Insights & Advice


The Cost of War, Part II

As Congress prepares to debate a “go/no go” retaliatory strike against the Syrian regime, not a word has been mentioned about the potential cost of this action. That seems rather strange since just about every proposal out of Washington, no matter how important, has been debated on its cost and how its price tag would impact the deficit and debt limit. 

In my last column, I explained how the costs of war are ever-increasing. The combined cost of Iraq-Afghanistan has made this the most expensive war in American history.  This is largely due to the technological innovations that have accompanied modern-day warfare.  But no matter how high the price tag, why is it that Americans seem to ignore the costs and instead leap, in Shakespearean fashion, “once more unto the breach.”

One reason, as I mentioned last week, is that while the price of war is rising, it is declining as a percentage of our country’s Gross Domestic Product (GDP). I looked as far back as records go in this country to find out exactly how much our conflicts have cost in terms of dollars and cents. It might surprise you.

Let’s start with the American Revolution, which cost $2.41 billion in inflation-adjusted dollars, according to the Congressional Research Service, a legislative branch agency that works exclusively for congress. This august body (part of the Library of Congress) actually came up with inflation-adjusted estimates of the costs of our wars as well as peak war costs as a percentage of GDP.

In the case of the Revolutionary War, there was no record of GDP (since we were not a nation nor did we have a GDP until after the war), however, we do know that the War of 1812 cost $1.55 billion and equaled 2.2% of GDP. We presume that since it was a shorter war, it cost less. The Mexican War cost more ($2.38 billion) but was almost half as much in terms as a percentage of GDP (1.4%).

Due to its nature, the Civil War was an aberration, since it was fought on our soil between Americans. The death and destruction totaled $79.7 billion (remember, inflation-adjusted) and cost the union 11.3% of GDP in its peak year. It wasn’t until World War I & II that the numbers really skyrocketed. The first war cost $334 billion or 13.6 % of GDP while WW II cost $4.1 trillion and equaled a whopping 35.8% of GDP in its peak year.

The cost numbers vary from there, but notice the percentage of GDP: the Korean War cost $341 billion equal to 4.2% of GDP, Vietnam’s price tag was $738 billion but only equal to 2.3% of GDP.  The Persian Gulf War cost $102 billion, which was just 0.3% of GDP while the post 9/11 wars cost $1.147 trillion in their peak years or 1.2 % of GDP.

If one looks at GDP percentages and peak years, these expenses seem to be contained, almost reasonable, some might say. That’s clearly the myth but “peak year” can be deceiving. Both the Afghanistan and Iraq wars are on-going. Future estimates are difficult to come by, although Harvard’s Kennedy School Senior Lecturer Linda Bilmes estimates the combined conflicts could cost between $4 and $6 trillion when all is said and done.  Yet Americans complain more about the bank bail-outs then they do the cost of war.

In the meantime, we are debating yet another incursion which, if everything goes well, may end up being a flash in the pan as recent conflicts go. Maybe, when emotions are at fever-pitch and wrongs demand to be righted, mundane issues such as economic costs should be dismissed as unimportant. Certainly, I believe government gassing of civilians whether in Damascus or Buchenwald demand a response. The problem seems to be that in almost every case since at least the Vietnam War, Americans did care and cared a great deal about the economic costs after the fact.

Posted in Macroeconomics, The Retired Advisor