By Peter Wilson
THE Iraq war has cost the US 50-60 times more than the Bush administration predicted and is a central cause of the sub-prime banking crisis threatening the world economy, according to Nobel Prize-winning economist Joseph Stiglitz.
The former World Bank vice-president yesterday said the war had, so far, cost the US something like $US3trillion ($3.3 trillion) compared with the $US50-$US60-billion predicted in 2003.
Australia also faced a real bill much greater than the $2.2billion in military spending reported last week by Australian Defence Force chief Angus Houston, Professor Stiglitz said, pointing to higher oil prices and other indirect costs of the wars.
Professor Stiglitz told the Chatham House think tank in London that the Bush White House was currently estimating the cost of the war at about $US500 billion, but that figure massively understated things such as the medical and welfare costs of US military servicemen.
The war was now the second-most expensive in US history after World War II and the second-longest after Vietnam, he said.
The spending on Iraq was a hidden cause of the current credit crunch because the US central bank responded to the massive financial drain of the war by flooding the American economy with cheap credit.
“The regulators were looking the other way and money was being lent to anybody this side of a life-support system,” he said.
That led to a housing bubble and a consumption boom, and the fallout was plunging the US economy into recession and saddling the next US president with the biggest budget deficit in history, he said.
Professor Stiglitz, an academic at the Columbia Business School and a former economic adviser to president Bill Clinton, said a further $US500 billion was going to be spent on the fighting in the next two years and that could have been used more effectively to improve the security and quality of life of Americans and the rest of the world.
The money being spent on the war each week would be enough to wipe out illiteracy around the world, he said.
Just a few days’ funding would be enough to provide health insurance for US children who were not covered, he said.