MacroScope

Guns and butter

 

Long mum on the link between the U.S. wars in Afghanistan and Iraq and the country’s economic distress, mainstream economists have started connecting the dots — and it doesn’t make for a pretty picture. A Brown University study published in June found the total cost of the two conflicts to be on the order of $4 trillion, nearly 30 percent of U.S. GDP and enough money to employ 8 million Americans at $50,000 a year for 10 years.

Now Harvard’s Kennedy School is publishing its own series on the issue. In a piece discussing the 10 years that have elapsed since the attacks of September 11, 2001, Professor Linda Blimes flags America’s response to the events of that day as a “major contributor” to all of the economic weakness that has plagued the country over the last decade.

The most economically costly decision post 9/11 was not whether to attack Iraq and Afghanistan, but how to pay for the ensuing conflicts and the related increases in defense and homeland security. War costs always linger well after the last shot has been fired.  But this is especially true of the Iraq-Afghanistan conflicts.  The $1.6 trillion or so lready spent has been financed wholly through borrowing.  Add to this a further $800 billion in defense increases that are not directly war-related and hundreds of billions in new homeland security measures. The resulting debt accounts for well over one-quarter of the increase in U.S. national debt since 2001.

Just as subprime assets held in “special investment vehicles” came back to haunt major financial institutions, U.S. military spending is suddenly being “marked to market” by the nation’s top economic thinkers. Predictably, it is taxpayers who are left foot the bill.

from Global Investing:

Top Gun economics

It's not often that economists turn their attention to military hardware, but Deutsche Bank has done just that in its latest world outlook. The subject is aircraft carriers and what it sees as the strange desire among a number of countries to build them.

Russia has suggested it may build up to six carriers, DB notes, while China plans one and Britain and France three between them. Like the true economists they are, DB first questions the need, saying such boats are vulnerable, make no sense for coastal defence and are for projecting offensive power over long distances. Then comes the cost:
  

"To build a serious aircraft carrier costs well above $5 billion. But then you need to build half a dozen escort vessels and the aircraft to produce a battle unit that will require upwards of 10,000 sailors. Since it is for distant power projection, to keep a single aircraft carrier group on constant deployment requires at least two and more likely three groups."