What does war cost? 10c a litre, says Australian politician

According to an article in the Sunday Herald-Sun’s online edition, Kevin Rudd, Australia’s shadow (i.e. opposition) foreign minister estimated that the war has cost Australian motorists between 5c and 10c a litre in higher petrol prices. This is the first time the Labor Opposition has linked higher petrol prices to the war.

The estimate was based on an estimate of US$5 to US$10 per barrel by Nobel-Prize winning economist Joseph Stiglitz, who gave an interview to Germany’s Der Spiegel magazine. In the interview, he raises many general issues related to costs of the war. Key points:

  • He estimates the war cost the US between $1 trillion and $2 trillion. This was very much greater than original US expectations – he repeats a widely held view that the White House’s assistant for economic policy, Larry Lindsey, was fired because he suggested it might cost $200 billion, but so far it has cost $500 billion. (“Bush wanted only certain information, and that’s mostly what they supplied him with.”)
  • His estimate includes “full budgetary costs to the government” which he says are “but a fraction of the costs to the economy as a whole”. He includes the cost of injury to soldiers – “17,000 so far including roughly 20% with serious brain and head injuries” – and talks about the lifetime cost of disabilities and injuries.
  • He says the US can afford it, but asks whether this is an appropriate use of funds, giving the example of Hurricane Katrina. “We could have spent trillions on research or education instead. This would have led to future productivity increases.”
  • “When demand rises, so does supply – that’s how markets usually work. Now we’re seeing that demand for oil is rising, but we’re not getting a commensurate increase in supply. And there’s a simple answer, it’s Iraq. […] The Middle East is the lowest cost producer in the world. […] Who wants to develop fields or invest in new technologies elsewhere if they know that in five years’ time, the Middle East may be supplying oil at previous prices?”
  • He sees possible sanctions against Iran as “an enormous disruption”, arguing that the world can’t afford sanctions and the poor right here will suffer.

Overall, an enlightening read.


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