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Tuesday, May 08, 2007

Guns, Butter, and Falling Support for the War

Lori Montgomery of the Washington Post reports that although the inflation adjusted cost of the Iraq war is high relative to past wars, as a percentage of GDP it's quite low. Thus, the war has not had a large impact on the domestic economy. In addition, since the money to pay for the war has been borrowed at low interest rates, the impact has been reduced even further:

The Cost of War, Unnoticed, by Lori Montgomery, Washington Post: The global war on terror, as President Bush calls the fighting in Iraq and Afghanistan and related military operations, is about to become the second-most-expensive conflict in U.S. history, after World War II. ... Since ... Sept. 11, 2001, ... Congress has approved more than $609 billion for the wars... Requests for $145 billion more await congressional action and would raise the cost in inflation-adjusted dollars beyond the cost of the wars in Korea and Vietnam.

But the United States is vastly richer than it was in those days, and the nation's wealth now dwarfs the price of war... Last year, spending in Iraq amounted to less than 1 percent of the total economy... Total defense spending is 4 percent of gross domestic product... In contrast, defense spending ate up 14 percent of GDP at the height of the Korean War and 9 percent during the Vietnam War.

And this time, the war bill is going directly on the nation's credit card. Unlike his predecessors, Bush is financing a major conflict without raising taxes or making significant cuts in domestic programs. Instead, he has cut taxes and run up the national debt. The result ... is a war that has barely dented the average American's pocketbook and caused few reverberations in the broader economy. ...

Like all debts, however, the bill for Iraq and Afghanistan will eventually come due. While it is unlikely to cause economic upheaval..., economists foresee substantial increases in government spending to rebuild the nation's exhausted armed forces, care for its disabled veterans and cover rising interest payments. ...

"When you borrow to pay for the war, you feel it less," said Alan D. Viard, a former Bush White House economist who is now a resident scholar at the American Enterprise Institute. "But if you do borrow, it may be future needs you're sacrificing. There's always a sacrifice." ...

To help pay for World War II, by far the nation's most expensive, Franklin D. Roosevelt expanded the number of taxpayers from 4 million to 42 million, tripled tax collections as a percentage of GDP and slashed spending on his treasured New Deal programs. As the military budget devoured more than a third of the economy, Roosevelt also called for mass sacrifice, rationing food and gasoline, capping prices and wages and exhorting Americans to spend any money they could spare on war bonds and stamps.

Heavy government spending on the Korean War set off a bout of inflation that neared 8 percent in 1951. To pay for the war, President Harry S. Truman raised the top tax rates to 91 percent for individuals and an all-time high of 70 percent for corporations...

Lyndon B. Johnson, who tried to protect a 1964 tax cut and his Great Society programs while escalating U.S. involvement in Vietnam, eventually signed both a tax increase and spending cuts in 1968...

Bush, in contrast, has allowed domestic spending to rise and cut taxes repeatedly since taking office, adding more than $3 trillion to the national debt. ... That combination is unprecedented... "This may be the first war in history -- in the history of the world -- in which there was a tax cut rather than a tax hike," said Alan S. Blinder, a Princeton University economist...

[Robert] Hormats called Bush's war financing "shortsighted," not only because of the potential fiscal consequences but also because it bypassed an opportunity to engage the support of the public, which has grown increasingly skeptical of the war.

"They tried to do this on the cheap and without a candid conversation with the American people about the cost," Hormats said. "But the irony is the great wartime leaders have seen it in the opposite way," theorizing that a call to sacrifice would "tie people to the war effort."

Joseph E. Stiglitz ... said Bush has undertaken a "deceptive policy of saying you can have both guns and butter" -- a strategy similar to Johnson's in the early years of Vietnam. In December, Stiglitz co-authored a study that predicts the Iraq conflict alone will eventually cost taxpayers more than $1 trillion, counting military rebuilding and health care for wounded veterans.

"It's actually turning out to be a very expensive war," Stiglitz said. But "it has been designed to be a war the American people don't feel."

I want to object to the guns and butter characterization of the tradeoff. That only works during peacetime. When we are at war, it's guns and lives versus butter. The human and other non-financial costs must be part of the equation.

Along those lines, you'd think that somewhere in a story about the costs of war, the human costs would be highlighted. There's a brief mention of health care costs for disabled veterans in two spots, but that's it, no acknowledgment of the physical and mental pain that wounded veterans will have to endure, no mention of the death of U.S. soldiers and the affect that has on families, and so on (mentioning the toll on Iraqis at some point wouldn't hurt either). The accounting costs are there, but there's no discussion of the full economic costs (the Bilmes-Stiglitz estimates do account for much of this, but the article doesn't mention it).

If the costs were truly low, there would be little opposition to "staying the course." But the wide and growing opposition to the war indicates the costs aren't low, they are high. So what is the source of the high costs? If the financial cost is relatively low like the article claims, then the opposition must be due to large non-financial costs.

I don't want to minimize what we are giving up at the margin when money is spent on the war. There is certainly lots we could do domestically with billions of well-spent dollars, and part of the opposition does come from the impact of the war on the budget and the threat that poses for domestic programs.

But I hope and believe the opposition extends beyond the accounting costs to include a broader accounting of the war's impact. Costs such as those mentioned above are important, as are costs such as loss of respect in the eyes of the rest of the world, loss of faith in the U.S. government, not having equipment ready for the National Guard to use in a domestic disaster, etc.

It may have "been designed to be a war the American people don't feel" financially, and there were attempts to minimize the non-financial costs as well by limiting what could be reported, e.g. not allowing images of fallen soldiers to be shown. But support has fallen anyway.

The effect of the war on the budget has certainly had an impact on support, as has the falling prospect of benefits from staying in Iraq any longer. But any explanation of the falling sentiment for the war that ignores the non-financial costs misses a large part of the story.

    Posted by on Tuesday, May 8, 2007 at 02:34 AM in Budget Deficit, Economics, Iraq and Afghanistan, Politics | Permalink  TrackBack (0)  Comments (48)


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