Afghanistan- the Economic Cost of War

Running Head: AFGHANISTAN- THE ECONOMIC COST OF WAR

Afghanistan- The Economic Cost of War
Melinda Tolar
MGT 250

Afghanistan- The Economic Cost of War

Introduction

The September 11 attacks, often referred to as September 11th or 9/11, were a series of coordinated attacks by al-Qaeda upon the United States on September 11, 2001. Early on the morning of September 11, 2001, nineteen hijackers took control of four commercial airliners en route to San Francisco and Los Angeles…and the rest is history. On October 7, 2001 The United States responded to the attacks by launching the War on Terror, invading Afghanistan to expose the Taliban, who had harbored al-Qaeda terrorists, and enacting the USA PATRIOT Act.

The military budget is that portion of the budget that goes to any defense related expenditures. (Economy in crisis.org, 2010). The economic cost of the conflict is unquestionably momentous. A war costing $2.4-trillion WILL affect most economies. The US economy has been under lots of pressure by the impact of the war. There is widespread apprehension resulting from the monthly spending to fund the war. The Afghanistan war has started a debate on how war expenditure impacts economic conditions of the nation.
Does the war assist the economy like the spending during World War II unarguably ended the Great Depression? Or does it harm the economy through inefficient spending, as many observers have remarked about the first Gulf War? The report states that funding the war in Afghanistan has actually damaged the U.S. economy. This can be seen by observing its effects on all the aspects of the economy (Kaufman, 2009).

Literature Review

While historians have studied and commented on the many miscalculations committed during the war, very little has been written on flawed economic forecasts. Here are a few examples: Lincoln’s Secretary of the Treasury anticipated that the direct cost of the war North would be $240 million. This was almost 7% of the GDP of that period. The actual cost turned out to be $3,200 million. This is calculated to be about 13 times the estimated cost. The productivity of a worker remained low for almost a century. The most historic economic analysis of all time, Economic Consequences of the Peace, could not predict the inflation in Germany that was about to happen, nor did it have any clues of the Great Depression in Britain that happened in the 1920s.
In more recent history, the cost of the Vietnam War was understated when the hostilities started. The initial estimate in 1966 understated the cost for the war by about $10 billion.
The indirect cost is more problematic to estimate. Many experts do not include civil unrest that is caused by inflation and economic instability. One of the main reasons why the war in Afghanistan has negatively affected the U.S. economy is the major effect on the federal budget. When the war started, the Bush administration failed to realize the huge sums of money that would be used in waging the conflict. White House economic advisors estimated that attacking Afghanistan would cost between $500 billion and $800 billion. It has now been proven that the experts underestimated the cost by a huge margin.
In 2002, many government bureaucrats, including Mitch Daniels (who was the head of White House budget office), said that this estimate was high (Drogin, 2002). The Bush administration’s viewpoint on Afghan war was that the war would be of short duration and inexpensive, both financially and in human costs. The administration believed that the result of the conflict would be a model of democracy that could be applied to other hotspots like the Middle East. Government officials showed an offhand attitude toward spending the war budget, as if the dollars involved were not that many. The result of this faulty evaluation is a total expenditure of 2 trillion dollars. The funding’s for Departments of Defense and Homeland Security are reported to be $696 billion. This was about 23 percent of the budget for the 2009 fiscal year. The final impact of the war on the federal budget is not yet known. This is due to the process through which the administration has disclosed its war related expenses (seeking alpha.com, 2005). The estimated monthly operating cost for The War on Terrorism is $12.3 billion. An extra $500 billion spent yearly by the Department of Defense on the invisible costs of intelligence collection and analysis. (Costofwar.com, 2011). These huge unaccounted for expenditures have had an extremely harmful impact on the budget. Many critics are of the opinion that the vast sums could have been utilized to solve various economic problems including health-care, education and infrastructure. Job creation in the form of increased industrialization and trade is also impacted. The opportunity costs of financing the war are staggering, to say the least. For instance, the budget for The War on Terrorism (which was $138 billion in 2007) could have offered 45 million Americans medical insurance, saved a great number of schools, and paid Social Security Benefits for years. Because of this, the people and the economy of the U.S. are suffering from severe economic hardships. War in Afghanistan also has a negative effect on imported crude oil prices, which is one of the largest factors behind the negative impact on the economy. Crude oil prices have gone up since the beginning of the war. The Bush government incorrectly assumed that the conflict in Afghanistan would bring stability to the region. Instead, it has fueled a conflict in the region which is a bottomless pit for the U.S. budget. The fact remains that the conflict (along with increased world demand) has resulted in the rise in price for all commodities.
Since the U.S. has spent much more than anticipated on this war it has become difficult to balance any budgets. High rates of interest cause a reduction in investments in business and consumer spending, drops in the stock markets, and the general slowing down of the economy (Myers, 1970).
Conflict in Afghanistan has added a huge burden on the national debt. The war is funded almost completely through borrowing, thus resulting in an increase in the national debt, almost since the start of the war. The Congressional Budget Office has anticipated the cost of the war until the year 2017 to be about $2 trillion. Grouped with an additional $705 billion in the payment of interest on the current spending, the total price of the War on Terrorism would touch the $3 trillion mark. Because the war is financed, the extra $3 trillion would actually worsen the already $13.5 trillion national debt that is a huge problem in its self. From an economic view, it may appear to be in the nation’s best interest to terminate this war and bring the whole situation to satisfying conclusions as quickly and as feasibly possible.

Conclusion

The American economy suffers from funding the War on Terrorism. Many facets of the economy have been affected.
We’re not going to win this war. It’s about reducing it to a manageable level of insurgency that’s not a strategic threat and can be managed by the Afghan army. Left unimpeded, the huge spending on the war will give rise to a large debt that will prove to be an unshoulderable burden for our future generations.

References

Bansal, P., (2003). Silenced Again in Kabul. New York Times .

Seekingalpha.com/article., (2010). The economic cost of the military complex.

Kaufman, M. (April, 2009). U.S. Role Shifts as Afghanistan Founders. Washington Post.

Economyincrisis.org/article,. (2011). The unwinable war in Afghanistan.

Myers, M. G. (1970). A Financial History of the United States. Columbia University Press.

Rashid, A. (2002). Taliban: MilitantIslam, Oil and Fundamentalism in Central Asia. Yale University Press.

References: Bansal, P., (2003). Silenced Again in Kabul. New York Times . Seekingalpha.com/article., (2010). The economic cost of the military complex. Kaufman, M. (April, 2009). U.S. Role Shifts as Afghanistan Founders. Washington Post. Economyincrisis.org/article,. (2011). The unwinable war in Afghanistan. Myers, M. G. (1970). A Financial History of the United States. Columbia University Press. Rashid, A. (2002). Taliban: MilitantIslam, Oil and Fundamentalism in Central Asia. Yale University Press.