The Economic Impact of the Iraq War and Higher Military Spending

Contributing Organization(s): Center for Economic and Policy Research

Author(s)/Creator(s): Dean Baker

Publishing Date: 2007-05-01

Issue Areas: Economic Development; Employment and Labor; Peace and Conflict Resolution

Ownership/Rights Info: Please consult the copyright holder before using or repurposing this information.

In order to get an approximation of the economic impact of the increase in U.S. military spending associated with the wars in Iraq and Afghanistan, CEPR commissioned the economic forecasting company Global Insight to run a simulation with its macroeconomic model. It produced a simulation of the impact of an increase in annual U.S. military spending equal to 1 percent of GDP, approximately the actual increase in spending compared with the pre-war budget. Global Insight's simulation shows higher military spending raises interest rates, which reduces net exports, housing construction and car sales, thereby slowing the economy and job creation.

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The effects of Iraq War on the economy
Posted by: robgregory on Wed, 11 Jun 08 23:30:13 +0000

I enjoy reading Dean Baker's excellent analysis of economic issues. He tends to put important myths to rest, and the research here on the relationship between the US economy and the Iraq War is no exception. The data here is more than sufficient in helping the reader understand that war does not truly benefit the economy. Over time it does not, at least. It may stimulate the economy at first, but eventually the war economy is wasteful simply put. For example, the production of cluster bombs, leaving out all moral considerations, which are bad enough, do not have long term economic benefits. Putting money into hybrid cars, on the other hand, does have a recycling effect, since it can be resold. It has additional positive effects, i.e. consumers are more willing to leave their homes and spend money, etc. Spending money on war, and funding the war largely through debt, lacks the long-term benefits made possible with more peaceful endeavors.

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