The Costs and Dividends of Keeping Peace

As the crisis deepens and we look to be tied down in the Persian Gulf for more than a few weeks, it’s time to start calculating the cost to the American taxpayers--and to ask what they’re getting for their money.

The answer is that the cost may be less than gloomy predictions are saying, and the payoff will be in more than oil. The great multinational military expedition against Iraq may involve what the experts call “oil geopolitics.” But lots of other things are involved, too: the balance of power in the Middle East, the safety of countries in the region, the world economy and world leadership.

Beside such grand purposes, the immediate cost estimates seem small. Defense Department and military analysts say the Gulf buildup will cost $6 billion to perhaps $12 billion a year, which is not such a big number in a $300-billion defense budget.

The larger costs have been paid: The tens of billions of dollars worth of ships and planes in the Persian Gulf, and the sophisticated radar and firepower, are all part of the $8 trillion (in current dollars) that the United States has spent over four decades to “maintain peace and stability in the world,” says Lawrence Korb, former assistant secretary of defense and now a scholar at the Brookings Institution.

To be sure, a shooting war could destroy a lot of that equipment and be extremely expensive. And even without shooting, the Gulf expedition will diminish the peace dividend from the end of the Cold War.

But predictions that it will throw the U.S. economy into recession could be off the mark.

“Guns come at the expense of butter--provided you have the butter,” remarks Albert Wojnilower, senior economist of First Boston Corp. He means that if the economy is already running in high gear, with no spare capacity, the extra cost of a military venture comes at the expense of the civilian economy. But if the civilian economy is sluggish, as is the case today, a military buildup can provide acceleration.

So in the short term, neither cash outlays for the Gulf nor its economic effects look that bad.

Longer term, the surprising prediction is that U.S. forces will be in the Gulf for years. For even if Saddam Hussein is killed or removed from power, Middle East experts say, Iraq’s military power will continue to dominate the oil-rich countries of the Gulf. So Korb and others predict that the United States will keep a military presence to maintain stability--as it did for decades in West Germany and South Korea.

Behind such predictions is the fact that the stakes in the Middle East go far beyond oil. To be sure, maintaining a stable flow of oil, the biggest energy source for the world’s economies, is important. But ownership of the oil hasn’t mattered much in traditional military thinking. Remarking years ago on Saudi Arabia’s vulnerability to attack, a U.S. Army officer at the Pentagon put it this way: “‘The only reason someone seizes an oil field is to pump oil and sell it to get money. Well, we’re a customer for oil.”

But when Saddam Hussein seized Kuwait, the U.S. response was not so casual. Why? One reason was that Hussein threatened also to take Saudi Arabia and thus a monopolist’s control of 25% of the world’s current oil production and more than half the world’s reserves.

There were more important reasons as well. “We didn’t want the Iraqis to get too rich,” says William Niskanen, a member of the council of economic advisers in the Reagan Administration and now chairman of Washington’s Cato Institute. He means that the United States didn’t want Hussein to grow in power and to pursue his intent to build nuclear weapons. A nuclear Iraq would have threatened Israel, which is acknowledged to have nuclear weapons, and a nuclear war could have begun.

So the United States as world leader led a military expedition to preserve the peace. “It’s for the public good,” says Niskanen, because Hussein’s violation of the principle of national sovereignty threatened many nations.

Which is noble, but brings us back to the question: How much does world leadership cost U.S. taxpayers and what do they get for their money? The direct cash cost might be the $300-billion U.S. defense budget. The payoff is in a relatively peaceful world in which many economies can raise their living standards and the world’s largest economy can enjoy the highest living standard of all.

Other nations share the payoff; do they also share the cost? Yes and no. In the past decade, foreign buying of U.S. government bonds, which helped fund the federal deficit, was said to allow Americans to “live beyond their means.” But those foreign investors got a cash return on their money and, as their investment financed the U.S. military buildup that now protects the Persian Gulf, they got a payoff in security as well.

The point is that after the present Iraqi crisis is over, the United States may have 50,000 troops stationed long term in Saudi Arabia to maintain stability in the region. Paying for those troops should be the oil-rich states of the Middle East (it would take $7 billion a year to quarter 50,000 troops, according to Pentagon calculations in the current crisis), as Germany and Japan have helped pay for the stationing of U.S. troops since World War II.

That way U.S. taxpayers can have financial partners as well as military allies in defense of world peace.