Economic Impact of the War in Iraq

Angela Copeland

Sarah Todnem

Mike Bennett

Causes of the War

• The obvious: – Terrorism– Human Rights Violations

• The not-so-obvious: – Economics

Effects of the War:

• GDP and Unemployment Rate

• Short-run v. Long-run Economic Impact

• Findings and Conclusions

Total Cost Estimates:

• Government Predictions:– Short-term War: $60 – 90 B– Long-term War: $600 B

• Economists Predictions:– Short-term War: $100 – 200 B– Long-term War: $2,000 B

Costs of the War In Iraq

Cost Element Deployment

First Month

Each Add’l Month Occupation

Personnel $ 4.3 $ 1.4 $ 1.4 NA

Operations Support

$ 5.4 $ 7.1 $ 5.4 NA

Transportation $ 2.8 $ .7 $ .7 NA

Total $ 12.5 $ 9.2 $ 7.5 $1.4 – 3.8

• Component Costs of the War:» Costs shown are in Billions 2002 Dollars

U.S. Wars:

• Costs of wars throughout U.S. History:» Costs shown are in 2002 Dollars

War Conflict Costs

(Billions)

Per Capita Cost

Costs as a % of GDP

Revolutionary War $2.2 $447 63

Civil War $62.0 $1,686 104

World War I $190.6 $2,489 24

World War II $2,896.3 $20,388 130

Vietnam $494.3 $2,204 12

First Gulf War $76.1 $306 1

War in Iraq: Facts

• U.S. Gov’t spends $10 – 15M per hour for a bomber run

• Tomahawk Missiles cost $1M each

• $3M per day for deployment of an aircraft carrier

• $21K to convert gravity bombs to satellite guided bombs

Short-run Effects of War

• Short-run GDP: – General increase in GDP due to government

spending (25% increase over the year)

– However, economic well-being is falsely inflated

– Government gets funds by:• Raising taxes• Decrease spending in other areas• Increasing the debt

Government Spending

Short-run Effects of War

• Short-run Unemployment Rates:

– Increase in number of jobs available

– Increase in number of people in labor force

– Unemployment decreases

Long-run Effects of War

• Long-run GDP:

– GDP could be up to 2% below baseline for 2005 – 2009

• Large budget deficit Inflation

• Higher taxes Consumption decreases

• Borrowed money & tax revenues go

overseas Domestic spending drops

• Trade is more difficult Decreased net exports

Long-term Effects of War

• Long-run GDP:– Increased oil supply

– Stability and Economic growth in the Middle East

Oil Supply

Long-run Effects of War

• Long-run Unemployment Rates:– Unemployment will rise to a normal level as

government spending decreases– GDP losses due to lack of consumption

Diminished production Unemployment

Conclusions

• Example: The Broken Window Fallacy

• The Myth: War helps the Economy

• Conclusion: Mixed results!