The Economic Impact of Iraq and Afghanistan Wars on the US Economy

The Economic Impact of Iraq and Afghanistan Wars on the US Economy

The Iraq wars were military conflicts that took place for about seven years between the year 2003 and 2011. The wars costed the US about $5 trillion (Bilmes & Stiglitz, 2008). The Iraq war was launched buy the George Bush administration where President Bush aimed at eliminating the threat of Saddam Hussein who was the Iraq Sunni leader. The Afghanistan war was aimed at capturing and killing the worlds most wanted terrorist, Osama bin Laden who had launched numerous attacks against America. The two wars were war on terror and it was an US 9/response against the 9/11 terrorist attack on the US by the al-Qaida. This ignited the war against the two states by the US. Moreover, the aim to end the al-Qaida was universal benefit and besides it was still a benefit to the innocent citizens of the two involved states.

The federal government of the United States has obligated and spent about 5 trillion dollars on the wars. The finances that were used are estimated as there are no specific figures of the costs that were involved. This is because the amount include the direct congressional war apportionments, veterans care, veterans disability issues, war-related increase for the pentagon budget, increased in Homeland security budget, foreign assistance spending, direct war borrowing and the estimated amount of future obligation for the care of the war veterans (Hook, 2015).  This amount does not include other expenses like the macroeconomic costs that the US economy has faced as a result of the wars. The opportunity cost of not investing in alternative sectors, private and local government war costs and also the future interest in the amount borrowed for the purpose of the war (Bilmes & Stiglitz, 2008). Therefore, there is no an exact way to calculate the economic effect of the as it involved a lot considering that it undermined normal operation businesses within the state as well as between the US and the Iraq and Afghanistan.

According to expert opinion, the relevance of the US war spending in Afghanistan and Iraq war is varied.  At the basic level, economists have also disagreed on whether the wars have negative or positive economic impacts. The Total military expenditure that involves spending on operations and support in Afghanistan and Iraq, and also on the operations that are tied to War on Terrorism around the world are all budgeted separately from the budget of the U.S. defense.

While some experts claim that the total expenditure the wars should be kept in a positive perspective, they also tend to indicate collateral economic consequences that are beyond the direct costs (Flores-Macías, 2017). These include the international debt used for the purpose of sustaining the war costs, global oil market volatility due to violence in Afghanistan and Iraq, and geopolitical uncertainties due to the war. These issues all have economic consequences of their own. Whether the impact was direct or indirect, played a significant role in the destruction of economic progression and business ties with the US and other states that were against its war in both Iraq and Afghanistan.

Total cost of the wars

After the 9/11 terror attacks, the US launched military endeavors on major fronts such as Afghanistan and Iraq. The Estimates for expenditure in the efforts and its total Cost is a major issue of concern. In 2002, the total cost was estimated for invasion in Iraq was about $200 billion. A CBO report however estimated the US had already spent $368 billion on the military operations and $45 billion in other related services like, diplomatic services, veterans care and training (Bilmes & Stiglitz, 2008).

The amount spent on the military operation against Afghanistan was $200 billion. The CBO report now estimates that projected costs of the Iraq war will be $1 trillion in 2017 and an extra $705 billion for interest payments on money borrowed for the purpose of the way it estimates a total cost of 2.4 trillion in the Iraq and Afghanistan wars (Bilmes & Stiglitz, 2008).

The effect of the war on the economy

The extent to which the war spending affects the economy is a matter of concern. Some people have been seen to disagree on the effect with some arguing that it hurt the economy while other arguing that it helps the economy (Hook, 2015). Huge United States national defense spending during the Second World War is recognized with reviving U.S. economic prospects after the Great Depression. The military spending and mobilization during the Second World War reduced the U.S unemployment rate and also revitalized the U.S economy.

A country that has high military expenditures has the ability to show strong economic growth after the war.  War spending can only have minimal effects on the per-capita economic activity. We can therefore observe that the wars may have had a mixed economic impact (Flores-Macías, 2017). The wars pushed the country into a recession. This shows that increased military spending has negative effects on the living standards of the people. However with a moderate increase in the military budget, little negative effects are expected in the economy.

Direct Economic Impacts

Apart from the issue of whether war spending is hurtful or helpful to the economy, it is important to view the specific economic impact of the Iraq and Afghanistan wars. First the total estimated long-term cost of the wars is at about $3 trillion or $4 trillion as provided by the CBO report, and the Joint Economic Committee (Mikulaschek, 2016). It is important to assess the direct impact that this expenditure has on the economy of the United States. This means that the war costs the average U.S. family about $46,400 per year. It also means that it costs $11,627, or $830 per person per year (Bilmes & Stiglitz, 2008). The estimates include interest payments on the foreign debt which was borrowed by the United States to help in financing the war. The debt payments add a huge part of the economic costs and burden of the war.

Collateral Economic Impacts

The Iraq and Afghanistan wars affected the U.S. economy in different ways beyond direct spending impacts. For example, Iraq is a major producer of oil. It is the second after Saudi Arabia. Any swing in the production levels of the country will affect the global oil pricing. The war against Iraq brought the production levels of the country to a near halt. Maintaining the production levels amid the war was a challenge (Bilmes & Stiglitz, 2008). The production levels have still remained very low since the war. This has spiked the oil prices over the years.

The war has been attributed as the major factor that has influenced the increase in the prices. This affected the U.S economy as a result of business cycle effects that led to lower U.S. growth rate due to higher oil prices (Bilmes & Stiglitz, 2008). When the rising oil prices are combined with the falling dollar strained the budgets of the governments to companies and consumers. This will then push the United States toward a recession. The rising oil prices also influenced inflation which is a major economic issue in the United States. This is especially of the Federal Reserve makes substantial additional interest rate tax. However with an expected improved security situation in the countries, the economy is expected to experience future gains from the increased oil production.

Oil price increase has an impact to whole world economy. The fact that most industrialized nation depend on running engine for production manufactured goods, causes economic impact to the world with rise in prices of oil products. This was especially the case during the war as the Arab nations were against the US attack of the Iraq and Afghanistan. It is for that reason had to calculate the exact cost of the impact of the war to the economy.

References

Bilmes, L. J., & Stiglitz, J. E. (2008). The Iraq War will cost us $3 trillion, and much more.

Washington Post, 9.

Flores-Macías, G. A., & Kreps, S. E. (2017). Borrowing support for war: The effect of war

finance on public attitudes toward conflict. Journal of Conflict Resolution, 61(5), 997-1020.

Hook, S. W., & Spanier, J. (2015). American foreign policy since World War II. Cq Press.

Mikulaschek, C., & Shapiro, J. N. (2016). Lessons on Political Violence from America’s Post

9/11 Wars. Journal of Conflict Resolution, 0022002716669808.