Impact of the War in Iraq on the US Economy Term Paper

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Iraq War on the U.S. Economy

The current U.S. War in Iraq has become the most expensive military undertaking by the United States in the last sixty years. According to a recent study, the U.S. Treasury is paying out more money each month to sustain the war in Iraq than it did during the Vietnam War. While there is little disagreement about the actual expenses involved in the Iraq War, the opponents and the supporters of the War disagree on its actual impact on the U.S. economy. While the political left and the traditional conservatives in the country are staunchly against the Iraq war and decry its detrimental effect on the U.S. economy, the right-wing neo-conservatives consider the expense of the war worthwhile and beneficial for the U.S. In the long run. This essay takes a look at the impact of the U.S. War in Iraq on the U.S. economy by examining the right and the left wing views.

Estimates and the Actual Cost of War in Iraq

Before the United States invaded Iraq in March 2003, the budget director of the Bush administration had predicted that the war would cost between $50 and $60 billion

(Bennis et al., 2005) while most independent estimates of the cost of the war suggested that the U.S. would have to spend somewhere between $50 and $150 billion on the war effort. (Surowiecki, 2003) The leading proponents of the war, namely the neoconservatives, considered the amount to be mere peanuts for the broader political gains which the United States was supposed to achieve from the invasion. The amount of 50 and 150 billion dollars were considered quite affordable for the U.S. economy since it constituted a tiny fraction (between 0.5 and 1.5%) of the country's G.D.P. Some economists even suggested that the war spending would stimulate the U.S. economy as it did during the Second World War in the 1940s and the Korean War in the 1950s. However, most wars and cost estimates do not go according to plan and the Iraq War did not end quickly as was hoped by the U.S. government. Its cost too has spiraled way beyond the original estimates.

A recent study by the Institute for Policy Studies (IPS) and Foreign Policy in Focus (FPF) reveals that the total bill for the war in Iraq has already crossed 204 billion dollars

and an additional 45 billion dollars is currently pending for approval before the Congress as 'bridge finance' before the formal approval of the next tranche. The Pentagon, according to the report, is currently spending 5.6 billion dollars per month on operations in Iraq, an amount that exceeds the average cost of 5.1 billion dollars per month (in real 2004 dollars) for U.S. operations in Vietnam between 1964 and 1972. At current rates, the United States would end up spending more than 700 billion dollars over 10 years; since the entire cost of the Vietnam War was 600 billion dollars (in current dollars), the Iraq War is most likely to prove even more expensive.

How the Cost Impacts the U.S. Economy? Opposing View Points

There is no consensus on the extent to which the costs of the Iraq War impact the U.S. economy. The neoconservatives, with their foreign policy agenda of unilateralism, making the United States an imperialist power and setting up a "model of democracy" in the Middle East, consider the cost of the Iraq War a small price to pay for such "lofty" objectives. They insist that the War has achieved its major goals of liberating Iraq from tyranny, and providing an example of democracy in "America's image" in the heart of the Islamic world.

In order to justify the invasion of Iraq, the neocons and their supporters in the U.S. administration tended to low-ball the cost estimates of the Iraq War. Faced with the spiraling cost they still consider it as a long-term investment for the promotion of free-trade and a globalized world which would ultimately benefit the U.S. economy.

The left-liberals in the U.S., who vehemently opposed the Iraq invasion, point to the disastrous effect of the spiraling Iraq War bill on the already out-of-control U.S. federal budget deficit, which has crossed the $700 billion mark for the current year.

They contend that the war expenses, along with the massive tax cuts for the rich by the Bush administration, would further worsen the budget deficit and put strain on the value of the dollar. In fact, the Congressional Budget Office has estimated that the cost of continuing the wars in Iraq and Afghanistan at current levels would nearly double the projected federal budget deficit over the next 10 years. (Bennis et al., 2005, p 13) The nightmare scenario for the U.S. economy is a rise in the U.S. budget deficit to such an unsustainable level that the Asian central banks withdraw their support of the dollar resulting in a massive freefall in its value and the end of the U.S. dollar's position as the global reserve currency. This would ultimately hurt the U.S. citizens in the most painful way as, left with dollars of diminished value in their pockets; they would face a massive reduction in their current standards of living.

The cost of the Iraq War is proving so burdensome for the U.S. taxpayer because the U.S. is forced to finance almost the entire cost of the war itself. This is in stark contrast to the First Gulf War in 1991 when nearly 90% of the funding ($54 billion out of the $60 billion) was provided by the United States' coalition partners. Most opponents of the Iraq war attribute such reluctance on the part of former allies of the U.S. To share the cost of the war to the unilateralism and arrogance of the U.S. foreign policy.

Other effects of the Iraq War on the U.S. economy include the loss in income for the families of the National Guard soldiers and reservists called up for duty in Iraq

since the military salaries of such personnel is lower than their civilian salaries by an average of about $ $4,000 per year. (Bennis et al., 2005, p. 13) The part-time soldiers also face problems in getting their jobs back when they return from their military duties abroad although a Reemployment Rights Act prohibits such discrimination by the employers. A number of small businesses in the U.S. who lose their employees in the war effort are also likely to suffer economically.

According to a recent report by Linda Bilmes

in the New York Times, the biggest long-term costs of the Iraq War are the disability and health payments for returning troops. Such costs are likely to run at $7 billion a year for the next 45 years, which adds up to a total of $315 billion. The continuing conflict in Iraq is also believed to have played a part in doubling the price of oil from $30 a barrel prior to the U.S. invasion to well over $60 a barrel today. Such a high price of oil adversely affects the U.S. economy as each $5 increase in the price of oil is estimated to reduce the country's income by about $17 billion a year. (Bilmes, 2005)

Such a negative view about the impact of the Iraq War on the U.S. economy, mostly propagated by the political left, is also shared by the traditional conservatives such as Pat Buchanan who believe that "open borders, free-trade globalism and wars for democracy are not conservatism, but its antithesis." (Buchanan, 2005)


The ongoing conflict in Iraq has already cost the U.S. tax payer well over $200 billion, which is likely to balloon over the $700 billion mark, if the conflict continues over the next 10 years. The effect of such an expense on the U.S. economy is, however,…[continue]

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