A war costs much more than dollars

March 26, 2003|By JAY HANCOCK

ON JAN. 17, 1968, President Lyndon B. Johnson told the American people that the Vietnam War was costing $25 billion annually - a great expense, he acknowledged, but necessary "until world conditions permit, and until peace is assured."

Twenty-five billion dollars was $10 billion a year more than Johnson had previously estimated, and it still wasn't accurate. Four months after his State of the Union address in January, Johnson asked Congress for an additional $4 billion for Vietnam, just for 1968.

A Texas congressman named George H.W. Bush seemed disturbed by the budgetary boundlessness.

"The nation faces - this year, just as it did last - a tremendous deficit in the federal budget, but in the president's message there was no sense of sacrifice on the part of the government, no assignment of priorities," Bush said in response to Johnson's speech.

Of course, even $29 billion a year turned out to be a mere down payment. The full financial cost of the Vietnam War would come to about $100 billion in 1968 dollars, or $430 per American, which would be worth $2,200 today.

Yesterday, President George W. Bush asked Congress for $74.7 billion for the war on Iraq - just for the next six months. (For comparison, $74.7 billion is about $14.3 billion in 1968 money.)

Senate Majority Leader Bill Frist of Tennessee told reporters that $74.7 billion was Bush's "best estimate" of the war's cost. But don't be surprised if the estimate is wrong.

Conservatives correctly observe that actions by government generally bring unintended consequences. The bigger the action, the bigger the surprising repercussions, and government programs seldom get bigger than war.

Often, one consequence of war is - more war. And more war expense.

U.S. leaders frequently misjudge the cost of hostilities, Yale economist William D. Nordhaus said in a paper published late last year.

The Civil War cost 13 times what President Abraham Lincoln's Treasury secretary had estimated, and "the costs of the Vietnam War were grossly underestimated even as the buildup occurred," Nordhaus reported, adding that "in assuming that the war would end by June 1967, the Pentagon underestimated the total cost of the war by around 90 percent."

Neither Nordhaus nor this column is arguing that the war on Iraq will turn into Vietnam-style quicksand, though that is not impossible. Wars, however, are major disturbances in the political/economic pond, often generating waves more powerful and far-reaching than anybody expects.

Nordhaus figured an Iraq war could cost between $120 billion and $1.6 trillion, with the higher figure resulting from an "unfavorable" outcome of prolonged conflict, high peacekeeping costs and a ravaged Iraqi oil industry.And Nordhaus talked only about direct expenses, debited to the U.S. Treasury. He didn't get into the interest cost on war loans or the opportunity cost of benefits that the money could have bought. He didn't mention higher interest rates, a weak dollar, a poor stock market or other possible secondary expenses.

Of course, wars often spur beneficial economic side effects, too - at least for countries that fight, as the United States usually does, in somebody else's back yard. Vietnam spending helped the U.S. gross domestic product rise by an average annual rate of 4.4 percent annually for the 10 years that ended in 1973.

But the Vietnam War also may have helped stoke the crippling inflation of the 1970s, although many economists instead blame weaker productivity gains and a Federal Reserve that tried to trade higher prices for lower unemployment.

Even so, the economic minuses of the war on Iraq may outweigh the pluses. Much of the risk involves budget deficits. The U.S. national debt is $6.1 trillion, and last year's deficit was $158 billion.

War spending will make both grow, especially with new tax cuts. If war borrowing starts to deter the foreign lenders who have enabled America's debt addiction for two decades, put down the strong dollar and low interest rates as collateral casualties.

This is an economics column, but let the record show that the biggest costs of war are human and moral. Human loss is grievous, but the moral and political expense of this war also seem very high. War is sometimes necessary, and the planet would be better with no Saddam Hussein. But sometimes the benefit of an end does not justify the price of the means.

Cost of the Tomahawk missiles launched at Iraq in the war's first week: more than $500 million. Cost of a powerful democracy attacking a country that posed no demonstrable, imminent threat to the democracy or its allies: priceless.

Last Wednesday's column said Joe Crosby at the Council on State Taxation, a big-business lobby, favored shutting down the "Delaware loophole," which allows firms to shift taxable Maryland profits to other states. Actually, the tax schemes Crosby objects to are fewer and narrower than the setups I described and don't necessarily have to do with Delaware. I shouldn't have put my words in his mouth.

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