War benefits to US economy only ‘modest at best’
The Navy is ordering more Tomahawk cruise missiles. Military equipment is the only category of durable goods orders that is rising.
The benefit to the economy? Modest at best, economists say.
The main reason: the US economy is much larger now than during past wars, when a surge in defence spending made a difference.
The US also entered the Iraq conflict well-stocked with hardware. Technology allows attacks from a greater distance, reducing weapon loss and the need for
replacement gear.
In short, the Iraq war isn’t spurring an expansion of the US industrial base to meet military needs.
“Today’s situation is fundamentally different,” said Murray Weidenbaum, a
former assistant Treasury secretary and former chairman of President Ronald Reagan’s Council of
Economic Advisers.
World War II, the Korean War and the Vietnam War, by contrast, “had a tremendous economic impact”, said Weidenbaum, who is now honorary chairman of the Weidenbaum Center at Washington University in
St Louis.
World War II helped pull the US out of the Great Depression. The Korean War sparked the expansion of the 1950s. The Vietnam War set off a boom that strained domestic resources and triggered a surge in prices, leading to recession. The US House and Senate has approved Bills giving President George W Bush the $62.6 billion he seeks for the war. That would be less than 1% of the
$10.5 trillion US economy.
The total US defence budget, excluding Iraq spending, is $366 billion, or about 3.5% of GDP. At the height of World War II in 1944, defence spending reached 38% of the US economy’s output. The Korean War peak was about 14% in 1953, and the Vietnam high hit 9.4% in 1966.
Just $3.7 billion of the White House’s requested budget for fighting the war would go to replenish
munitions. Most of the spending will be for things such as salaries and benefits, transportation and fuel, said Steven Kosiak, analyst for the Center for Strategic and Budgetary Assessment, a Washington research group.
In having a minimal economic impact, the Iraq war is like other post-Vietnam wars, Kosiak said. “Whether it was the 1991 Persian Gulf War or the military actions in Haiti, Somalia, Kosovo or Afghanistan, the US hasn’t needed to build very much or replace very much new equipment.”
Military hardware orders did jump 28% in February to $8.6 billion, or 5% of all orders for computers, machinery, vehicles and other items made to last at least three years, the Commerce Department said last week.
While military orders were the only durable goods showing an increase in the month, the monthly figures are volatile and don’t reflect any sustained buildup related to Iraq, economists said.
