What is true of natural disasters is even more true of the disasters we inflict on ourselves and others. Of these human-made calamities, the greatest is war. The wars engaged in by the US, Australian and other governments come at the opportunity cost of domestic programs that could save thousands of lives every year. The cost of war, in terms of American (and Australian) lives, is many times greater than battlefield casualty counts would suggest.
That’s the theme of this extract from my book-in-progress, Economics in Two Lessons. You can find a draft of the opening sections here.
Dwight Eisenhower, Supreme Commander of the Allied Forces in Europe during World War II was arguably America’s greatest military commander, and served as President of the United States at the height of the Cold War with the Soviet Union. It is striking, then, that more than any US political leader before or since, Eisenhower showed an acute understanding of the limitations of military power and of the economic costs of military expenditure. He is, perhaps, best remembered for warning of the dangers of the ‘military-industrial complex’ as a standing lobby for armaments spending.
Even more penetrating was his observation that
Every gun that is made, every warship launched, every rocket fired, signifies in the final sense a theft from those who hunger and are not fed, those who are cold and are not clothed
The logic of opportunity cost has rarely been put more simply or sharply, particularly as it applies to military expenditure.
Nearly 50 years after Eisenhower’s death, the lesson he stated so simply and forcefully has not been learned. Every crisis in the world brings forward a call for military intervention, often from people who regard ‘foreign aid’ as a proven failure.
The failure rate for these interventions is far higher than for ordinary foreign aid projects. Of the major US military interventions in the past 20 years (Kosovo, Somalia, Gulf War I, Afghanistan, Gulf War II, Libya and Iraq/Syria) only Kosovo could be regarded as a success, and even there the outcome is a bitterly divided between two hostile communities, kept apart by armed peacekeepers.
But even when military action works as planned, it is hard to justify in terms of opportunity cost. The total figures are staggering. The Afghan and Iraq wars between them are estimated to have cost the US between $4 trillion and $6 trillion dollars in wartime expenditures and future medical bills for veterans (Bilmes). That’s ten times the total amount of aid received by the whole of Africa since 1945, an amount regularly cited to show the futility of foreign aid.
Rather than attempt to apply opportunity cost calculations to such stupendous numbers, let’s look at the opportunity cost of maintaining a single additional soldier in Afghanistan. The direct cost has been estimated at $2.1 million per soldier per year. Support costs and the need to provide for future medical care would almost certainly double this.
We could look at the opportunity cost in terms of alternative ways of providing aid to Afghanistan. The US development agency USAid provides around $70 million a year in aid to Afghanistan, a sum which is claimed to enable one million additional children to enrol in school.
Obviously there is plenty of room for more expenditure of this kind, in Afghanistan or elsewhere. So, the opportunity cost of keeping 35 soldiers in the field is school education for a million young people.
Most advocates of the war, faced with this kind of calculation would say that the object of the war is not (primarily) to promote the welfare of Afghans but to protect Americans from the threat of terrorist attack. It might seem to be impossible to place a monetary value on such protection. However, it is at least possible to identify the opportunity cost, and the US government does so explicitly. As we will see later, US government interventions aimed at protecting Americans from threats to their life and safety are typically approved only if the cost per life saved is less than the ‘Value of Statistical Life’ for the agency concerned.
In particular, this procedure applies to policies aimed at protecting Americans from terror attacks within the United States. In a September 2007 Department of Homeland Security proposal to expand air travel security, the U.S. Customs and Border Patrol estimated life-saving benefits using two separate life values: $3 million and $6 million.
However, no such analysis is applied to overseas military action. Nevertheless, the logic of opportunity cost applies, whether or not it is taken into account by planners. Each additional soldier deployed in Afghanistan comes at the cost of the alternative use that could be made of the required funding. Taking the high end $6 million VSL range for the Department of Homeland Security the opportunity cost of the $6.3 million spent to deploy three additional soldiers is the funding of a domestic security program that would save one American life per year.
If the casualty rate for soldiers in the field were anything like one in three, the war would have ended long ago. Yet the same cost in lives, in the form of foregone opportunities to protect Americans at home, has been accepted with bipartisan support, because it is invisible, unless viewed through the lens of opportunity cost.
Bastiat’s contrast between “that which is seen” and “that which is not seen” has never been more apposite.