The Iraq War Is Killing Our Economy

By Robert Pollin and Heidi Garrett-Peltier, The Nation. Posted March 18, 2008.

There is no longer any doubt that the Iraq War is a moral and strategic disaster for the United States. But what has not yet been fully recognized is that it has also been an economic disaster. To date, the government has spent more than $522 billion on the war, with another $70 billion already allocated for 2008.

With just the amount of the Iraq budget of 2007, $138 billion, the government could instead have provided Medicaid-level health insurance for all 45 million Americans who are uninsured. What's more, we could have added 30,000 elementary and secondary schoolteachers and built 400 schools in which they could teach. And we could have provided basic home weatherization for about 1.6 million existing homes, reducing energy consumption in these homes by 30 percent.

But the economic consequences of Iraq run even deeper than the squandered opportunities for vital public investments. Spending on Iraq is also a job killer. Every $1 billion spent on a combination of education, healthcare, energy conservation and infrastructure investments creates between 50 and 100 percent more jobs than the same money going to Iraq. Taking the 2007 Iraq budget of $138 billion, this means that upward of 1 million jobs were lost because the Bush Administration chose the Iraq sinkhole over public investment.

Recognizing these costs of the Iraq War is even more crucial now that the economy is facing recession. While a recession is probably unavoidable, its length and severity will depend on the effectiveness of the government's stimulus initiatives. By a wide margin, the most effective stimulus is to expand public investment projects, especially at the state and local levels. The least effective fiscal stimulus is the one crafted by the Bush Administration and Congress--mostly to just send out rebate checks to all taxpayers. This is because a high proportion of the new spending encouraged by the rebates will purchase imports rather than financing new jobs in the United States, whereas public investment would concentrate job expansion within the country. Combining this Bush stimulus initiative with the ongoing spending on Iraq will only deepen the severity of the recession.

Is Militarism Necessary for Prosperity?

The government spent an estimated $572 billion on the military in 2007. This amounts to about $1,800 for every resident of the country. That's more than the combined GDPs of Sweden and Thailand, and eight times federal spending on education.

The level of military spending has risen dramatically since 2001, with the increases beginning even before 9/11. As a share of GDP, the military budget rose from 3 percent to 4.4 percent during the first seven years of the Bush presidency. At the current size of the economy, a difference between a military budget at 4.4 rather than 3 percent of GDP amounts to $134 billion.

The largest increases in the military budget during the Bush presidency have been associated with the Iraq War. Indeed, the $138 billion spent on Iraq in 2007 was basically equal to the total increase in military spending that caused the military budget to rise to 4.4 percent of GDP. It is often argued that the military budget is a cornerstone of the economy--that the Pentagon is a major underwriter of important technical innovations as well as a source of millions of decent jobs. At one level these claims are true. When the government spends upward of $600 billion per year of taxpayers' money on anything, it cannot help but generate millions of jobs. Similarly, when it spends a large share of that budget on maintaining and strengthening the most powerful military force in the history of the world, this cannot fail to encourage technical innovations that are somehow connected to the instruments of warfare.

Yet it is also true that channeling hundreds of billions of dollars into areas such as renewable energy and mass transportation would create a hothouse environment supporting new technologies. For example, utilities in Arizona and Nevada are developing plans to build "concentrated" solar power plants, which use the sun to heat a liquid that can drive a turbine. It is estimated that this technology, operating on a large scale, could drive down the costs of solar electricity dramatically, from its current level of about $4 per watt to between $2.50 and $3 per watt in the sunniest regions of the country. At these prices, solar electricity becomes much cheaper than oil-driven power and within range of coal. These and related technologies could advance much more rapidly toward cost competitiveness with coal, oil and nuclear power if they were to receive even a fraction of the subsidies that now support weapons development (as well as the oil industry).

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Robert Pollin is professor of economics and co-director of the Political Economy Research Institute (PERI) at the University of Massachusetts. Heidi Garrett-Peltier is a PhD candidate in economics at the University of Massachusetts and a research assistant at PERI.