Don't Worry About the War's Cost; It won't be enough to cripple the economy, and it shouldn't affect our strategy.
Let'stalk about the economics of the war. We're told that it's frightfully expensive (perhaps $1 billion a day) and that perhaps we ought to pay for it with a surtax. Please, keep cool. Yes, the war may ultimately cost tens of billions of dollars, but as wars go, it will be relatively cheap. And this is not the right moment for new taxes.</br></br>The important thing about the war's cost is that it's not very important. The stakes in this war are lives and the long-term question of whether the Middle East becomes more - or less - stable. By comparison, the economic burdens are modest. The United States can easily afford a longer war if that would minimize casualties. And the United States is rich enough to maintain a military presence in the Persian Gulf if that would enhance postwar stability.</br></br>What's lost in all the panicky talk about price tags is the enormousness of the U.S. economy. As an economic contest, this war is already an unfair mismatch. Even when Iraq is pumping oil, its gross national product (perhaps $60 billion or maybe less) roughly equals the output of Kentucky. This is about one-hundredth the size of the U.S. economy (1990 GNP: $5.5 trillion). The idea that America's economic base can't support this war is absurd.</br></br>The worries partly reflect our obsession with budget deficits. But the deficit preoccupation obscures larger issues. The major economic effects of the crisis so far have involved psychology, not deficits. Anxiety and high oil prices have depressed consumer spending and business investment, worsening the recession.</br></br>The truth is that the United States is now fighting this war out of its hip pocket. By itself, the war spending isn't large enough either to cripple the economy or - the other bit of conventional wisdom - immediately end the recession. There's a paradox here. Over the years, weapons prices have risen, and defense costs have fallen. A new F-15E fighter costs a hefty $50 million. Nevertheless, military spending (about $300 billion annually before the war) runs at roughly 5.5 percent of GNP. By contrast, it approached 40 percent of GNP at its peak in World War II, 14 percent in the Korean War and 9 percent in the Vietnam War.