Where did the $5tn spent on Afghanistan and Iraq go? Here’s where

Linda J Bilmes

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While Washington bickers about what, if anything, has been achieved after 20 years and nearly $5tn spent on “forever wars”, there is one clear winner: the US defense industry.

In Iraq and Afghanistan, the American military relied to an unprecedented degree on private contractors for support in virtually all areas of war operations. Contractors supplied trucks, planes, fuel, helicopters, ships, drones, weapons and munitions as well as support services from catering and construction to IT and logistics. The number of contractors on the ground outnumbered US troops most years of the conflicts. By the summer of 2020, the US had 22,562 contractor personnel in Afghanistan – roughly twice the number of American troops.

The gravy train for the defense industry was also fueled by the way the wars were budgeted and paid for. Congress used “emergency” and “contingency” funding that circumvented the normal budget process. For the first decade of the conflict, the US used emergency appropriations, which are typically reserved for one-off crises such as floods and hurricanes. Detailed spending oversight was minimal. And because this type of spending is excluded from budget projections and deficit estimates, it enabled everyone to sustain the pretense that the wars would be over shortly.

The result was what former defense secretary Robert Gates termed a “culture of endless money” inside the Pentagon. The defense department made the operational decisions; managed the bidding process for contractors; awarded the contracts (largely using non-competitive bids); and kept at least 10% of the wartime funding in classified accounts.

Not even the financial crisis of 2008 could interrupt the spending spree. While Congress imposed across-the-board spending caps on government programs, war spending was specifically excluded. The Pentagon was able to use the special “contingency” war budget to buy upgrades, services and new equipment that were barely related to Iraq or Afghanistan. Consequently, the Pentagon budget kept growing – and was able to double its size between 2001 and 2020.

Defense stocks outperformed the stock market overall by nearly 60% during the Afghanistan war, as the war spending surge enabled a wave of consolidation in the industry. The big five – Lockheed Martin, Boeing, General Dynamics, Raytheon and Northrop Grumman – and a handful of others acquired the next tier of manufacturers such as Hughes Aircraft and McDonnell Douglas.

In the year to June 2020 the big five accounted for nearly a third of the $480bn obligated by the Pentagon to defense contractors. While only a fraction of these sales went specifically for Iraq and Afghanistan, the conflict was highly lucrative for all the major defense contractors. For example, Lockheed Martin manufactured the Black Hawk helicopters used extensively in Afghanistan; Boeing sold the aircraft and land combat vehicles; Raytheon won the major contract training the Afghan air force; and Northrup Grumman and General Dynamics supplied electronic and communications equipment. Thousands of subcontractors around the world earned money from selling night-vision goggles, engines, sandbags, communications equipment and all manner of stuff to the war effort. And global oil companies were key war beneficiaries, since the Pentagon is the world’s single largest purchaser of fuel.

Meanwhile, the defense sector spent over $2.4bn lobbying Congress since 2001, and made direct campaign contributions to most members.

Not surprisingly, much of the wartime expenditures were highly wasteful. The Inspectors Generals for Afghanistan and Iraq, the Wartime Contracting Commission, and the Pentagon’s own inspector general all documented waste, profiteering, corruption and “ghost spending” (money spent on activities that turned out not to exist at all).

According to government analysts, the net result of the large-scale private sector involvement in Iraq and Afghanistan was to increase materially the cost of war operations. Much of the $145bn reconstruction money was spent on questionable projects with budgets that seemed excessive, or simply could not be accounted for. Many such projects, now destroyed and dilapidated, have littered the front pages over the past week.

The US presence on the ground may now be over. But America will still have to digest the huge price tag. The wars were paid for entirely with borrowed money rather than raising taxes – a first in US military history – and the US still owes $2tn in future veterans’ benefits. This financial hangover will be compounded by the need to replace what has been destroyed or simply left behind, and to pay for the weapons and equipment purchased during the last 20 years of go-go defense spending. The legacy of the post-9/11 defense spending binge will continue to gobble up the US budget for years to come.

Professor Linda J Bilmes is the Daniel Patrick Moynihan chair in public policy and public finance at Harvard University, and a former US assistant secretary of commerce. She is co-author (with Joseph E Stiglitz) of The Three Trillion Dollar War: The True Cost of the Iraq Conflict.