October 26, 2004
STICKER SHOCK The article I linked below contains some cost comparisons:
Yale University economist William D. Nordhaus estimated that in inflation-adjusted terms, World War I cost just under $200 billion for the United States. The Vietnam War cost about $500 billion from 1964 to 1972, Nordhaus said. The cost of the Iraq war could reach nearly half that number by next fall, 2 1/2 years after it began.
How could that be? World War I and Vietnam were both much, much larger efforts than the current conflict, so how come this one costs so much? The answer is that we're substituting capital for labor: we use a lot more equipment, and a lot fewer men. Since destroyed equipment is a lot easier to replace than destroyed people, it's a price I'm very glad to pay.
Update A reader emails the following:
Sorry, but your theory isn't the answer. It's much simpler: Nordhaus isn't being straight with the American people. The missing element is that the American economy is much larger today than it was in 1918. Inflation doesn't account for real economic growth. That's why it's real economic growth. Working backwards, $200 billion in 2003 dollars is $20.4 billion in 1918 dollars. But the GDP in 1918 in 1918 dollars was $69.35 billion. That means the cost of WWI was over 29% of GDP at the time, spread out over only about 18 months. By comparison, the cost of the Iraq war will be less than 3% of GDP. We budget about 3.5% a year on defense. The cost of the Iraq war, then, spread out over three years, represents about a 30% excess per year over peacetime spending. That seems trifling in comparion, doesn't it?
I agree that in GDP terms, the cost of the current war looks trivial compared to earlier wars. But absolute figures matter too, and it's striking that our ancestors managed to fight much larger conflicts--there were over 2 million men in the American Expeditionary Force that was sent to fight World War I--with so little money.
The reason they could is that back then, life was cheaper, so they used more of it, and less of everything else. The typical soldier's kit of World War I would hardly do the modern military man for an overnight camping trip with his buddies.