Harvard professor on the 'credit card wars' and the mounting costs of care for post-9/11 veterans

Dr. Linda Bilmes, Daniel Patrick Moynihan Chair in Public Policy and Public Finance at the Harvard Kennedy School, joined Yahoo Finance's A Time for Change to discuss her recently published study on the long-term costs associated with caring for veterans of America's post-9/11 conflicts, and how taxpayers will be footing the bill for decades to come.

Video Transcript

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SIBILE MARCELLUS: Welcome to "A Time for Change." I'm Sibile Marcellus here with Alexis Christoforous. All eyes are on Afghanistan right now. As evacuations continue, President Biden is considering whether or not he's going to stick to his August 31 deadline for the withdrawal of US troops. He's expected to make an announcement about that today. But even when the last soldier comes home, the cost of war will continue for decades to come.

ALEXIS CHRISTOFOUROS: And according to a recent study, by the year 2050, the cost of caring for post-9/11 veterans will reach more than $2 trillion. Our first guest is the author of that study. Dr. Linda Bilmes is the Daniel Patrick Moynihan senior lecturer in public policy at the Harvard Kennedy School. And Dr. Bilmes, it's great to have you here on the show. Thanks so much for being with us.

I know that one of the things you looked at in this study is the ability of the US government to make good on its financial promises to these veterans. What did your study reveal?

ALEXIS CHRISTOFOUROS: Well, I think it's important to note that the US fighting in Afghanistan may be over, but paying for veterans' care is just beginning. There's always a long tail of costs after a war is over. So for example, the peak year of paying veterans benefits for World War II veterans was in 1986. And we haven't yet reached the peak, paying disability benefits for Vietnam veterans.

But this time, it's going to be a much bigger, longer, thicker tale because we already have 1.8 million veterans from the post-9/11 wars who are already awarded lifetime disability benefits and care. And their needs are going to grow, as they always do, as they get older and have more complications from whatever disability or injury they have had. I can talk about this at length.

SIBILE MARCELLUS: Dr. Bilmes?

LINDA BILMES: Yeah?

SIBILE MARCELLUS: We will definitely get into it. But I wanted to ask, how many trillions of dollars could the US be saving by withdrawing US troops in the country?

LINDA BILMES: You're asking a very good question. Let me put this in context. These are what I call the credit card wars. These are the first wars the US has fought where we have not actually paid anything for the wars yet.

So going back in history during Vietnam, during Korea, during World War I, World War II, back to the Spanish-American War, War of 1812, taxes were always raised to pay for these wars, and sometimes a lot. So during the Korean War, President Truman raised taxes, top marginal rates, to 92% to pay for those wars, to pay as you go, as he put it. And President Johnson raised top rates over 75% during the Vietnam War.

Now of course, during these wars, taxes have been cut three times, in 2001, 2003, and 2017. So we haven't yet paid for anything for these wars. So we already have a huge amount of debt. So the question is not only how much money it costs year on year but also how we pay for the wars.

ALEXIS CHRISTOFOUROS: Exactly. Yeah, Doctor, I don't mean to cut you off. But I was going to ask, I mean, does this then set up the US government to possibly have to renege on these promises that it made to these veterans, which, let's admit, is a huge incentive for a lot of these veterans, the benefits that they're going to get from the US government? Did your study reveal that it's a real possibility that the government may not be able to live up to those promises?

LINDA BILMES: I am concerned that the government might renege on its promises to this generation of veterans because of the fact that we already owe many, many, many trillions of for the war, the credit card wars. And I have proposed a veterans' trust fund, which is an accounting mechanism. But it is a way that the government begins to set aside some funding specifically for a specific purpose and requires that the government has a function to keep track of and to monitor the long-term obligations to this group of veterans.

The government right now has been expanding veterans' care. The Department of Veterans Affairs has generally performed increasingly well, particularly on the medical side, over the last 20 years. It has expanded care into communities. It has expanded care for mental health care, for women's care. It has expanded a wide variety of types of care. And of course, medical care in general has improved but become more complex.

But this generation of veterans coming home has multiple conditions. They were exposed to more combat, on average, than previous generations of veterans due to the way that these wars were fought with a small, all-volunteer force supplemented with contractors. So there is the question of how sustainable is it to continue paying a very expanding, rapidly expanding Department of Veterans Affairs if we did not set aside any funding for veterans beforehand. And I believe that we should start doing so.

SIBILE MARCELLUS: More than 40% of troops who served in Iraq, Afghanistan, or related locations have already been approved for lifetime disability benefits. Do you expect that even more troops will qualify? Because even if the US withdraws troops on that August 31 deadline and the fighting is over, there's still the mental and physical ongoing impacts of war.

LINDA BILMES: That's absolutely right. And of course, you have millions of young men and women who are still serving in the military, who have served in these wars, who have not yet become veterans. So that's right.

But in general, you have a much-- this is a good thing, of course. There is better medical care. There is a much higher survival rate among this group of veterans. There is much better communication to veterans about what they're eligible for. There is much more outreach by the veterans organizations and the Department of Veterans Affairs. There are more generous veterans.

And so all of these things mean that the cost absolutely will continue to go up. And my figure of $2.2 to $2.5 trillion for the long-term cost of veterans care, that is a very conservative number.

ALEXIS CHRISTOFOUROS: Dr. Bilmes, I know that you say the government's estimates of the financial cost of the post-9/11 wars vastly underestimates the actual total costs of war. Can you sort of lay out for us how so? And in what ways have they underestimated the costs?

LINDA BILMES: I first started studying this in 2005. And my co-author, Joe Stiglitz and I, wrote the book, "The $3 Trillion War" in 2008. And at that point, we estimated that that was the minimum that these wars could cost. But the way that we have budgeted for these wars meant that the war spending was done initially for a decade through emergency money that doesn't go through the usual checks and balances and oversight as regular government spending, and since then, through a mechanism called overseas contingency operation funding, which again, goes through a somewhat separate process.

So there has been very little oversight on a lot of the ways that money has been spent. That means that we have probably spent far more than we absolutely needed to. The ways that many contracts have been written for the military contractors that have been a vital part of this conflict, the incentive structures in many of those contracts have incentivized a higher than necessary amount of spending. There have been essentially no restrictions on how much could be spent.

Now, that is all what has been spent, as I have mentioned. The war has not been paid for at all yet. This has all been paid for on borrowed money, which is the first time in US war history that we have ever paid for a war entirely through debt. This is really a new thing.

So we have the interest on the debt that needs still to be paid. We have long-term cost of taking care of veterans. We have long-term cost associated with replenishing equipment, replenishing and what the military calls reset in terms of the actual military forces, as well as a whole series of costs associated with depreciation of equipment and machinery and weaponry.

SIBILE MARCELLUS: Unfortunately, we don't have much time left, but I do want to ask you this. As the daughter of a World War II veteran, how have you noticed that it's changed, the caring of veterans from post-World War II to post-9/11 in terms of costs?

LINDA BILMES: I think that it's important to understand that the number of veterans in the population has become much smaller over the past 20 years. So 20 years ago when my father and many other World War II veterans were still alive, one in every four American men was a veteran. That number is now one in eight. And in another 20 years, it will be one in 12 or one in 14. So things have changed in terms of the awareness of the cost of the war, in terms of the immediate awareness of having a family member who has served in the military. And I think that the number of people in the population who have lived with this is much smaller.

Let me just mention one more thing. One of the reasons that my numbers are so conservative is because the US has not really reckoned yet with the cost of the exposure to burn pits and other toxins that many hundreds of thousands of veterans in the first Gulf War as well as Afghanistan and Iraq were exposed to.

The Department of Veterans Affairs has just made it a little bit easier for veterans to claim for respiratory ailments associated with exposures to burn pits. But there are a whole range of conditions that have recently been the subject of medical research and will probably shortly be certified as being connected. And that will absolutely expand and probably explosively expand the number of veterans who are eligible for things that they know are not right about themselves, but be able to more easily claim benefits.

We have also not, as a country, dealt with the long-term costs of all of the military contractors who have served in these wars and who are not eligible for the same benefits but who will be paid for through subsidized health care and Medicare and who have also been exposed to burn pits and many other risks and hazards.

ALEXIS CHRISTOFOUROS: Absolutely. Well, these are fascinating insights and things our government needs to address, for sure. Dr. Linda Bilmes at Harvard Kennedy School, thanks so much for your time today.

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