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The (Opportunity) Costs of the First Iraq War

(To read the rest of "On Violence’s Most Thought Provoking Foreign Affairs Event of 2014: Iraq Redux", please click here.

And click here to read the entire “The (Opportunity) Costs of Security” series.)

Whatever it is about the Middle East, it causes staunch, free-market-loving Republicans to forget their economics. Mention Obamacare, government regulation, the minimum wage or any other social issue, and free-market, libertarian-esque Republicans will extol the virtues of economics. Yet as soon as they begin talking about Iraq or Syria, these lessons disappear. Specifically, these Republicans (and all policy makers in Washington, really) refuse to acknowledge the costs associated with foreign policy.

Specifically, the opportunity costs. (Which we’ve been writing about since I went to business school.)

As we reflect on the reemergence of a civil war in Iraq, it seems appropriate to see how well the U.S.--led by the Bush administration--acknowledged the opportunity costs of the first war in Iraq.

Let’s spell this out with a hypothetical example. You own a pizza shop. (In business school, I swear all the business examples involve restaurants, even though most MBAs work in consultancies or investment banks. Curious.) You have ten stores, each doing incredible business. I mean, you’re slinging pizzas to every wahoo on the block. Obviously, you want to expand. You have about a million in cash, and it costs about a million dollars to open a new restaurant. You have narrowed down your options to three different cities.

So what do you do?

If you are in charge of American foreign policy, you open up a restaurant in every single city and go into massive debt.

But wait, that doesn’t make any sense! You don’t have the cash or resources to do that. You would likely fail at every new city--because you can’t devote the time, energy, manpower and resources to each one--and could cost yourself your entire franchise. (This isn’t purely hypothetical. Many restaurants have over-expanded to ill outcome.)

This is what happened in Iraq in 2003. Despite fighting an ongoing war in Afghanistan and a new “war on terror” (which sucked up huge amounts of capital to build a massive new intelligence and domestic security apparatus) President Bush, Vice President Cheney and all their diplomatic, military and intelligence advisers told America that we had the resources (in business terms, capital) to invade another country.

Except we (America) didn’t.

The business metaphor also shows the incredibly poor return on investment of invading Iraq. As Dexter Filkins recently covered, we basically deposed a Sunni despot for a Shia despot, while radicalizing a population of Sunni Muslims. (Though, Dexter Filkins illustrated in this podcast a fantastic ability to cling to “sunk costs”.) In terms of “what did we get for what we spent”, we blew it.

The biggest opportunity cost is spending what you could call “war capital”, the support needed to wage wars. The wars in Iraq and Afghanistan spent most of America’s “war capital”, and spent it poorly. It also meant we ignored the war in Afghanistan for far too long, wasting support for that fight. So when it comes to other possible American wars like...

Enforcing President Obama’s redline in Syria? Can’t, because Iraq made Americans afraid of messy civil wars.

Bombing Iran to stop their nuclear weapons program? Can’t, because Iraq made Americans afraid of mission creep.

Intervening in Ukraine? Can’t because Americans don’t want another war (and Russia has nuclear weapons).

Do something more in Libya, Egypt, Yemen or wherever else Charles Krauthammer or Bill Kristol wants? Can’t because Iraq, Iraq, Iraq and Iraq.

Most Americans, who live outside the confines of Washington D.C., understand that we don’t have the military capital to start another war in those places because we spent that capital (poorly) on Iraq. Nevertheless, despite widespread opposition, America started bombing Iraq anew and even put boots on the ground. Are there opportunity costs to that? You betcha, and we’ll discuss that on Thursday.

seven comments

I think mainly of war capital as actual money. That money could have been used, in 2008, to jump start the economy after a devastating recession. Especially wasted if that money would have gone to infrastructure, or making higher education more affordable, or any of a dozen of things.


A more classic piece on the opportunity costs of the Iraq War would have compared the expenses with millions of young people who could have graduated College for free with that kind of money.

Your comparison with alternative courses of action whose advantageousness can be disputed easily is alien to me.


@ SO – Well, you’re going to hate Thursday’s post. For me, it makes sense. It goes to the whole lack of debate access of the wars America fights.


I thought opportunity costs were based on the lost potential profits in “the path not taken.” In the case of the franchise owner, the options then aren’t to open a new franchise in one of three cities, but instead would be to double the size of an existing franchise; open another franchise; buy a racehorse. The first option is the safest: the market research is already done, the marketing is already done, the supply chain is already in place, the management is already in place. The issue is what kind of return on investment you’ll get, but let’s say it’s X. A new store brings increased risk and less certain return on investment, but let’s say it’s a bit more than X, so it’s S+Y. The opportunity cost of expanding a restaurant instead of opening a new one is Y: the lost profit. The racehorse is probably a bad example, but offers potentially awesome returns: let’s say 10X based on winnings and stud fees. That’s one hell of an opportunity cost:9X. It’s also by far the riskiest venture and the average pizza owner isn’t prepared to risk throwing away $1M on what to her is a gamble.

I think the point you make in the last part of your essay isn’t so much about opportunity costs as the simple expenditure of political capital. The US has used up all the positive global will it accrued from 9/11, and it’s used up all its domestic political capital in convincing citizens to pay to go to war in general, and I’d argue that in particular the Democrats have used all their political capital within the party and their base to get involved in further wars without completely eliminating their chances to get any Democrats elected in the next election.

I’m with SO on this: a piece on opportunity costs would make more sense if it looked at the financial costs of a decade+ of war and looked at the potential gains that could have been had if that same money had been spent on education, or on developing non-fossil fuel energy, or on paying off public debt, or on any of the other things mentioned in Eric C’s first comment.

Of course, it’s been a long time since I took an economics course, and I’ve never been able to completely separate the process of calculating opportunity costs from the conduct of risk assessment, so feel free to disregard/shoot me down. And I’m not American, so I may be reading the Democrats completely wrong too.


@ F – We’re hitting the financial costs more in Thursday’s post, specifically looking at foreign policy related spending.

I don’t think, looking at the costs, that America has to look at the financial realities of the wars in Iraq. We’ve literally spent trillions, with a T. If you don’t discuss how that money could have been better spent, then we’re not having the discussion about cost.

For me, it’s really simple. Everyone seems to agree America has too much debt. Instead of war spending, decrease the debt. But in most of the talk about ISIS, no one spoke about debt.


Well as an outsider looking in, the simple solution for the US is to figure out how much spending is necessary to defend US soil/ airspace/ economic exclusion zone and to get rid of everything else. You could cut the defence budget by many billions and use that for something else. Anything else: it’s the classic economic trade off of guns vs butter. But even as an outsider I can see that won’t happen – not because of economics but politics. ‘bama is already a four letter word in a huge chunk of the US. Defying the military and the arms industries would be political suicide on a scale that would sink his party for at least a generation.

But I think we’re in agreement: Western decisions (mainly though not always following the US lead) resulted in wasteful expenditure in the past. We sunk resources (money, time and political capital) into war and got a negative return. Those resources could have got a better return on just about anything else: education, infrastucture, debt-payment, proline tickets. We have to decide if we’re going to continue to fight and throw good money after bad (I believe SO has written extensively about sunk costs elsewhere), or if we’re going to radically change course. I know what I want to do. I think I know what you want to do. But politics may trump economics.


Eric, there’s a point at which one should stop using an established term and look for a better fitting one.
I propose “stupidity alternatives missed” in this case.

Opportunity costs are really defined as the highest (risk-corrected) alternative net advantage that one could have (had) with a different course of action.