(photo credit: Courtesy)
Stiglitz says that the costs of the war have been obscured through the US government's method of 'cash accounting,' which logs only present costs and ignores long-term expenses
'The median American income today is lower than seven years ago. The money that was spent on the war could have made a very big difference to the standard of living'
The globalization debate is typically seen as a clash of opposites - between the haves and the have-nots; the economic policymaking elite versus the rioters in Seattle and Geneva; and exploited developing nations pitted against the rapacious First World.
Joseph Stiglitz bridges these divides. Formerly Bill Clinton's chief economic adviser and the chief economist of the World Bank, he comes from the heart of the Washington financial establishment. Yet he's a hero to stone-flinging anti-globalizers and a scourge of his former colleagues in the corridors of power.
Stiglitz is no anti-capitalist red-ragger. He believes in global commerce, but opposes the dogma that markets can create prosperity without robust public institutions. He's an academic economist who writes in an accessible style, with authority born of both policymaking experience and venerable academic credentials; a professor at Columbia University since 2000, he's previously held posts at Yale, Oxford, Stanford and Princeton.
In 2001, Stiglitz shared the Nobel Prize for Economics. The award was widely seen as overdue recognition of Stiglitz's pioneering work on "information economics"; he argues that the market is beset with asymmetrical and imperfect information that impedes economic growth - flaws he envisages the state remedying.
By phone from New York, Stiglitz, 65, says he doesn't see his academic career as separate from his coalface work: "Much of what I did at the World Bank concerned the appropriate balance between the market and the state. That grew out of my work on imperfect information."
During his three years at the bank, he maintained an academic's refusal to compromise his ideas, finally resigning under pressure in 2000. "They said I could stay but that I wouldn't be able to talk freely. When I came to the bank, that was my one condition. I said, 'I'm not a spokesperson. I'm not a press person.'"
From his experiences at the bank came Globalization and Its Discontents (2002), a withering assault on the International Monetary Fund, which sold over a million copies and spawned a sequel, Making Globalization Work (2006). Infuriating his erstwhile associates, he argued that the IMF devastates developing economies with its one-size-fits-all deregulation regime. "If I'd been proven wrong, I would have been forgiven. But to have pointed out the flaws - in the strategy, for instance, in addressing the crisis in East Asia, and the way they were mismanaging the transition of Russian and other countries to market economies - was unforgivable."
The IMF aired its grievances during a debate with Stiglitz about Globalization and Its Discontents at the bank. Both parties agreed to restrict the discussion to substantive issues and avoid ad hominem attacks, but the fund went for Stiglitz's jugular. After insisting that the discussion be off the record, the IMF's chief economist, Ken Rogoff, immediately sent his remarks to the press as an "open letter" to Stiglitz.
"Having seen the underhanded ways they operate in developing countries, I should have expected that kind of behavior, but I wasn't prepared for the extent of it," Stiglitz says. "Everybody was scandalized."
Most intolerable was Stiglitz's suggestion that officials were sometimes rewarded for peddling pro-privatization policies by walking out of the IMF into lucrative positions on Wall Street.
STIGLITZ'S SOCIAL conscience emerged early. The son of a schoolteacher mother and insurance-salesman father, he grew up in the industrial city of Gary, Indiana, and was shaped by the social inequality and frequent labor strikes he observed there. He "saw some of the aspects of the market economy where things were not working well."
Stiglitz attended an all-white school, while his mother was the sole white teacher at an exclusively black school. At Amherst College in the early '60s, he immersed himself in the civil rights movement, and attended the march at which Martin Luther King declared "I have a dream."
Initially a physics major, he switched to economics because it allowed him to apply his love of math to social issues. After completing his PhD at the Massachusetts Institute of Technology, he became professor of economics at Yale at 26. He has four children: a political science PhD student, a family therapist, a public interest lawyer and a teacher; all have eschewed the financial world for socially minded pursuits.
Stiglitz left the ivory tower in 1993 to serve for four years as former president Bill Clinton's chief economic adviser. In The Roaring Nineties (2003), his account of the Clinton "boom" years, Stiglitz questioned the Clinton administration's sometime subservience to big business. He criticized its failure to reform accountancy standards - "reforms that might have avoided the Enron/Worldcom scandals of the late Nineties and early years of this century." But he says that Clinton, "relative to what preceded and what followed, has to be viewed as A-plus."
Now back in academia, Stiglitz continues to influence the political arena. In 2006, he co-authored a paper with Harvard academic Linda Bilmes, estimating that the overall costs of the Iraq conflict will reach $1-2 trillion. Surprisingly, no one in the Bush administration substantially challenged his numbers. "Their main argument was, 'We don't go to war on the basis of green-eyeshaded calculations.' Our response was, 'This is a war of choice and American citizens have a right to know how much they're spending to determine whether they're getting what they think they ought to be getting.' The second argument was that we haven't talked about the benefits. We agree. We were not convinced there were benefits."
THIS MONTH, Stiglitz and Bilmes publish The Three Trillion Dollar War: The True Cost of the Iraq Conflict. Despite adding an extra $1 trillion to their previous calculations, they insist the tally is exceedingly conservative. "When we first wrote our paper, there had been almost no discussion of the costs. In addition to the operation costs, there were the costs of treating the soldiers, disability payments, health-care costs, the costs born by the families of the troops, and the costs to the economy."
He sees the book as an extension of his research on the importance of transparency in markets. "I thought that, as a matter of good democratic principles and good economic policy, we should know what the costs of the war were - and that the economic cost is not just the budgetary cost. The fact that the administration was trying to keep the apparent cost down meant that they underinvested in some of the things that would have increased the upfront cost but saved money in the long run."
Stiglitz says that the costs of the war have been obscured through the US government's method of "cash accounting," which logs only present costs and ignores long-term expenses. Thus, for example, in purchasing low-cost military vehicles, the defense budget wouldn't take account of the future costs of treating veterans injured as a result of the cheap purchases, or the costs of replacing the dilapidated equipment.
He charges the administration with being poorly prepared for war veterans, who often return home to face inadequate medical services, overwhelming red tape and long delays in processing their disability claims. The funds for veterans' medical care in the 2005 budget were based on data from 2002 - before the war began - which "shows that there was clearly some deliberate attempt to misrepresent the cost."
Stiglitz adds: "No matter what your view of the war, everybody thinks that those who fight for a country ought to be treated better than they have been treated."
He doesn't believe that war should be funded by borrowing, arguing that current taxpayers should bear the costs of their politicians' decisions rather than passing them on to future generations. But the US is already feeling the bite of the administration's extravagant spending. "America is a very rich country, so the issue is not whether we're going to be pushed over the brink. The question is the opportunity cost. The median American income today is lower than seven years ago. The money that was spent on the war could have made a very big difference to the standard of living."
The government's failure to adequately prepare for the war has meant lavishing funds on private contractors to compensate for its overstretched army.
But the problem of private contractors isn't just economic - mercenaries are motivated by profit rather than the national interest. "Privatizations of the military are never a good thing. The contractors want to keep the costs as low as possible, but one of the social objectives in our intervention in Iraq should have been to make sure that unemployment was kept down. But while the Iraqis were unemployed, our contractors were bringing in Nepalese and Filipinos to work. As the economy went down, it fed the insurgency, and as the insurgency strengthened, it made it difficult for the economy to function. The administration said Iraq's economy was about to blossom. That certainly hasn't happened yet."
The administration has compounded the costs by awarding no-bid contracts, arguing that competitive bidding, although necessary to secure the best deal for taxpayers, would be too time-consuming given the urgency of war. "This argument might have made some sense for the months immediately surrounding the invasion, but seems hardly compelling years after."
The no-bid contracts create a situation ripe for conflicts of interest - recall the exorbitant payments to Halliburton, formerly the home of then-defense secretary Vice President Dick Cheney. The administration offers "cost-plus" contracts, reimbursing the expenses of the defense contractors, and thereby encouraging them to spend highly to increase profits.
In Stiglitz's view, the administration has avoided scrutiny by financing the war through "emergency" funding. Emergency funds are not subject to usual budget caps and require lower standards of justification and congressional review. "It's an attempt to subvert the oversight of Congress and their systematic procedures. It has contributed to the ballooning costs of the war."
Stiglitz argues that Congress should restrict the use of emergency funds to the first year of a war. "Five years after a war, it's no longer an emergency. It should be able to be planned or something's going wrong."
He sees little truth in the clichÃ© that war is good for the economy. Although World War II helped the economy grow out of the Great Depression, he points out that governments can stimulate economies far more effectively through spending on projects other than war. "This war has probably been particularly costly for the long-run growth of the economy because of the high price of oil, for which it was partially responsible, and because it's been so much financed by deficits."
Stiglitz believes that the Iraq debacle should have precluded Paul Wolfowitz from being appointed president of the World Bank in 2005 - a position he held until resigning in disgrace last year after arranging a lucrative pay raise for his girlfriend. "The war in Iraq was already very unpopular. That was a major liability as he came into the Bank. A lot of people gave him the benefit of the doubt and said, 'OK, maybe he'll be like [former World Bank president and Vietnam War-era US defense secretary Robert] McNamara and do penance for his sins in the war by doing a fantastic job. Unfortunately, Wolfowitz's tenure was flawed by the same problem that flawed the decision-making process in the department of defense - a failure to listen to other people.
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