Although written about the USA, the same applies to Europe
In addition to reducing our security and jeopardizing the well-being of people around the world, his belligerence will cost us a huge amount of money. But at least he and his friends will get even richer.
Dean Baker is a Senior Economist at the Center for Economic and Policy Research (CEPR)
Cross-posted from the Common Dreams Photo: Screen Grab Our Secretary of Defense (or War) Pete Hegseth seems to be having a really great time killing people in Iran, but his live action video games come at a big cost, not just in lives, but in budget dollars. To be clear, the main reason to be opposed to this pointless war is its impact on the people of Iran and elsewhere in the region. But it also has a huge economic cost that is seriously underappreciated.
The short-term cost is the shortage of oil , natural gas, fertilizers, and other items that would ordinarily travel through the Straits of Hormuz. This shortage has already sent prices of many items soaring. The impact is not just on the goods themselves, but there is a large secondary impact due to higher shipping costs, and if fertilizer supplies are not resumed soon, higher food prices, due to lower crop yields. This is a big hit to people in wealthy countries, but it is life-threatening to people living on the edge in Sub-Saharan Africa and South Asia.
But in addition to the short-term cost, there is also a longer-term cost insofar as we are making new enemies and therefore will have higher bills for military spending long into the future. We already got the first taste of this as the Trump administration floated the idea of a $200 billion special appropriation to cover the cost of the war.
The Military Is Really Big Bucks
There is remarkably little appreciation of how much money is at stake with wars and the military. This is because the media have a deliberate policy of uninformative budget reporting. They just write huge numbers in the millions or billions, knowing they are completely meaningless to almost everyone who sees them.
Trump seems determined to raise military spending even further. He has said he wants the country to spend 5% of GDP, or $1.5 trillion a year, on the military. This comes to $12,000 per household. That’s real money.
It would be virtually costless to provide some context for these numbers, for example, expressing them as a percentage of the budget. That would take any competent reporter 10 seconds and add maybe 10 words to a news article. This would tell you that the $200 billion (2.7% of the budget) Trump wants for his Iran war is a relatively big deal, while the $550 million (0.008% of the budget) Trump saved us by defunding public broadcasting was not.
It is striking to see that Congress might be willing to quickly cough up this money when it has refused far smaller sums that could have made a huge difference in the lives of tens of millions of people. For example, the extension of the Covid-19 relief enhancement of the Earned Income Tax Credit would have cost around $40 billion (0.6% of the budget) annually. Extending the more generous Obamacare subsidies would have cost $27 billion (0.4% of the budget) annually.
And it is important to remember that these increased costs are not likely to be just a one-year expenditure. The military budget was 3.0% of GDP in 2001, before the war in Afghanistan, and projected to fall to 2.7% over the next several years. Instead, we got the Afghan War followed by the invasion of Iraq. By 2010, spending was up to 4.6% of GDP. The difference between actual and projected spending comes to almost 2.0% of GDP, or more than $600 billion annually in today’s economy.
The Peace Dividend
In contrast to the Trump administration’s efforts to seek enemies, in the 1980s and 1990s, the United States looked to diffuse tensions with the Soviet Union and saved a huge amount of money on military spending as a result. Military spending hit a post-Vietnam War peak of 6.1% of GDP in 1986. It then fell sharply as Presidents Ronald Reagan and George Bush I negotiated arms control agreements with the Soviet Union. It was down to 4.7% of GDP in fiscal 1992, when the Soviet Union collapsed. It continued to fall through the 1990s, when the United States faced no major enemies.
At that point, Russia was actually a limited ally. There were many people in the foreign policy establishment who wanted to keep it that way, looking to accommodate post-Soviet Russia in a post-Cold War world.
Instead, we took the direction of expanding NATO eastward, incorporating the former East Bloc countries into NATO, starting with Hungary. Eventually, all the former East Bloc countries were added to NATO, and then former Soviet republics such as Estonia, Latvia, and Lithuania were added. In 2008, President George W. Bush pushed for the addition of Ukraine and Georgia as well.
It is worth noting that it was not pre-ordained that NATO would be expanded eastward. NATO was formed as an anti-Soviet alliance. With the Soviet Union out of business, it was reasonable to think that NATO would be disbanded.
This was not just the dream of fringe peaceniks; many fully credentialled cold warriors also argued against expanding NATO eastward. This list includes Jack Matlock and Richard Pipes, both of whom held high-level positions under Reagan. It also included George Kennan, the godfather of the Cold War doctrine of containment. Even Henry Kissinger opposed including Ukraine in NATO.
It’s not clear whether Russia would have developed into a hostile state and potential enemy if NATO had not continued to exist and expand Eastward. We can all share our speculations on that counterfactual, but one thing that is not debatable is that having a major enemy is costly.
The Iran Nuclear Deal and Trump’s War
President Barack Obama negotiated an agreement to restrain Iran from developing nuclear weapons in 2015. While there were issued raised with the monitoring of the deal, rather than trying to work through these problems, Trump withdrew from the deal in 2018. That decision, along with President Joe Biden’s failure to restore the agreement, created the conditions under which a second Trump administration could be pushed by Israeli President Benjamin Netanyahu into this war. The war has already proved incredibly costly for the country and the world, and the costs could well go far higher.
But apart from this war, Trump seems determined to raise military spending even further. He has said he wants the country to spend 5% of GDP, or $1.5 trillion a year, on the military. This comes to $12,000 per household. That’s real money.
That is a lot of money to spend for no obvious reason. It means less money for healthcare , childcare, education, and many other items that people care about.
If the point is to put taxpayer dollars into the pockets of his family and friends, it can work out just fine. Until there is evidence otherwise, we should assume this is Trump’s real agenda for his big military budget.
The question people should be asking is who is this spending supposed to defend us against? Perhaps Trump has Russia in mind, but he is supposed to be good buddies with its President Vladimir Putin . Besides, Russia’s GDP is less than a quarter the size of the US economy. Do we really need to spend an amount that is more than 20% of Russia’s GDP to protect us against them? Can our military be that inefficient and corrupt?
Maybe Trump is thinking of China. That would be a problem, since China’s economy is already one-third larger than ours and growing far more rapidly. If Trump’s plan is to have a New Cold War with China, that is one we are likely to lose, especially since he just told all our allies to go to hell.
As with the Iran War, Trump’s push towards a newly militarized economy does not seem well-considered. Or at least it doesn’t seem well-considered as a defense strategy. If the point is to put taxpayer dollars into the pockets of his family and friends, it can work out just fine. Until there is evidence otherwise, we should assume this is Trump’s real agenda for his big military budget.
In addition to reducing our security and jeopardizing the well-being of people around the world, Donald Trump’s belligerence will cost us a huge amount of money. But at least his family and friends will get even richer. Who knows, maybe he will even get the Nobel Peace Prize this year.
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