The economic cost of going to war

What will be the cost of going to war in Iraq? What are the are the economic plusses and minuses of the war on terrorism and new efforts to provide homeland security? As war clouds gather WNYC is taking time this week to explore these questions. Today in our week-long series War in Our Time WNYC's John Rudolph takes a look at the dramatic growth in US military spending and the potential costs of waging war in Iraq.

Last June in a speech to graduates of the US Military Academy at West Point, President Bush laid out a new strategy to protect the United States.

Bush: The war on terror will not be won on the defensive. We must take the battle to the enemy, disrupt his plans and confront the worst threats before they emerge. In the world we have entered the only path to safety is the path of action. And this nation will act. (applause) fade

And the US has acted in Afghanistan, and more recently in Yemen where a missile fired from an unmanned US plane killed six suspected members of the Al Quaida terrorist network. Numerous suspected terrorists have also been arrested in Afghanistan and the US.

How much is all this costing? Since the Sept 11th 2001 here’s what the US has spent: For the war on terrorism - $30-billion For homeland security - $35-billion Soon the nation may launch an invasion of Iraq. And how much will that add to the bill? That latest administration estimate, from Office of Management and Budget Director Mitchell Daniels is between 50 and 60 billion dollars most independent estimates are much higher.

Dean Baker directs the Center for Economic and Policy Research in Washington DC.

Baker: One can imagine a war, and lets assume not a lot of opposition to an occupation, a war and occupation costing somewhere in the neighborhood of 100-billion dollars. Not a trivial sum. But not an enormous sum, and that's sort of a best-case scenario

If the war and a subsequent US occupation of Iraq do not go smoothly, the cost could be much higher than $100-billion, as high as $1.6 trillion according to one recent study.

But at this point it’s all guesswork. No one really knows how much a war in Iraq will cost. But economist Dean Baker argues it’s important to make a reasonable guess.

Baker: we understand the rationale, that we’re concerned that Saddam Hussein might have and use weapons of mass destruction. War is one way to prevent that. If you get rid of him he obviously won’t do it. But, are there other methods that may be as effective? And what we would certainly want to ask is what are the relative costs involved? The human lives of course being a very important one, but on top of that it’s certainly appropriate to say what is the cost in dollars and cents? What does this do to our economy?

War is good for economy, right?

(Tape)Victory is our Business every man and woman in every walk of life is behind the workers in these plants. March forward so that others will march with you making more and more of the tools of victory. More men and women than ever before producing for a war that will conserve our way of life (fade)

In World War II millions of unemployed Americans found work building ships, planes, tanks and guns for the war effort. War production helped pull the nation out of the Great Depression.

World War II helped reinforce the popular belief that war helps the economy. But today that’s no longer true. In the past two years the US military budget has risen by 16 per cent. So why have companies that make jet fighters, bombers and missiles have laid off more than 70-thousand workers?

John Douglas, a retired Air Force brigadier general, is president of the Aerospace Industries Association. Douglas’s group represents many of the nation’s largest military contractors, companies that, in many cases, also make aircraft and electronics for civil aviation.

Douglas: Our real long-term future is in the production of civil aircraft to meet the global needs of the developing global economy. And when people stop flying because they are worried about security it hurts us much more than these short-term crises generate in terms of military sales. :20

Douglas predicts that a war in Iraq would add to the aerospace industry downturn. Other sectors of the economy are also likely to suffer, especially if the government cuts spending on civilian programs like transportation and education.

David Gold is an economist who studies military spending at the New School University.

Gold: Obviously, if we start spending another fifty- to a hundred-billion dollars on a war with Iraq, then you’re moving into new territory. Then, in fact, the impact of the military budget will take on greater significance, and then the issue for the overall economy becomes, “How is the government gonna adjust for that?” Are they going to try to cut back more on domestic spending? Are they going to accept much higher deficits? Are they going to postpone further tax cutting? Are they going to rescind some of last year’s tax cuts?

Questions like these have confronted the government each time America has contemplated going to war.

Bush Sr.: Tonight I want to talk to you about what is at stake – what we must do together to defend civilized values around the world, and maintain our economic strength at home…

On September 11, 1990 President George Bush spoke to the nation. Iraq had invaded Kuwait one month earlier, and the Federal government faced a growing budget deficit. In his speech the elder Bush acknowledged that both challenges needed to be met.

Bush Sr.: The gulf situation helps us realize we are more economically vulnerable than we ever should be. Americans must never again enter any crisis economic or military with an excessive dependence on foreign oil and an excessive burden of Federal dept.

There are some striking similarities between the Gulf War era and this one … and some major differences. On the eve of the Gulf War the federal budget deficit was about $200 billion, today it’s around $159-billion. Then, as now, the economy was limping along.

But unlike his father, President George W. Bush is not attempting to simultaneously cut the deficit and prepare for a war. Instead the president, with the support of Congress, is increasing military spending while at the same time pushing for tax cuts that are likely to increase the deficit.

Another difference: In the Gulf War, by some estimates, the US actually made money. America’s allies contributed billions of dollars to the war effort. This time the US is expected to be mostly be on its own when it comes to paying the bills.

Will it be worth it?

Yes, says Tom Donnelly, a resident fellow at the American Enterprise Institute and a leading advocate of higher military spending.

Donnelly: It’s gonna be a lot of money by any reckoning. And secondarily it’s not so much money that ought to divert us from our goal. We’re going to be in Iraq for a long time after the combat is overwith. That’s the whole point to replace a terrible government with a decent government. So that’s a worthy investment, and it won’t harm the economy in any appreciable sense.

The decision to go to war rarely hangs just on dollars and cents. But money is always a factor. This time though economist David Gold says Americans haven’t shown much interest in weighing the economic pros and cons.

Gold: Sept 11th just from the point of view of domestic American politics was an incredible event. Certainly it was the most powerful national security event since WWII, and in that sense I’m not surprised that it has led to a tendency to look at these issues in a very uncritical way.

The last time the US embarked on a major military build-up was during the Carter and Reagan administrations. Outspending the Soviet Union on arms helped the US win the Cold War. But the build-up created a mountain of debt and forced painful political choices as the nation struggled to reduce the federal deficit and recover from an economic recession. Once the recovery took hold the country experienced a period of unprecedented economic growth in the late 1990s.

It’s uncertain if the same pattern is about to repeat itself. What is clear is that the US is entering a period of increased militarization without a full understanding of the costs involved. For WNYC I’m JR.