Dispatches from the Creation Wars

War and the Economy

Gregg Easterbrook has an important column looking at the costs of war in terms of economic growth.

The cost of ongoing U.S. wars in Afghanistan, Iraq and Libya is up to at least $1.2 trillion. What would the economic recovery look like if that money hadn’t been spent?

The GDP was about $10.1 trillion when U.S. forces invaded Afghanistan, and is $14.7 trillion now, an annualized growth rate at around 2 percent. That the U.S. economy still was able to grow despite war cost — every penny of it borrowed — other runaway borrowing, and the 2008 revelation of systemic perfidy on Wall Street, at the big banks and at Fannie Mae is testimony to America’s vibrancy.

So what would things look like if we hadn’t spent all that borrowed money on wars:

But imagine if $1.2 trillion had been added to the economy, rather than spent on war. Of course lower military spending does not translate one-for-one into increased economic growth — the two aren’t directly correlated. But they are related, and as Harvard economist Martin Feldstein said last week, “each dollar of extra deficit adds much less than a dollar to GDP.”

So imagine that $1.2 trillion had not been spent smashing things, including America’s own military hardware, in Iraq. Afghanistan and now Libya. War, after all, is about killing people and destroying resources. Economic growth is about empowering people and creating value.

Add war costs back into the economy and the U.S. GDP would be around $16 trillion today, an annualized growth rate of roughly 3 percent for the last decade. At that level of growth, unemployment would be lower, deficits would be lower and the national mood brighter.

Not having spent money on war would be no panacea. If there’d been no Afghanistan, Iraq or Libya wars, the United States nevertheless would have felt the economic turbulence all the West has flown through. The European Union spent almost nothing on these wars, and its economies cooled, too.

But without at least $1.2 trillion spent on the last decade’s wars, the United States would be in much better economic and fiscal condition. And the true cost may be higher. The 2010 book “The Three Trillion Dollar War” by Joseph Stiglitz, a Nobel-winning economist, and by Linda Bilmes estimates that long-term expenses such as disability payments will drive the number to that level. Destroying resources gets expensive fast. Last week, the White House acknowledged that U.S. air strikes in Libya have already cost $1 billion.

And this may well not even take into account the disruption of oil supplies that happened when we invaded Iraq and, more recently, when we started bombing Libya as well. That disruption has fueled inflation around the world and cost us a great deal in economic growth.