War in Iraq and the U.S. Economy
Over the course of its long and rich history, the United States of America has been involved in many wars, by either taking a secondary or the direct part in them. Looking through the wars the United States was directly involved, such as the Civil War, Vietnam War, and the Persian Gulf War it can be seen that many faulty economic forecasts existed. Lincoln’s Treasury Office predicted that the direct cost of the war for the North would be $240 million, however the actual cost was about 13 times the predicted cost. When it came to the War in Vietnam, the original budget projection in early 1966 miscalculated the cost for the subsequent fiscal year by $10 billion. Moreover, assuming that the war would be over by June 1967, the Pentagon underestimated the total cost of the war by around 90 percent. The war in fact continued until the late 1973, and the total cost was ranging from $110 to $150 billion (Nordhaus 52-55). The Persian Gulf War, the response to Iraq’s invasion of Kuwait, cost the United States around $60 billion, even though the costs were estimated to be around 35-40 billion. Still the miscalculations and underestimations of the war in Iraq cannot be compared to any of the inaccuracies mentioned above.
In my paper I would like to scrutinize how the war in Iraq has affected the U.S. economy using the sources published through out the years of the Iraqi operation. To begin with, I would like to give a very brief overview of the economical situation of the United States prior to the Iraq invasion. The United States has a mixed economy with the world’s largest GDP (2006) – $13.22 trillion. It took the United States a lot of time to achieve stability, opulence and to start leading the world. Over the course of its history, the United States managed to successfully cope with crises. During the times of Great Depression, for example, Franklin Delano Roosevelt’s New Deal helped the US economy to survive the 1929-1932. It has also survived the crises after WWII, even though all economists predicted the U.S. economy to collapse because of switching back to civilian production (Walton, Rockoff 36). In the seventies and eighties the US economic development was less rapid, still a high GDP and a low unemployment rate were maintained.
In the year 2001, the entire American system was threatened to wreck, and the United States thus received an obvious enemy, who had shown sufficiently remarkable and strong ire. The Iraq War started on March 20, 2003 and is in action till the present times. The attack on Iraq affected the American economy as well as the country’s wellbeing and world-perception overpoweringly. I will try to cover most of the ways in which America was affected by this war, concentrating mostly on the economical issues. As I have already mentioned above, most estimates put forward by White House officials in 2002 and 2003 were heavily undervalued. In fact, the Economist Intelligence Unit and the US Congressional Budget Office even predicted the war to last only a short time and not disrupt the economics. Still there were economists to warn that the economic effects would be negative, including lower growth, higher inflation and higher unemployment rates (Schifferes). Sadly, the negative predictions of the aforesaid economists proved to be true.
Over the course of the War in Iraq, the taxpayers had to pay around $314 billion, furthermore the additional expenses of $450 billion over the next 10 years are projected. It has been stated that the Iraqi War is the most costly martial operation in the last 60 years, and there is a concern that high costs that were not considered before, seem to play an increasing role in U.S. economic decision making. (Sterngold) According to the latest estimates, the cost of the war in Iraq could surpass $700 billion. The war is financed with deficit spending, while the remainder is being spent on training and equipping Iraqi forces that taxpayers are also responsible to cover. The war aimed to benefit both the Americans and the Iraqis, in reality, is not making the United States more secure. It is also harming the taxpayers by lumbering them with a debt burden, plus the lives of Iraqis are improving very slowly (Sterngold).
The now visible macro-economic consequences are alarming indeed. There are at least three major sources of macroeconomic consequences of the war in Iraq that can be seen. To begin with, it is the increase in the price of oil. The price of oil is significantly higher today than it has ever been before. The higher price of oil brings costs and benefits, as the revenues of the big oil companies have increased enormously. Still for regular American citizens such a great rise in gas prices is not beneficial indeed. Still, it can be said that the rise of the gas prices was also affected by other issues, like: terrorism insecurity, tight supplies, increased demand by China, and political problems in Venezuela, which is a key manufacturer (Kirchhoff). Secondly, it is the increase in defense expenditures that is adding to record federal budget deficit, which is this year expected to be around $400 billion. Thirdly, the increased insecurity that has followed from the way that the war has been pursued, meaning that the U.S. lost its status of being the affluent land of promise.
Another economical problem America has to face is that it is not reliable and trustworthy in many countries. All over the world the American foreign policy is rejected as well as the products of leading American brands loose its popularity. Some of the world’s strongest consumer brands are Americans and half of their products are sold outside the States, so such companies as Coca-Cola, McDonald’s, and Gap, were hit hard by the European rejection. Coca-Cola sales in Germany decreased tremendously and company had to write off $392 million. McDonald’s sales came to “a near standstill” in some European countries. Gap had to leave the German market completely, reducing its sales by 10 percent. The Disney Land in France experienced the financial loss, heavy to the extent that it had to be rescued by its parent company. Additionally, sales of cars made by GM and Ford are also suffering which leads to the lay-off of workers in Europe (Brown). Of course, it is obvious that from the mentioned above America is experiencing vast drastic loses that may lead to a deep economical crises.
Such a situation in Europe, naturally, affected the unemployment rate and the stock market inside the US. It has also influenced the assets of 90 million individual investors and reduced the amount of donations that foundations rely on to provide grants. Moreover, the economists pointed out that the war cost might in the future add up to at least $3,415 for every U.S. household – that is drastic. Presently the U.S. is spending about $6bn per month on operations in Iraq, yet, there are additional costs to the government – much above this number. For example, they include perpetual disability payments to veterans, the costs of depreciation of the military equipment, the cost of medical treatment for returning soldiers with serious injuries, and the cost of transporting the troops back to their homes (Bilmes, Stiglitz).
In conclusion I would like to say that it is true that the US economy is suffering from a serious crisis: a comprehensive, rather than superficial one. Still, despite some fears and forecasts that the United States of America is no longer a leader on the world’s economic field, the ground was not cut from under its feet. The U.S. is hitherto certainly a leader in many fields of production, science and development. The United States is at the crossroad right now. It is possible that the spending on the War in Iraq may boost the U.S. economy, however it is also possible that over the long term it would bring a decade of economic troubles, more serious than the ones today.
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