the future.

Several days ago, a White House spokesman dismissed your findings with the following words: “people like Joseph Stiglitz lack the courage to consider the cost of doing nothing and the cost of failure. One can’t even begin to put a price tag on the cost to this nation of the attacks of 9/11. It is an investment in the future safety and security of Americans and our vital national interests.

$3 trillion? What price does Joe Stiglitz put on attacks on the American homeland that have already been prevented? Or doesn’t his slide rule work that way? How do you respond?

There are so many problems packed into those five-or-so sentences. It is interesting that he was commenting on my book before he had a chance to read it. He was just responding to the bottom line without knowing or understanding the analysis that prompted the conclusions.

I would suggest that the administration lacks the courage of its convictions. Democracy is more than periodic elections. It’s about having an informed citizenry participate in the decisions that affect their lives. The critical word here is “informed”. The administration refuses to talk about what the costs of the war are. It’s an important dimension. Americans should be able to make the decisions about what the benefits and costs are. They may differ about the benefit side, but at least they should know what the costs are.

We document the way the administration has been trying to hide and mislead the American people about the cost of the war. Senator Charles Schumer of New York has asked the Bush administration to testify about those costs. The administration so far has refused. It refuses to engage with critics. The administration is still trying to hide behind the 9/11 smoke screen. The fact is that, because of the war, America is less—not more—secure. According to a recent survey of senior military officers, our military forces are depleted. We are less prepared for a new attack than we were five years ago.

Vice-president Dick Cheney and one-time Secretary of Defense Donald Rumsfeld, the big brains behind Iraq, more or less argued that this war would be self-liquidating, that it would pay for itself. What went wrong?

Let me first point out that they were misled by the first Gulf War, which we thought did pay for itself. The fact is, however, that if they understood the cost of war, they would have understood that that was not even true for the first Gulf War.

We did get our allies to pay much of the up-front operational costs. But the costs are more complicated than that. The first Gulf War was only a month-long war, and yet we’re paying $4.3 billion a year just for disability payments. If you understood that, then you would’ve realized a five-year war would have enormous costs.

One of the things that we know is that costs increase more than proportionately the longer troops stay. That’s because things like psychiatric problems increase more than proportionately. A lot of problems arise. You can withstand a certain number of blasts. But the larger the number, the higher the probability of a serious problem.

It’s interesting that the administration has not come to the American people and said, “This is where we made our mistake. This is where our calculation went wrong. Yes, we thought this war was going to cost about $50 billion. It’s now costing that amount every three months.” They never told us that, and it’s very telling. It’s a real lack of democratic accountability.

My own suspicion is they thought that we were going to be greeted with garlands, that our main cost would be sweeping up the rose petals. They did not understand the nature of the depths of the conflicts within Iraqi society. They had no understanding of the distinctions between the Sunnis and Shiites. They thought that a prepackaged sort of democracy would prevail.

I talked to the person sent over to help transform the Iraqi economy and asked the question, “What happens if, in a democratic Iraq, the people choose to have a theocracy along the lines of Iran?”

His response was that the US would have to stay there and re-educate them. And it’s clear that he thought that we had the option of staying there a long, long time.

When did things start to go wrong?

Some critical decisions—really bad decisions—were made in the very first year. Some of these are well known: disarming the military and the failure to protect caches of arms, to name just two. But in our book, we talk about other problems that have not gotten the attention they deserve. Key is the way reconstruction of Iraq was managed with the use of a privatized kind of shock therapy that hasn’t worked anywhere else in the world and didn’t work in Iraq. The economic-policy machine that we imposed on Iraq was doomed to failure. The use of contractors to build Iraq meant that, at a time when there was 60 percent unemployment in that country, the contractors were focusing on saving costs. So, in effect, we’re importing Filipino state police and calling it progress. It was a mess. Rather than winning the hearts and minds of the Iraqi people, we won their enmity. The Iraqi people knew that we were not putting their country first.

You identify an even more fundamental problem.

We tell a story that I don’t think has been told before. President Bush went to the mat and said that $18 billion was needed for reconstruction. That’s an amount per capita that exceeded the Marshall Plan. Congress demanded that there be competitive bidding. It understood that the kind of sole-source, Halliburton-style contracting process was too amenable to corruption, that it set a bad precedent, and was a bad example for other countries. Congress said no. It insisted on competitive bidding. Although Congress did say it would drop the bidding requirements if the administration would certify that this was the only way reconstruction could be accomplished. Rumsfeld refused. Congress refused to back off. The result was a stand-off that lasted for months. No contracts were given for reconstruction and things deteriorated very quickly. It was a pivotal point in time and the president insisted on single-source contracting. You might say it was a form of corruption—I don’t know what else to call it.

The United States seems addicted to living beyond its means, living on borrowed money. We tried to fight this war on the cheap. We didn’t commit enough military muscle and we gambled that we could get away with spending less money than the job required. Now the economy appears to be in a downturn, a recession triggered by the subprime-mortgage scandal. Are war spending, the subprime scandal, and the deteriorating state of the economy in any way interconnected?

Yes. It’s a little bit complicated, but it’s not that hard to draw the lines between the dots.

The war has not been good for the economy, and probably the most obvious effect has been the price of oil. Americans are spending money not to help their own economy, but to help Saudi Arabia’s. The high price of oil is draining the American economy of hundreds of billions of dollars. Iraq isn’t responsible for all of the increase in oil, but it’s responsible for part of it, and that part is important.

Money spent on Nepalese contractors working in Iraq doesn’t stimulate the economy the way an American worker building a road in America does.

And then there is the deficit spending. This is the first war inAmerican history that has been 100 percent deficit financed. Deficit spending for a whole variety of reasons can have a dampening effect on the economy. For the first time since the Revolutionary War, we have essentially had foreign financing of a war.

These are reasons why the war might’ve been expected to exert a dampening effect on the economy. Government officials, the Federal Reserve in particular, have the responsibility of maintaining the economy at full or as close to full employment as possible, regardless of what’s going on.

So what did the Fed do? It lowered interest rates; it flooded the economy with liquidity to offset these other depressing effects. It did it pretty well, but in a certain shortsighted way. It did it by looking the other way when very bad lending practices were going on. A combination of loose monetary policy and lax regulations led to the subprime crisis.

The Fed obviously wanted to convince itself that they weren’t doing anything wrong. They said, “Oh, it’s not a bubble, it’s just a little foam.” Greenspan encouraged people to take out variable-rate mortgages at the time when interest rates were at a low and had only one way to go.

All of this thinking was totally myopic. It was clear that we were living on borrowed money and borrowed time. Meanwhile, we were spending hundreds of billions of dollars that were going straight to the oil-exporting countries. At the same time, Americans were taking hundreds of billions of equity out of their houses. Mortgage equity was being used to support consumption. It was only a matter of time before the day of reckoning would come, and now that day has arrived.

McCain is a Vietnam-War hero and has impressive foreign-policy credentials. Is it possible for the Democratic presidential nominee to change the terms of the Iraq debate, to make it about economic issues, not national security?

I do think the economic issue is critical. But you cannot de-link economics and security and overall national well-being.

The point isn’t that the war is going to bankrupt us overnight. The point is that the war is costing us a lot. Whether it’s $3 trillion or $5 trillion or somebody wants to nitpick about our numbers and come up with $2 trillion…

The fact is that the money could have been spent in ways that would’ve enabled us to address some of the major problems that our country is just not dealing with.

Child health care? The cost of a few days of fighting would make a difference.

Expanding our influence in Africa? Several days of fighting would pay for us to double our aid.

Fixing Social Security? We could put social security on a firm financial basis for the next 50 to 75 years for about one-sixth of an Iraq war—or less. There are some problems that are very big that, because of the war, we are not addressing. America has limited resources—not using those resources well means we are going to be less secure.

To return to your question, this really has nothing to do with heroism.

You hold that this war is the second most expensive war in our nation’s history, that only World War II was more expensive. How can this be so? How can we be spending more in Iraq, where we have about 160,000 troops, than we did in Korea, with 1.5 million soldiers, or Vietnam, with 550,000?

The main reason is we are spending more per soldier by an order of magnitude. Previous wars cost about $50,000 per troop. We’re spending $400,000 per troop. Now you can ask, why is that? Part of it has to do with the way we use expensive private contractors to do what the military used to do. Expensive contractors or single-source bidding is an invitation to high prices. You don’t have competitive forces at play. We have even reduced the number of financial auditors.

Then there is the conduct of being penny-wise and pound-foolish. For instance, at the beginning of the war we deferred maintenance. We used up our equipment faster than we repaired it. You can do that for a while. And Washington may have thought they could get away with it because they thought the war would be short. Washington figured it could bury these costs into the overall defense budget so it wouldn’t go under the Iraq War bill. But five years later, five years after “Mission Accomplished,” that strategy of deferral backfires.

Everybody knows that the reason why you want to keep maintenance up to date is that, if you postpone maintenance, the bills get larger. And that is precisely what happened. At the beginning of the war we were spending about $4 billion a month. Now we’re spending $12 billion in Iraq alone—$16 billion with Afghanistan. The cost of everything in the war zones is skyrocketing.

How do we leave Iraq now?

It’s very clear the Bush administration didn’t think very much about an exit strategy. It has punted the ball, left the problem with the next president.

Most people recognize that we will have to exit at some point. We may not have a choice. Iraq may tell us to go. It’s a lot better for us to go before we are told to go. I don’t think we want to be in the business of replacing governments that tell us to go. We’ve already been in one regime change.

To stay in Iraq for four more years will cost $1.2 trillion. That’s $12 billion a month in upfront costs, plus that amount again in veteran’s benefits and health-care costs. So the total cost per month is $25 billion. The total annual cost is $300 billion. These numbers don’t take into account the fact that costs are rising every month, so these numbers are conservative.

Okay, that’s a lot of money. When we leave, there may be chaos or things may get better. Most Iraqis think when we leave things will get better, but no one can know for sure. But that’s not the issue. The issue is, if we leave now versus leaving four years from now, will things be that much better four years from now? Or that much less bad, that it’s worth spending $1.2 trillion?

Or another way of putting it is this: is securing this little piece of land—and when you look at it from a global perspective, Iraq is not a very big place—worth it? Given all the instabilities in all the other places in the world, such as Afghanistan and Pakistan, is this the best way, the best place to invest another $1.2 trillion?

Will enhancing Iraq make America any safer? That, after all, is what any presidential candidate ought to be addressing.

Is there a way to calculate how much this war costs the average American family each day? Or week? Or month? Or year? Think about it this way: the war has cost each American family about $30,000. That’s more money than some families make in a year. For others, it might not bankrupt them, but it could sure make a difference. It’s about the price of a new car—whether you wanted to buy the car or not.

Copyright 2007 The Phoenix Media/Communications Group