Effect 2003 Iraq War Had On America's Economic Growth

One of the enduring beliefs of modern times is that war and its associated military spending has created positive economic outcomes for the U.S. economy. The paper aims to highlight the various macroeconomic effects of government policies and spending on the U.S. economy over America, Iraq conflict and its everlasting economic impact.

Increased military spending during conflict does create employment, additional economic opportunities and contributes to the development of new technologies which can then filter through into other industries.

These are some of the often discussed positive benefits of increased government spending on military outlays. One of the most commonly cited benefits for the economy is higher GDP growth. There does not appear to be a direct relationship between average stock market valuations during these conflict periods markets stock sometimes rise and sometimes fall.

Expert opinion varies wildly on the relevance of U.S. war spending in Iraq and Afghanistan to the health of the U.S. economy. At the most basic level, economists disagree whether these wars will have a positive or negative long-term economic impact.

More recently, a group of Democrats in the U.S. congressional Joint Economic Committee released a report estimating the total long-term cost of operations in Iraq and Afghanistan would range between $2.6 trillion and $4.5 trillion, depending on how quickly forces are drawn out. These figures drew pointed criticisms from Republicans, who released a statement citing dozens of errors in the report’s findings, some of which were subsequently changed.

Apart from abstract questions about whether war spending is helpful or hurtful, economists also debate the specific economic impact of the current wars in Iraq and Afghanistan. Whether one estimates the total long-term cost of the wars at $2.4 trillion or $3.5 trillion—the estimates of the CBO and the congressional Democrats on the Joint Economic Committee—experts debate precisely what direct impact this expenditure would have on the U.S. economy. The analysis differs starkly depending on whose numbers you use. If the CBO’s prediction is correct that the wars will cost roughly $2.4 trillion through 2017, assuming current U.S. population levels that would average out to a total cost of $7,973 per U.S. citizen, or $570 per citizen per year.

The wars in Iraq and Afghanistan touch the U.S. economy in a variety of ways beyond the impact of direct spending. First, Iraq has a lot of oil, and swings in the country’s production levels affect global oil pricing. By some estimates, Iraq has the second-highest amount of oil in the world, behind Saudi Arabia. The Wall Street Journal reported on December 2007 that improving security conditions had allowed Iraqi oil production to return to pre-war levels. But the former Iraqi oil minister said in an interview with the Journal that maintaining current production levels would be a challenge. Whether Iraq is able to sustain—or possibly increase—its oil production, the fighting of the Iraq war ground production nearly to a halt in 2003. In the years since, production gains have proved choppy, as noted in a recent Backgrounder on Iraq’s infrastructure. Market analysts say rising energy prices combined with a falling dollar have already strained the budgets of U.S. companies and consumers, pushing the United States toward a possible recession. Rising oil prices also fan inflation, which remains at low levels in the United States but which experts say could emerge as a major economic issue, particularly if the U.S. Federal Reserve feels the need to make substantial additional interest rate cuts. Experts add, however, that should Iraq’s security situation continue to improve, future gains from increased oil production could help mitigate some of these economic pressures.

In addition, experts comment on the psychological toll involvement in Iraq has taken on the United States, and specifically the U.S. economy. In a recent essay in Newsweek International, Fareed Zakaria notes that worries spawned in part from U.S. involvement in Iraq have undermined what was previously an “open and expansive” U.S. attitude toward foreign policy and economics. Zakaria says the United States has become a nation consumed by fear and pessimism. He says this fear has led to protectionist policies on trade, immigration, and markets, which in turn threaten the future of the U.S. economy.

The higher levels of government spending associated with war tend to generate some positive economic benefits in the short-term, specifically through increases in economic growth occurring during conflict spending booms. However, negative unintended consequences occur either concurrently with the war or Military spending drains resources from the productive economy. For this reason, it will typically lead to slower economic growth, less investment, higher trade deficits, and fewer jobs. It is important that the economic costs of military spending, such as that associated with the war in Iraq, be recognized in assessing the policies being debated. While the economic costs may not be the primary factor in determining policy, it is important that the public understand the economic costs that they are likely to bear by a decision to engage in a war or any other major increase in military spending.

References

1. ‘Economic Impact of Wars.’ UKEssays.com. 11 2018. All Answers Ltd. 10 2019 .