The Economic Costs of the Endless War

Attention turns back to Iraq tomorrow when General Petraeus reports on the endless war in Iraq. In recent months the bad news from there (Basra has been a bloodbath and the government-initiated truce may not hold) has been eclipsed by the bad news on the economy. The two are closely related -- but not in the way some contend.

Let’s be clear. The cost of the War in Iraq – so far estimated to total somewhere between 1 and 3 trillion dollars – is not directly responsible for the economic mess we’re in. Wars can cause inflation when a nation’s resources are already fully committed, as when Lyndon Johnson escalated the war in Vietnam at the same time he was mounting a war on poverty. But when a nation’s resources are underutilized wars have been known to get economies back on track, as we learned when Franklin D. Roosevelt took the nation to war in 1941.

The US economic expansion that began in 2001 was anemic as expansions go, so the American economy has had enough capacity to support a war in Iraq without igniting inflation. Most inflation pressures now are coming from abroad – from higher oil and commodity prices. And while unrest in the Middle East has contributed to that inflation, defenders of the war say oil prices would be even higher, now and in the future, were we not in Iraq. They’re wrong, but this particular debate is a sideshow.

With the US economy falling into recession, we have even more unused capacity. That’s not in itself a reason for continuing to spend billions of dollars for the Iraqi War, of course. The war is a terribly inefficient stimulus to the US economy. A dollar spent on repairing a bridge in Iraq doesn’t have nearly the multiplier effect on our economy as a dollar spent repairing a bridge here in the United States.

More to the point – and here’s what Americans need to understand – a dollar spent in Iraq is a dollar we do not have to spend here, not only repairing our own bridges, roads, and water and sewage systems, but also giving Americans access to health insurance and children access to good schools, fully funding Social Security and Medicare, investing adequately in non-carbon based energy sources and green technologies, and borrowing less from abroad.

In other words, the real economic cost of the Iraqi War doesn’t show up in the business cycle, and it's not responsible for the current recession. The real economic cost will show up years from now in a standard of living that for most Americans will be significantly lower than we might otherwise have enjoyed.