The Iraq and Afghanistan wars have contributed to significant economic setbacks in the United States, through lost opportunities for investment in public infrastructure and services and higher borrowing rates. Contrary to the widespread belief that war is a particularly effective way to create jobs, U.S. federal spending on the current wars would have led to at least 1.4 million more jobs had the money been invested instead in education, health care or green energy.
Similarly, the hundreds of billions of dollars invested in military assets such as ships and aircraft during the first decade of the wars would have led to larger capital improvements had these dollars instead been invested in core public economic infrastructure, such as roads and water systems.
The wars have also impacted interest rates charged to borrowers by banks and other creditors. This is the result of war spending financed entirely by debt, which has contributed to a higher ratio of national debt to Gross Domestic Product (GDP) and subsequent rising long-term interest rates.
Each of these issues can be counted as a significant cost of the post-9/11 wars.
Since late 2001, the United States has appropriated and is obligated to spend an estimated $8 trillion through Fiscal Year 2022 in budgetary costs related to and caused by the post-9/11 wars an estimated $5.8 trillion in appropriations in current dollars and an additional minimum of $2.2 trillion for U.S. obligations to care for the veterans of these wars through the next several decades.
Of the $8 trillion total, about $2.3 trillion have been spent on what used to be called the “Global War on Terror” and is now referred to as “Overseas Contingency Operations.” Over $1 trillion has been spent on interest payments to pay for the post-9/11 wars, since these have been funded entirely through debt. The base budget of the Pentagon has increased by about $900 billion above what it would have been in the absence of war; Homeland Security spending on preventing and countering terrorism has totaled over $1.1 trillion since the inception of the Department of Homeland Security in 2002; and current and future costs for veterans has added nearly $2.2 trillion to the costs of war and that figure will continue to grow.
An important macroeconomic impact of federal spending on the Iraq and Afghanistan wars has been to raise the nation’s indebtedness. The increased military spending following 9/11 was financed almost entirely by borrowing. Rising deficits have resulted in higher debt, a higher debt-to-GDP ratio and higher interest rates.
Since the post-9/11 wars have been funded almost entirely by debt, and the U.S. public debt continues to grow, the costs of interest payments continue to accumulate. Even as the wars cease, interest will continue to accumulate and will reach several trillions of dollars over the next several decades. The effect of rising debt and growing interest payments is not only the increase in interest rates, which affects both the public and private sectors, but also constrains future spending decisions. The Congressional Budget Office estimates that net interest payments are currently about 1.4 percent of the GDP and are expected to rise to 2.4 percent by 2031 and 8.6 percent by 2051. As interest payments account for a greater share of the federal budget, opportunities to spend federal dollars on productive investments clean energy, infrastructure, education, and so on are constrained. Rising debt and interest costs also contribute to generational inequality, as they are burdens passed along to future taxpayers.
The costs of the post-9/11 wars, as well as the increase in payments to military contractors, have both increased federal spending on defense. Defense spending accounts for more than half of all discretionary spending; the total is closer to 2/3 once the Department of Homeland Security and Veterans Affairs are included. And of defense spending, more than one half is channeled to contractors. Costs of War analysis finds that this raises costs, rather than reducing them, as contractors often have monopoly-like conditions or contract specifications that minimize cost savings and increase profits at the taxpayers’ expense.
Over one half of the federal government’s total assets buildings, aircraft, ships, vehicles, computers, and weapons are used for national defense. In 2000, the Pentagon’s total assets were valued at $1.1 trillion. Total Pentagon assets have steadily risen since then, amounting to $1.8 trillion in 2019.
Public investment in non-military assets all the public buildings, roads, mass transit systems, water and sewer systems, public utilities, recreation facilities and so on has held steady since the mid-1970s, but at about half the rate of accumulation of the 1950s and 1960s.
Investments in core infrastructure have a direct impact on the performance of the private economy. The private sector benefits from public investments in roads, water systems and other goods. Such benefits are in addition to the direct benefits that public investment confers to the population: roads help people get around and improve the efficiency of businesses.
While the private economy benefits from military spending on durable, physical assets (defense contractors being an obvious example), there are no “spill-over effects” in terms of the long-run productivity of the rest of the private sector.
In addition to productivity losses, over-investment in military assets has other opportunity costs, including lost environmental and employment opportunities. Federal funds could instead be channeled to green investments, including green manufacturing and upgrades of the electrical grid and other energy systems, which would create more jobs while lowering energy use and emissions.