If George Bush chooses to go to war against Iraq, the US economy can wellafford it, writes Robert Samuelson
A possible war with Iraq raises many unknowns, but "can we afford it?" is not one of them. People inevitably ask that question, forgetting that the United States has become so wealthy it can wage war almost with pocket change.
A war with Iraq would probably cost less than 1 per cent of national income (gross domestic product). Americans have grown accustomed to fighting with little economic upset and sacrifice.
The last time the United States truly mobilised for conflict was the second World War.
Roughly 16 million Americans served in the military; that was two-thirds of all men aged from 18 to 34, reports historian James Patterson of Brown University. The costs were stupendous.
In 1944, federal spending totalled 44 per cent of GDP, with military spending at 38 per cent of GDP. At home, Americans needed ration coupons to buy meat, gasoline and other staples.
Ever since, two things have transformed the economics of war - the US economy has become larger and wars have become smaller. Measured by what it produces - and adjusted for inflation - the economy is more than five times as large as it was in 1945. Meanwhile, America's wars have become more localised, draining less of the nation's wealth.
In the Korean War, the defence budget reached 14 per cent of GDP in 1953, but much of that spending went for a massive build-up of forces in Europe.
"For every tank that went to Korea, two went to Europe," says historian Alan Gropman of the Industrial College of the Armed Forces. "The B-52s we built had nothing to do with the Korean War."
In August 1949, the Soviet Union unexpectedly exploded its first atomic bomb, prompting President Harry Truman to order the National Security Council to undertake a major review of US strategy. The resulting document (called NSC 68) envisioned huge deployments of US troops to Europe to counter a conventional Soviet attack, which - once the Soviets had their own nuclear weapons - seemed more credible.
Although the Cold War's costs remained large, defence spending during the Vietnam War went only as high as 9.4 per cent of GDP, in 1968. Even so, Lyndon Johnson's early attempt to finance the war without any tax increase - to have both guns and butter - helped raise inflation.
After Vietnam, defence spending (again, as a share of GDP) drifted down and dropped sharply once the Cold War ended.
It now runs about $350 billion annually. That's a lot of money but, in an economy producing more than $10 trillion annually, it isn't much of a burden. It's slightly more than 3 per cent of GDP. How much a war with Iraq would cost is guesswork. It would vastly exceed the total in Afghanistan, which the Congressional Budget Office estimated at $10 billion for fiscal 2002. The Persian Gulf War cost $61 billion. Even if a new war cost $100 billion, it would be only about 1 per cent of GDP.
Clearly affordable. Whether we should afford it is another question as is the effect of a war on the economy, which could go either way. Extra spending might help.
A swift victory might bolster confidence or a war might jeopardise oil supplies from Saudi Arabia and elsewhere, through terrorism or political upheaval. Protracted fighting might hurt confidence, consumer spending and the stock market.
"The economy is growing, but barely," says Mark Zandi of Economy.com. "It wouldn't take too much for the recovery to roll back into recession - or close to it."
Oil prices are the biggest vulnerability. In 1990, after Saddam Hussein invaded Kuwait, prices doubled, from about $18 a barrel in May to $36 in October. That helped tip a weak US economy into recession - though prices quickly receded in 1991.
Barring a calamity, many economists minimize the odds of a repetition.
If Iraq's oil exports "are lost, it wouldn't be a big factor", says John Lichtblau of the Petroleum Industry Research Foundation. Iraq is now exporting about 700,000 barrels a day out of total world demand of almost 77 million barrels daily.
The Saudis could offset any shortfall, he says. Moreover, the US economy has become less energy-intensive and is less sensitive to higher prices.
The economy is growing at an underlying rate of 2 per cent to 2.5 per cent, says economist Nariman Behravesh of the forecasting firm DRI-WEFA. War fears have already pushed oil prices to about $30 a barrel, but even if they rose to $40 for a year, GDP growth might drop only half a percentage point, he says.
Because wars surprise, who knows? But the important questions are harder. Is this war justifiable? Should the United States go it alone? What will happen if we don't fight? What will happen if we do? By contrast, economic issues are a sideshow - and should stay so. If this war is necessary, we can afford it.