Friday, March 21, 2008

The coming Iraq war user fee

UPDATE: A similar piece, with different methods and a slightly different result here.

The right is big into user fees, so let's try this one out: Let's pay for the Iraq war with one. A reasonable estimate of the costs of the war include the direct costs of materiel and salaries of soldiers and contractors, and also the indirect costs of health care, pensions, rebuilding of US military infrastructure and regional foreign aid. Most estimates that take these things into account come out around $3T for the total cost over 10 years. That's up just 5 orders of magnitude from the ~$50 million estimates the Bush Administration advanced pre-war. It doesn't take into account opportunity costs for things we could have done with it that would have saved or made us money like ending poverty in this country, or investing in education, basic research or stuff like that.

Model 1: Pay up front.

If we had to just pay now, like we would have to for a package tour or any other private commitment, the price is $10,000 for each of 300,000,000 American men, women and children. However, only about half of us are gainfully employed, so the number is about $20,000 per taxpayer, in round numbers.

Model 2: Finance it.

Let's say we take that $20K tab and put it on the plastic at 18% per year compounded monthly and pay it over 10 years. That's $360/month. If we assume a cheaper rate, say 5%, then the monthly cost is $212. No problem! That 2.25% Fed rate you heard about? Forget it, that's not for us, it's only for deep-pockets financial institutions.

Model 3: Gasoline surcharge

Current (2007) US gas consumption is about 388 million gallons a day. That's 142 billion gallons a year. If we simply split the cost over the projected consumption, we get about 2 bucks a gallon Iraq war surcharge. Cheap! But of course consumption is not static, it increases every year. If it increases at 3%, the Bush Iraq war surcharge is down to $1.65/gal. But, as we found out in the 80's, peoples consumption does react to price changes (this is called the price elasticity of demand). Or the surcharge might tip the economy into a recession. Or the economy might already be in recession. If consumption drops by 3% a year instead of rising, then we have to take that into account and set the surcharge accordingly, at $2.25/gallon. Not that much more.

Bottom line:

You're in for $20K up front, or $212/month over 10 years, or $2 a gallon. Already. Whether you like it or not.

How do you want to pay for that sir? Cash or credit?

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