Professor Stiglitz, at the beginning of the Iraq war, the United States administration was hoping to almost break even in terms of the costs ...

Stiglitz: ... they truly believed the Iraqi people could use their oil revenues to pay for reconstruction.

SPIEGEL: And now you are estimating the cost of war at levels between $1 trillion and $2 trillion. How do you explain this difference?

Stiglitz: First, the war was much more difficult than President Bush and his government expected. They thought they were going to walk in, everybody would say thank you, and they would set up a democratic government and leave. Now that this war is lasting so much longer, they constantly have to adapt their budget. It rose from $50 billion to $250 billion. Today, the Congressional Budget Office talks about $500 billion or more for this adventure.

SPIEGEL: That's still by far lower than your own calculations.

Stiglitz: The reported numbers do not even include the full budgetary costs to the government. And the budgetary costs are but a fraction of the costs to the economy as a whole. And compare this to Gulf War number one, where America almost made a profit!

SPIEGEL: Because Germany paid for it?

Stiglitz: Because Germans paid, because everybody paid. We got our allies to pay full price for used equipment, and we got to refurbish our military. This time, most of the other countries were not willing to do so again.

SPIEGEL: Did Bush just miscalculate, or was he misleading the public about the true costs of war?

Stiglitz: I think it was both. He wanted to believe it was not going to be expensive, he wanted to believe it would be easy. But there's also enormous evidence now that information channels into the White House were distorted. Bush wanted only certain information, and that's mostly what they supplied him with. Larry Lindsey ...

SPIEGEL: ... the White House's former top economic adviser ...

Stiglitz: ... gave -- back in 2002 -- a number of up to $200 billion. I think that was the most accurate inside information at the time. He was dismissed. They didn't want to hear it.

SPIEGEL: In the US, the financial costs of war are seldom discussed. It used to be considered a sacrifice to achieve common goals. Why is it different today?

Stiglitz: This is not like a world war where you're attacked. We were attacked in Pearl Harbor, we had to respond. This time, we had a choice, we had to decide how and who we are going to attack ...

SPIEGEL: ... and if you can afford it.

Stiglitz: Well, we can afford it, that's not the issue. The issue is: $1 trillion or $2 trillion is a lot of money. If our objective is to have stability in the Middle East, secure oil, or extend democracy, you can do a lot of democracy buying for this sum. To put it in context: The whole world spends $50 billion a year on foreign aid. So what we're talking about is multiplying the foreign aid budget 20-fold. Wouldn't you say this could do more for peace and stability and security?

SPIEGEL: Bush would argue it's worth spending that much to decrease the probability of a major terrorist attack on the US.

Stiglitz: Nobody takes that seriously. Instead, most people think the Iraq war has increased the probability of an attack. However, it's difficult to put this aspect into financial terms.

SPIEGEL: How did you calculate the costs of the war?

Stiglitz: The official figures are only the tip of an enormous iceberg. For instance, one of the costs of the war is that soldiers today get very seriously injured but stay alive, and we can keep them alive but at an enormous price.

SPIEGEL: Is this the biggest item in your calculations?

Stiglitz: It's very important. The Bush administration has been doing everything it can to hide the huge number of returning veterans who are severely wounded -- 17,000 so far including roughly 20 percent with serious brain and head injuries. Even the estimate of $500 billion ignores the lifetime disability and healthcare costs that taxpayers will have to spend for years to come. And the administration isn't even generous with veterans, widows and their kids.

SPIEGEL: What does that mean?

Stiglitz: If you're injured in an automobile accident, and you sue the driver, you get much more for your injury than if you're fighting for your country. There's a double standard here. If you happen to put your life at risk fighting for your country, you get a little. If you walk across the street and get injured, you get a lot more. Similarly, payments for a dead soldier amount to only $500,000, which is far less than standard estimates of the lifetime economic cost of a death. This statistical value of a life in the US amounts to circa $6.5 million.

SPIEGEL: How much will a severely brain-damaged soldier cost the US government?

Stiglitz: My moderate estimate is about $4 million. For this group alone there will be a total cost of $35 billion that nobody is talking about. But look at the broader picture: The Veterans Administration originally projected that roughly 23,000 veterans returning from Iraq would seek medical care last year. But in June 2005, it revised this number to an estimated 103,000. No wonder the Veterans Administration had to appeal Congress for emergency funding of $1.5 billion last year.

SPIEGEL: If this is a $1 trillion war, why couldn't the US provide its soldiers with safer body armor and better protected vehicles?

Stiglitz: Obviously, the US can afford to pay for body armor. Rumsfeld, our Secretary of Defense, said you have to fight with the armor you have, but that's unconscionable. The military is focusing only on the short run costs. If they don't provide appropriate body armor, they save some money today, but the healthcare cost is going to be the future for some other president down the line. I view that as both fiscally and morally irresponsible.

SPIEGEL: This war could have been both safer for the troops and cheaper for the country?

Stiglitz: Exactly.

SPIEGEL: Is war no longer affordable even for countries as rich as the United States?

Stiglitz: You have to remember we are an economy of $13 trillion a year. The issue is not whether you can afford it but whether this is the way you want to spend your money. In using the limited resources that we have for fighting this war, we have less resources to do other things. You saw on your TV what happened in New Orleans after Hurricane Katrina. The Reserves or National Guard are usually the people we use for those national emergencies. They weren't here, they were over in Iraq, and so we were less protected.

SPIEGEL: Before the invasion of Iraq, the US administration said the best way to keep oil prices in check is a short and successful war. A barrel was at $25 at that time, and now it's over $60. What of this increase is due to Iraq?

Stiglitz: In our analysis about the cost of war, we only assumed a modest $5 to $10 caused by the war. We wanted to keep our study conservative, so no one would dispute our numbers, and no one did. But I believe that's a vast underestimation of the true cost.

SPIEGEL: But why? China and India are increasing their demand, real global growth has been going on. This is driving the prices.

Stiglitz: When demand rises so does supply -- that's how markets usually work. Now we're seeing that demand for oil is rising but we're not getting a commensurate increase in supply. And there's a simple answer, it's Iraq. But it's not just because it production has been down.

SPIEGEL: Why else?

Stiglitz: The Middle East is the lowest cost producer in the world. They can produce oil for $10, $15 or $20 a barrel. Now we have the technology to produce oil elsewhere for $35 to $45. But who wants to develop fields or invest in new technologies elsewhere if they know that in five years' time, the Middle East may be supplying oil at previous prices?

SPIEGEL: In other words, were peace and stability re-established in the Middle East, the oil price would be back to maybe $25, despite the huge global hunger for energy?

Stiglitz: Yes. By the way that's the price level oil traders were speculating on in futures trading before the outbreak of war.

SPIEGEL: There should be huge economic pressure on Bush to end this conflict.

Stiglitz: The only people benefiting in this war are Bush's friends in the oil industry. He has done the American economy and the global economy an enormous disfavor, but his Texan friends couldn't be happier. The price of oil is up, and they make money when the price of oil goes up. Their profits are at record levels.

SPIEGEL: You don't like this president very much.

Stiglitz: Oh, it's nothing personal. It's all about his politics.

SPIEGEL: There is an old saying: War is good for the economy.

Stiglitz: Listen, World War II was really unusual, because America was in the Great Depression before. So the war did help the US economy to get securely out of this decline. This time, the war is bad for the economy in both the short and long run. We could have spent trillions in research or education instead. This would have led to future productivity increases.

SPIEGEL: So is the economical mess of the Iraq war even bigger than the political?

Stiglitz: Well, we are so rich, we are able to withstand even this level. Crowding out other investments, weakening the economy in the future, that's not a crisis yet. But it's an erosion. It becomes an issue for our legislators. And don't forget the serious issues of nuclear proliferation in Iran and North Korea. We used up our ability to deal with something serious by dealing with something that was less serious.

SPIEGEL: What's your economic view on Iran?

Stiglitz: We are helping the people that Bush says are evil. Teheran couldn't be happier about the high oil prices resulting from the Iraq war.

SPIEGEL: If the UN Security Council votes for sanctions over Iran and its oil exports, what would that mean for the world economy?

Stiglitz: It would mean an enormous disruption, as oil prices might rise over $100. You can increase the price from $25 to $40, and people can absorb it. If the price rises above $60, they become unhappy. They start to adjust, they move to smaller cars, drive a little bit less. At $100 or $120, there are major changes in lifestyle. The sales of cars will plummet. Poor people will be facing real problems of heat versus food.

SPIEGEL: The world can't afford sanctions at this time?

Stiglitz: We talk about not allowing their officials to get visas to visit our countries.

SPIEGEL: That's not a harsh measure.

Stiglitz: It's no sanction. So the answer is, yes, we have no effective sanctions.

SPIEGEL: Professor Stiglitz, thank you for this interview.

The Dow Jones industrial average was down 26.66 points, or 0.24 percent, at 11,189.84. The Standard & Poor's 500 Index fell 4.89 points, or 0.37 percent, at 1,304.15. The Nasdaq Composite Index was down 6.94 points, or 0.29 percent, at 2,354.23.

"What we're having lately is a lot of volatility in the market. There's a fixation with the Fed," said Larry Peruzzi, senior equity trader at The Boston Company Asset Management, a Mellon subsidiary.

U.S. employers added 211,000 nonfarm jobs in March, outpacing estimates for a 190,000 jobs, the Labor Department said. The unemployment rate fell unexpectedly to 4.7 percent from 4.8 percent.

Benchmark 10-year notes fell for a yield of 4.94 percent -- its highest level since June 2002 -- compared with 4.90 percent late on Thursday.

Shares of oil companies fell after a drop in crude oil prices on hopes lost Nigerian output could be restored.

Crude for May delivery fell 69 cents to $67.25 a barrel. Exxon Mobil fell 0.3 percent to $61.89.

Expectations for robust earnings growth boosted shares early in the session, with industrial and transport stocks leading the advance as their profits are more reliant on a growing economy.

The transport index rose to a record high, gaining 0.4 percent.

Shares of Alcoa Inc. , the world's largest aluminum producer, which will kick off the first-quarter earnings reporting season on Monday, rose 1.6 percent to $32.70 on the New York Stock Exchange.

On Nasdaq, shares of Starbucks Corp., hit a record high, rising 3.4 percent to $38.77, a day after the company posted better-than-expected growth in March same-store sales.

But shares of Research In Motion Ltd. , proved the biggest drag on the Nasdaq, off 5.4 percent to $79.87, a day after the maker of the Blackberry wireless e-mail device forecast a shortfall in first-quarter results and subscriber growth.

"A lot of short-term funds have been shifting heavily into gold and other commodities since the start of the new quarter," said Akira Doi, director at Daiichi Commodities Co. Ltd.

"Recent rises have been a bit overdone with gold having no factor of its own. The spot price could go over $600 at any moment but at that point we're likely to see heavy profit-taking."

At 0634 GMT, gold was trading at $596.50/597.40, up from $594.80/595.70 in late New York.

On Thursday, U.S. benchmark gold futures for June delivery on the New York Mercantile Exchange's COMEX division rose as high as $601.90, the highest since January 1981.

Fund operators who invest over the short term have been flocking into gold given the dollar's recent fall against the euro and as oil extended this week's big gains to close in on last year's record above $70 per barrel.

Spot gold could rise toward $635.50, the high reached in December 1980, should it decisively break through $600.

Still, near-term technical charts show that gold was being overbought as it was about 4 percent above its 14-day moving average (MA) of $574 and nearly 7 percent above its 50-day MA of $560.

A weaker dollar makes gold cheaper for holders of other currencies and boosts demand, while the metal is traditionally seen as a hedge against inflation when energy prices rise.

The market focus has turned to the U.S. monthly payrolls report due later in the day to determine trends in the currency and precious metals markets.

Nonfarm U.S. jobs for March are forecast to have risen by 190,000, compared with a rise in the previous payrolls report of 243,000.

"Commodities in general are in a bullish phase as investors are showing interest in buying gold when the market is focusing on inflation concerns," said a senior manager at a European investment bank in Tokyo.

"But we all think that recent gains, especially in the base metal and precious metals markets, have been a bit too rapid."

Clinging wariness over geopolitical issues prompted short-term fund operators to buy gold, especially after
Iran said on Tuesday it had successfully tested a "flying boat" and the land-to-sea Kowsar missile.

In Japan, gold futures on the Tokyo Commodity Exchange rose, tracking gains in spot gold.

The benchmark most-distant February contract on the Tokyo Commodity Exchange reached a fresh 18-year high of 2,294 yen per gram, but backed off on profit-taking.

Key TOCOM gold closed at 2,286 yen, up 23 yen or 1.02 percent from Thursday.

Silver advanced to $12.16/12.19 an ounce from $12.04/12.07 in New York.

Silver has been buoyant on hopes for a launch of the first exchange-traded fund.

Platinum eased to $1,080/1,084 an ounce from $1,082/1,086 in New York.

Palladium fell to $350/354 an ounce from $353/357 in New York.

Light, sweet crude for May delivery rose 53 cents to $67.60 a barrel on the New York Mercantile Exchange. Gasoline futures rose 3.69 cents to $1.984 a gallon while heating oil prices increased by nearly 2 cents to $1.8860 a gallon. Natural gas rose by more than 10 cents to $7.140 per 1,000 cubic feet.

May Brent crude at London's ICE Futures exchange rose 69 cents to $67.79 a barrel.

The U.S. Energy Department said in its weekly report Wednesday that domestic inventories of gasoline shrank by 4.4 million barrels last week to 211.8 million barrels, or roughly in line with year-ago levels. The nation's supply of distillate, which includes diesel and heating oil, fell by 2.6 million barrels to 121.6 million barrels, or 16 percent more than last year.

The decline in refined products comes as refineries temporarily shut down operations for maintenance. Vienna's PVM Oil Associates said production output was 120,000 barrels a day lower than the week before.

These so-called turnarounds at refineries also temporarily reduce the demand for oil and, as a result, U.S. crude oil inventories increased by 2.1 million barrels last week to 342.8 million barrels, or almost 8 percent above year-ago levels.

However, the outlook for crude supplies remains uncertain in key producing countries.

The U.N. Security Council voted unanimously last week to demand that Iran suspend nuclear enrichment but Iran has remained defiant, saying its enrichment plans are "irreversible." The standoff has ratcheted up tension over Iran's nuclear program.

Also of concern to the market is Nigeria, where about 27 percent of output has been knocked out by ethnic rebel attacks in the Niger Delta region. Militants have pledged more attacks to get southerners a bigger cut of the oil revenues held by the federal government. The country usually produces 2.4 million barrels a day.

In Vienna, PVM said uncertainties in Nigeria and Venezuela - the largest non-Middle East OPEC producer - will likely result in total OPEC output falling to 29.45 million barrels a day for the first quarter of the year. That's down about 500,000 barrels a day.

"It's a positive sign," said Stuart Hoffman, chief economist at PNC Financial Services Group.

Overall, consumers are in a generally good frame of mind, economists said.

"I think we can take heart in the fact that even with all the worries - about energy prices, higher interest rates and a slowing housing market - confidence moved higher," said economist Ken Mayland, president of ClearView Economics.

Analysts track consumer confidence for clues about consumers' willingness to spend, an important force shaping the country's economic health.

The confidence index is benchmarked to a reading of 100 on January 2002, when Ipsos started the gauge.

One of the things consumers feel really good about is the jobs climate, the Ipsos results suggested.

A measure tracking consumers' sentiments on this front jumped in early April to 124.5, the highest on record. In March consumers' feelings about jobs came in at 118.5, a buoyant reading. A year ago, this gauge stood at 116.2.

Employers boosted payrolls by a sizable 211,000 jobs in March, helping to push the nation's unemployment rate down to 4.7 percent, the Labor Department said in a report Friday that suggested the jobs market is on solid footing.

Analysts believe the economy emerged from an end-of-year funk and grew at an annual rate of 4.5 percent or higher in the just ended January-to-March quarter. The government's estimate of first-quarter economic growth will be released at the end of April.

In the current April-to-June quarter, economists believe the economic growth will probably be in the range of 3 percent, a slower but still healthy pace. That moderation is based in part on the expectation that consumers will turn a bit cautious in the second quarter as energy prices stay high and the housing market slows.

The record-breaking housing market over the last five years and escalating home values have made consumers feel wealthy and thus inclined to spend. They've taken cash out of their homes, which has helped to support brisk spending.

A cooling housing market and slower growth in home values probably would weigh on consumer spending, economists said. But an improving jobs market, on the other hand, would help to blunt some of that negative force, analysts said.

Concerns about the direction of the housing market - along with rising gasoline prices, which are $2.59 a gallon on average nationwide - probably played a role in consumers' assessment of current economic conditions, analysts said.

A measure of current conditions dropped to 98 in early April, from 103.9 in March. A year ago, this measure stood at 92.7.

Another gauge tracking consumers' feelings about making a purchase, saving and other investment decisions was 86.7 in early April. That marked a deterioration from March's reading of 98.6. Last year, the investment measure was 87.4.

The Federal Reserve on March 28 boosted a key interest rate to a five-year high to fend off inflation. That action pushed up other borrowing costs, including banks' prime lending rate, which is used for certain credit cards, home equity lines of credit and other loans.

Mortgage rates are rising, too.

Rates on 30-year mortgages averaged 6.43 percent this week, the highest in 2 1/2 years, Freddie Mac, the mortgage giant, reported Thursday.

A measure looking at consumers' expectations over the next six months, including conditions where they live or work and their own financial positions, rose to 56.9 in early April. That marked an improvement from March's 40.7 and was better than 51.3 registered in April last year. Yet it is still at a level indicating some wariness among consumers, analysts said.

The RBC consumer confidence index was based on results of 1,003 adults surveyed Monday through Wednesday about their attitudes on personal finance and the economy. Results of the survey had a margin of error of plus or minus 3 percentage points.

Rep. Henry Waxman, the House Government Reform Committee's top Democrat, said, "This is bureaucracy at its worse, and the citizens of the Gulf Coast are suffering for it."

The GAO said in remarks prepared for delivery before the committee, "Given that the U.S. government had never before received such substantial amounts of international disaster assistance, ad hoc procedures were developed to manage the acceptance and distribution of the cash and in-kind assistance."

"It is understandable that not all procedures would be in place at the outset."

Rep. Tom Davis, the Republican chairman of the committee, said that it "appears that policies and procedures were lacking, simply because no one in the federal government anticipated needing or receiving this assistance."

The GAO said that $126 million in cash came in from 36 countries after the Aug. 29 hurricane devastated New Orleans, Louisiana and Mississippi along the U.S. Gulf Coast.

With plans lacking for dealing with such a large-scale influx, legal restrictions kicked in that required almost half the cash to be held in accounts that paid no interest, resulting in a loss of almost $1 million and diminished buying power for eventual hurricane relief.

Because $400 million more has been pledged but not yet received, the GAO is urging that instructions be put in place quickly to handle the money.

Davis said, "It does no good to be offered money, or water, or food, or potentially lifesaving medical supplies if we don't get those donations into the hands of the people who need them."

Money was not the only shortcoming of the response to one of the nation's most costly and deadly natural disasters, which killed almost 1,100 in Louisiana alone and hundreds more elsewhere. At least 1,900 people are listed as missing.

Typical of the misadventures was the failure to enlist government quality-control experts from the Agriculture Department and the Food and Drug Administration.

This resulted in importation of medical items and military food packages that should not have been allowed into the country; because they were, the government had to pay for storing them. The auditors were told of one shipment of military meals-ready-to-eat, however, that was delivered directly to a U.S. base whose personnel distributed the unknowingly banned MREs to hurricane victims.

The report, which will be published later, is the latest of a series of papers that have documented widespread mistakes and incompetence at all levels of government in the response to Katrina.