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Monday, April 07, 2008

"The Economic Costs of the Endless War"

Robert Reich on the cost of the war:

The Economic Costs of the Endless War, by Robert Reich: Attention turns back to Iraq tomorrow when General Petraeus reports on the endless war in Iraq. In recent months the bad news from there ... 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... 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. ...

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.

I was doing a radio interview and made a similar point, that the real cost of the war is the opportunity cost, the things we could have spent the money on if we weren't spending it in Iraq - roads, bridges, schools, health care, etc. The host then asked something like, "With this administration, if we weren't spending the money in Iraq, do you believe we'd be spending any of it on the domestic programs you listed? Without the war, would the money have been spent at all?"

We didn't give up much because of the war, taxes were cut so the private sector was not asked to sacrifice - instead those near the top of the income distribution enjoyed large gains - and for the most part the war was paid for through deficit spending, so domestic programs were not reduced either. It's unlikely domestic initiatives would have received much attention from this administration in any case, so I'm not sure we've given up many roads, bridges, etc. - yet - to pay for the war. Instead, we pushed most of the costs forward, a game of budgetary kick-the-can.

We have not sacrificed much for this war, we haven't reduced either public or private spending, instead we've paid for the war by borrowing from the future. There will be a cost to this war, and for the most part it will be paid in the future when the bills come due. When they do, we will have to make choices, we can increase taxes or we can decrease government spending on infrastructure, health care, or other areas of the budget, we could even print money and hide the tax as inflation, but somehow the bills will have to be paid.

    Posted by on Monday, April 7, 2008 at 05:57 PM in Economics, Iraq and Afghanistan | Permalink  TrackBack (0)  Comments (61)


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