The Ghost Budget: Unpacking the Unprecedented Financing and Oversight Failures of America's Post-9/11 Wars

The podcast features Linda Bilmes, a senior lecturer at Harvard Kennedy School, discussing her research on the financing and budgeting of America's post-9/11 wars in Iraq and Afghanistan, which she details in her forthcoming book, "The Ghost Budget." Bilmes highlights a stark departure from historical precedent, where previous major U.S. conflicts were largely funded through taxes and cuts to non-military spending, and eventually integrated into the regular defense budget. In contrast, the post-9/11 wars were paid for almost entirely by debt, without tax increases (in fact, taxes were cut), and were budgeted outside the regular process for two decades through "emergency funding" and "Overseas Contingency Operations" (OCO) accounts. This unique approach, she argues, created a system with minimal oversight and significant long-term consequences.

Bilmes identifies three primary factors contributing to this unprecedented financing model. First, the chronic dysfunction within the Congressional budget process, marked by frequent shutdowns and reliance on continuing resolutions, incentivized the Pentagon to seek more flexible, off-budget funding mechanisms. Second, the Pentagon, emerging from a period of relative budget decline in the 1990s (the "peace dividend" era), saw emergency and OCO funds as a way to replenish its budget, particularly channeling money into the flexible Operations and Maintenance (O&M) account, which heavily funds contractors. This reliance on contractors, often exceeding the number of U.S. troops and performing critical functions, further incentivized this funding structure due to their distinct incentive structures and the desire to avoid a draft.

Third, an "unusually benign economic environment" following the 2008 financial crisis played a crucial role. With historically low interest rates, the massive war spending effectively functioned as a "backdoor stimulus package," and the cost of servicing the accumulating debt appeared less burdensome on the national budget. This confluence of congressional breakdown, Pentagon needs, and a peculiar economic moment allowed trillions of dollars to be spent over two decades with almost no public or congressional scrutiny, making it easier to prolong the conflicts without the public feeling the direct financial "pain" typically associated with wartime.

The long-term implications of this "ghost budget" are profound. Bilmes points to the ease with which the wars were prolonged as the public was insulated from the true costs, leading to a failure to critically assess whether the immense resource allocation was "worth it." Furthermore, the lack of upfront budgeting for veterans' care has created an enormous, unfunded long-term obligation. Veterans of these wars experienced more intense deployments and a wider range of disabling conditions, yet no trust fund or set-aside has been established to cover their lifetime benefits and healthcare, raising the risk that the nation may renege on these promises decades down the line when costs peak. The "ghost" metaphor extends to the actual spending, where reports frequently cited "ghost soldiers" or "ghost schools," indicating money spent on non-existent entities, highlighting the extreme lack of accountability.

every single year whichever Administration whatever president was in power was able to essentially pretend that the war was about to be over because we were never budgeting for it for the next year and also to minimize the deficit for the year ahead

the post-9 11 Wars the Iraq and Afghanistan Wars and related conflict were paid for entirely differently they were paid for entirely by debt which was the first time this had ever happened without any tax increases

contractors constituted a much much larger percentage of the operational forces it many times the number of contractors who were deployed exceeded the number of U.S troops

the incentive structure for contractors is different than the incentive structure for regular deployed troops and this had a very distortionary effect on the cost of the war and at arguably it made it easier to continue the war for a long time without a draft

there were three main factors that led to the war being financed and budgeted for so differently first was the essential breakdown in the budget process in Congress

the money for the war first of all the emergency spending during the first 10 years of the war was a way to not only replenish all of this spending but the emergency money and then the overseas contingency operation or OKO went primarily into the most flexible account within the Pentagon budget the operation the the so-called o m account which is the account that among other things pays for contractors primarily

the spending on the wars became a kind of backdoor stimulus package so all of a sudden you had this this sort of spending it was something that you could sort of from an economic standpoint turn a blind eye to because we needed the stimulus

I chose the titled ghost budget because one of the words that comes up very frequently in the reports of the Pentagon inspector General's the special Inspector General for Afghan reconstruction and special Inspector General for Iraqi reconstruction is the word ghost as in ghost soldiers ghost troops ghosts schools ghost buildings ghost operations which means this is not a case of corruption or profiteering... but this is a case where there is no school it's a ghost School

it made it easier to prolong the wars because we were not fighting the wars and we were not paying for the wars and we were not feeling the pain of all the funding that was spent

we have already obligated and promised to millions of of veterans lifetime stream of benefits and in many cases health care but there has not been any set aside at any point during the war for how we're going to pay for this so it's just another long-term debt