The opportunity cost of war

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.

37 thoughts on “The opportunity cost of war

  1. @jrkrideau

    I suppose J.Q.’s point is that people almost never do a cost-benefit analysis of the war decision. If they did then wars would almost never happen. Jim Birch also made a good point IMO : “Violent defense against perceived threats is a basic biological impulse/strategy.” We can put that together with another observation we can make about ourselves and others. When we get angry (or frightened) we stop thinking.

    Many war decisions, like other aggression decisions, are not well thought out. They are based on anger or fear. The interesting question to me is why thoughtless anger and thoughtless fear still exist in potentially thoughtful human beings? We can imagine that fear and anger are useful and understandable in the evolutionary sense for the very reasons that they motivate fight or flight and that most animals don’t reason very much. If there is little reasoning to be scrambled by anger and fear reactions then there is no real loss of reasoning but a big gain in fight or flight response.

    Humans are a bit different. We are able to reason and think logically much more than other animals so fear and anger come at a greater cost. They scramble our reasoning which is usually our best way of dealing with problems. A big question might be are our powerful fear and anger responses a hold-over from our primitive development (and thus maybe likely to be selected against in time if we remain civilized) or do they still confer significant survival advantage?

    Some thinkers hold that intelligence is maladaptive and this is proved by our current (claimed) likelihood of sending ourselves extinct by nuclear war or climate change for example. Perhaps more to the point, the danger of interim maladaption might arise from a point in evolution where intelligence (which creates great technological power) is still combined with primitive, uncontrolled fear and anger responses. It’s the combination of the intelligent and atavistic natures which create the danger.

    The prognosis is not good in a sense. We are not going to biologically “solve” this problem of our nature anytime soon. It would take a long time to evolve beyond it. Just as science supplements our weak senses with new instruments to gather new data and standard methods to investigate matters scientifically, so more social, political and economic progress is needed to provide new methods to rein in and moderate our fears and angers so we can make more of the more rational decisions. Cultures which very literally worship and institutionalize violent solutions, from the USA to ISIS in Syria, look unlikely to make any progress in this direction any time soon.

  2. Doesn’t the notion of opportunity cost for war presuppose freedom of choice? It seems that the world has had recent wars that were not, to put it mildly, wars of national survival,but were most of history’s wars amenable to choice? Even the notion of rational choice seems circumscribed by the zeitgeist, or perhaps the ordinary citizen hasn’t had effective access to the levers of power.
    In recent times, I’ve read convincing arguments for and against remembrance, and that Britain should have chosen not to participate in WW1. Would there then have been no WW2?…harder to categorize that as a war of choice unless as a direct consequence of WW1. As for class solidarity against war, wasn’t that trumped by nationalism?

    There are also some current assessments of war that are counter-intuitive.
    http://www.theguardian.com/books/2014/apr/20/war-what-is-it-good-for-ian-morris

    BTW, I’ve just read the superb book Poilu.. the translated WW1 journals of Louis Barthas…surely a classic. In vain have I searched for an equivalent book from an Australian pov that is as well observed and written.

  3. @Ross Martin

    At least in my lifetime, the vast majority of wars have been wars of choice on both sides, in the sense that either side could have settled for a better outcome than they got in the end.

    More generally, in thinking about war, it’s unwise to take WWII as a starting point. It was, as you imply, the Great War that brought genocidal madmen like Hitler and (more genocidal, but less mad) Stalin to power. It’s true that, by 1939, there was no alternative but to fight.

  4. @jrkrideau

    I just posted on WWII.

    As regards Al Qaeda and ISIS, I think your argument is almost self-refuting. If it wasn’t for the use of AQ as a pretext to invade Iraq, ISIS would not exist. And, for that matter, if Gulf War I had been avoided, there would be no AQ (bin Laden’s initial grievance was the basing of US troops in Saudi Arabia).

  5. @Ikonoclast

    Some thinkers hold that intelligence is maladaptive and this is proved by our current (claimed) likelihood of sending ourselves extinct by nuclear war or climate change for example. Perhaps more to the point, the danger of interim maladaption might arise from a point in evolution where intelligence (which creates great technological power) is still combined with primitive, uncontrolled fear and anger responses. It’s the combination of the intelligent and atavistic natures which create the danger.

    That combination, I suspect, is also the source of all great art. Such is the tragedy of the human condition.

  6. @Ikonoclast

    I suspect anger and fear were the major motivators for the wars of prehistory, but in historical times, although anger and fear continued to play a part, I think the major motivation for war was lust for glory, booty, and other related forms of self-aggrandisement. That’s what drove, for example, Alexander, Caesar, Attila, Charlemagne, Alp Arslan, Genghis Khan, Tamerlane, Suleiman the Magnificent, Gustavus Adolphus, Frederick the Great, and Napoleon.

  7. @John Quiggin

    I’ve just been looking at Wikipedia’s list of recent wars, by date. Many of them I’ve never heard of before and so can’t say anything about. It does make me wonder, though, which ones you had in mind when you gave the description ‘wars of choice on both sides, in the sense that either side could have settled for a better outcome than they got in the end’. I expect that’s true of some wars, but which ones, how many?

  8. @J-D
    It’s a good question, especially with respect to wars in Africa in modern times. The motivations and/or necessity of some of those wars is opaque to outsiders, though less so now than a couple of generations ago. Whether some wars are bullying for property or power, or something else altogether, I couldn’t say.

    For wars in which Australia has been involved through troop and/or logistical support, I’d say virtually all of those wars were wars of choice (by us) for the purposes of keeping good with USA leaders, or with the UK, or both. If we’d had any brains at all, we would have taken a raincheck on the second Iraq War, and perhaps even argued forcefully against the coalition of the willing, rather than knee-jerk support with embarrassing enthusiasm. It took a country that was hostile towards al Quaeda, and eviscerated its command structures so completely, it became a proving ground for that terrorist mob. Not to mention the utter carnage and destruction wrought.

  9. @Donald Oats

    John Quiggin referred to ‘wars of choice on both sides’: it’s easy to see how the second Iraq war can be read as a war of choice for one side, but it’s less clear how it was a war of choice for the Iraqis.

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