Sunday, March 1, 2009

The Economic Cost of War

In the March 1, 2009 New York Times article "The Economic Cost of War, James Glanz provides a range of estimates of the future U.S. costs of the wars in Iraq and Afghanistan.
Strike up the John Philip Sousa and throw confetti from the windows. The troops will be coming home from Iraq, President Obama announced on Friday, and if the mood was not quite as giddy as it was during a few of those triumphant marches down Broadway, there was at least the hint of a similar hope that an end of the war could help set the stage for a new era of prosperity and opportunity.

President Obama’s soaring speech on Friday announcing the drawdown and eventual pullout of troops from Iraq, framed by martial music and the cheering of an audience of Marines when he gave the timetable, could not help but be seen partly in an economic frame of reference: The war has cost an estimated $860 billion; Mr. Obama, as a candidate last year, repeatedly criticized such spending overseas during a downturn; and he had just unveiled his 10-year budget plan the day before.

The Iraq war has been criticized on many fronts, including whether it has really made the world safer for the United States. But with the economy in crisis, some of the sharpest doubts being expressed about it concern whether the money it siphoned from the Treasury helped set the terms for that crisis.

At the same time, history suggests that anticipation of an end to the war might help lift the mood of consumers and investors whose fears now deepen the economic problem.

Perhaps that is why on Friday, it was more than tempting to dredge up old images of kisses in Times Square in 1945 or Germans tearing down the Berlin Wall — and the long surges of prosperity that soon enough followed those euphoric moments, after the ends of World War II and the cold war.

But hold that parade. There are serious and possibly crippling problems with the idea that ending this war could help the cause of prosperity in any clear way. The first and most troublesome is that the continuing cost of the war is exquisitely sensitive to the precise number of troops in theater at a given time, and President Obama has said that he will remain attuned to the notoriously changeable conditions in Iraq as he carries out his plan.

Savings in Iraq will also be dampened by Afghanistan, where the plan calls for a more modest troop increase, but where the primitive transportation system can make logistics more expensive. Even if many of the Iraq war’s costs simply vanished, analysts say those savings would be too small and come too late to jolt the economy out of the crisis, though they could reduce the deficit long term, allowing a recovery to take firmer hold.

“There are a lot of red flags, basically,” said Ryan Alexander, president of the nonpartisan group Taxpayers for Common Sense, who like hundreds of other budget experts in Washington was sifting through the administration’s figures late last week. “Even in the context of the art of budgeting,” Ms. Alexander said dryly, “we have concerns that this is overoptimistic.”

The president’s defense budget does seem to get high marks across the political spectrum for its transparency in accounting for the true cost of the war; President Bush was often criticized for tucking war expenses into various line items that were hard to add up consistently. As Bob Work, a vice president at the Center for Strategic and Budgetary Assessments, put it, “People can say this budget is wrong, but it is very upfront.”

The cost of overseas conflicts, mainly in Iraq and Afghanistan, follows a fairly simple progression in the president’s budget plan: $144 billion in fiscal year 2009, $130 billion in 2010, and — in what the administration concedes are “placeholder estimates” — of $50 billion for 2011 and beyond.

Even though Mr. Obama pledged in his speech to end all combat operations in Iraq by August 2010 and have all American troops out by the end of 2011, the fairly modest dropoff in cost in the first two years is unsurprising, said Winslow Wheeler of the Center for Defense Information, a nonprofit group often critical of military spending; after all, the United States will be carrying out a corresponding increase in Afghanistan.

Beyond that, Mr. Wheeler said, the neat projections may not work out if events cause the American military to undertake more operations than expected or to keep extra troops in Iraq. The budget estimates “are a perfectly reasonable stab at it, but who knows?” he said.

Studies by two research arms of Congress reveal how much the cost depends on the timing for withdrawal. In October, the Congressional Research Service estimated that in 2006 (the latest available figures), it cost $390,000 a year to sustain each American trooper overseas. Clearly, delaying withdrawals would quickly run the tab up.

That report was followed in January by one from the Congressional Budget Office estimating how much the Iraq and Afghanistan conflicts would cost from 2010 through 2019 under two assumptions. In one, the number of troops deployed in the two countries draws down fairly quickly, to about 30,000 by 2011. In the other, levels drop to 75,000 by 2013. Both cases represent a huge reduction from the roughly 180,000 troops there now. But the difference in the cost is breathtaking: the office estimates that Congress would have to appropriate $388 billion for the case of a quick withdrawal and more than double, $867 billion, for the slower one.

Because of the huge range of possible costs, and because the logistics of withdrawal are complicated and expensive, “the basic elements of that estimate are still unresolved,” said John M. Spratt Jr., a South Carolina Democrat who is the House Budget Committee chairman and a House Armed Services Committee member.

“I have a sneaking suspicion that the near-term costs are going to outweigh the near-term savings,” said Mr. Spratt, in remarks on Friday at the Progressive Policy Institute in Washington.

Beyond all those numbers, the assertion that a war’s end has had a direct economic effect in lifting the United States out of its fiscal doldrums in the past becomes weaker the more it is analyzed, said Robert Higgs, a senior fellow in political economy at the Independent Institute in Oakland, Calif., and the author of “Depression, War and Cold War” (2006). An economic blooming, Mr. Higgs said, often is due as much to an outburst of confidence and optimism with the end of hostilities as to any particular element of industrial or economic rearrangement.

For example, part of the revival after World War II, Mr. Higgs said, can be attributed to a change in the psychology of private investors; their distrust of New Deal policies began to melt as President Roosevelt drew on wealthy businessmen to run his war effort, and then President Truman signaled that he was warmer to free-market policies than the administration of the late 1930s had been.

“It’s more complicated than the war got us out of the Depression, the way most people think it did,” Mr. Higgs said.

Simple confidence was again a factor in the economic expansion in the decade after the end of the cold war, said Paul Poast, a political scientist and author of “The Economics of War” (2006). Technological contributions to the economy like the Internet, which was developed by cold war researchers, certainly helped the expansion, Mr. Poast said. But something less definable — an overall sense that history had taken a turn for the better — was at least as powerful, he said.

“When you take away the threat of nuclear annihilation that helps things,” Mr. Poast said.

Which brings us back to that parade. President Obama may find it hard to keep the withdrawal to a prescribed timetable, and even if he can, the savings may be a drop in the bucket economically. But if he keeps the bands playing and strikes the right note in his speeches, he just may have a chance to persuade Americans that the end of a long war means better times are on the way.

History shows that if he persuades enough people, those times could actually happen. Send the marching band up Broadway.


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