The Independent Investor: The Cost of War

Over the last two decades America has participated in three different wars and several military interventions. The economic bill for these actions has been substantial. Today, intervention in Syria is front and center. In this age of supposed frugality, why are Americans still willing to pay for air strikes on Damascus or anywhere else?

One would think that with all the concern over our national debt and deficit that taxpayers would demand an end to these incursions. Yet, Americans are still a soft touch when it comes to protecting those who appear to be victimized whether in Dachau or Damascus. Since 1990 alone, we have stood in the way of bullies in Saudi Arabia, Kuwait, Somali, Haiti, Bosnia, Kosovo, Afghanistan, Iraq and Libya.

But war has a cost and I'm not talking about the human costs. There is no dollar-and-cents price tag I can assign to death and suffering: instead, I want to focus on the economic costs of war. For example, the decadelong conflicts in Afghanistan and Iraq may cost this country as much as $6 trillion, according to a report issued in April by Harvard University's Kennedy School of Government. That would be equivalent to a tax bill of $75,000 for every American household.

That would make Iraq and Afghanistan the most expensive wars in U.S. history. In comparison, World War II cost America $3.6 trillion, which was twice the cost of World War I. Today, Harvard estimates it cost the U.S. $1 million to deploy one American soldier for one year. That is several times the cost of deployment during the height of the Cold War or WW II. Why so much?

Modern-day American warriors fly around in helicopters, cargo aircrafts and gas-guzzling armored vehicles. As a result, it takes 22 gallons of fuel to support one soldier per day in Afghanistan versus just one gallon per day back in WW II — and that conflict was global. Today's soldiers are loaded down with high-tech body armor and weapons and the most advanced electronic equipment money can buy. They have the best medical treatment of any war, anytime in our history. And afterwards, they sit down to steaks and at least three flavors of ice cream at the mess hall.

So why do taxpayers grouse about the bank bail-outs and out-of-control federal spending while condoning trillions of dollars in military spending? One reason is that government spending can be an important source of economic demand during times of low confidence and downturns. As I have written in previous columns, government defense spending can lead to the development of new technologies, generate new industries and create additional sources of demand and jobs.

Depending upon how war is funded, it can also have adverse effects on the economy. America has paid for its wars through debt in the case of WW II, the Cold War, Afghanistan and Iraq. Part of the $6 trillion in cost estimates for Iraq/Afghanistan stems from the massive interest payments we will have to pay on that war debt for years into the future.

In the case of Korea, the war bill was paid for in higher taxes while Vietnam's costs were inflated away during the Carter years. In every case, taxpayers have been burdened and private-sector consumption and investment have been constrained by war spending. Yet, I believe the most telling reason for ignoring this most expensive of pastimes is that while the price of war is rising, it is declining as a percentage of our country's GDP. In my next column I will be addressing that concept further.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.