The cost of war

I thought that I might provide some information regarding the costs of the war since 2001.  It seems that we are achieving success since General Petraeus took over but I continue to hear and read displeasure in the war’s costs.  Let us take a look at some things:

During the five years of the Iraq war the U.S. economy has performed remarkably well. Real GDP has increased by 16 percent, or 3 percent annually. The unemployment rate has hovered below a historically low 5 percent for quite some time. Nearly 10 million jobs have been created. Household net worth has increased by $20 trillion. Industrial production has expanded by 13.5 percent.  Even home prices, despite the current correction, have increased by 20 percent.

Lest we soon forget, anti-freedom, anti-capitalism jihadists were attempting to drive a dagger through our economy. Not only did they fail miserably on that front, they also failed to stem the rising tide of free-market capitalism throughout the world. Global GDP has averaged nearly 5 percent annually. The capitalization of the world’s stock market increased 159 percent — or $35 trillion. Meanwhile, new emerging-market economies saw their stock market index collectively rise by 223 percent.

Now, responding that the $3trillion price tag is too high; Modern economics has long understood that the notion of a one-for-one guns-versus-butter trade-off is simply wrong. A high proportion of money spent on defense goes back into the U.S. economy in the form of salaries paid to the more than 5 million Americans employed directly or indirectly by the Defense Department, and payments to the defense industry and the long and complex supply chains from which they draw their raw materials. Military spending has traditionally been a form of economic stimulus, and wars more commonly end recessions or depressions than start them. That’s not a good reason to start a war, but neither is it a good reason to lose one. The impact of the current war on the U.S. economy, finally, is far smaller than the impact of previous major conflicts. Military spending in World War II ranged from 17.8 percent of GDP to 37.5 percent; in Korea from 5.0 percent (in 1950 — 7.4 percent in 1951) to 14.2 percent; in Vietnam from 7.4 percent to 9.4 percent. Current expenditures on the Iraq and Afghanistan Wars bring total defense expenditures to something well below 5 percent of GDP. Even granting the simplistic and misleading $3 trillion figure, $3 trillion is about 5 percent of the nearly $60 trillion American GDP over the five years of the war.

The burden of the war on the American economy has simply not been heavy enough to have caused a recession on its own. The collapse of the housing bubble, the sub-prime mortgage crisis, rising oil prices (which losing the war will not lower), and a variety of other factors have been far more important in slowing the economy than any brake the war might have put on it. Defense spending as a percentage of total federal spending is now around 20 percent. In World War II, it ranged from 73 percent to 89.5 percent; in Korea it ranged from 32.2 percent (1950 — 51.8 percent in 1951) to 69.5 percent; and in Vietnam from 42.8 percent to 46 percent. In more context: at the height of spending on this war, defense spending was only 12.3 percent of all public spending (including federal, state, and local expenditures); in World War II the high was 82.1 percent; in Korea, 52.5 percent; and in Vietnam 31.3 percent.

While it is true that security spending (including Homeland Security and many costs not related to the Iraq war) is the largest single line-item in the 2008 Federal budget at $656 billion, mandatory programs like Social Security, Medicare, Medicaid, and S-CHIP, and other non-security discretionary programs received $610 billion, $391 billion, $211 billion, and $481 billion respectively. The $100 billion or so of direct war costs that could theoretically be recouped by withdrawing all of our forces from Iraq and Afghanistan is less than 6 percent of the $1.7 trillion spent on mandatory and discretionary domestic programs. The financial cost of the war, high though it is, is simply not a large enough part of the federal budget, to say nothing of the GDP, to have played a significant part in the American economy, particularly considering the fact that a high percentage of defense dollars go back into that economy.

If only our schools were fully funded and the Air Force had to have bake-sales to buy bombers…. Well, the Air Force is just about at the bake-sale level thanks to consistent under-spending on defense since 1991. But if we stopped the war tomorrow, would our schools get all the money those who make this argument think they need? Of course not. The war is being funded on an emergency basis (for good or ill) and its cost has not been offset by tax increases.  In the real world, there is no way that even a Democratic Congress would spend $100 billion a year in non-offset emergency authorizations for education or health care, even if some war critics think that they would like it to do so. As for increasing domestic spending, those who believe that we should raise taxes and spend more money on domestic programs can still advocate that policy, whatever its wisdom.

This is the war, and we’re winning it no matter how late in the game. Let’s not decide that we’d rather lose.

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