Shouldn’t Lori Montgomery be writing for the National Review:
Last year, spending in Iraq amounted to less than 1 percent of the total economy … Total defense spending is 4 percent of gross domestic product, the figure that measures the nation’s economic output. In contrast, defense spending ate up 14 percent of GDP at the height of the Korean War and 9 percent during the Vietnam War. And this time, the war bill is going directly on the nation’s credit card. Unlike his predecessors, Bush is financing a major conflict without raising taxes or making significant cuts in domestic programs. Instead, he has cut taxes and run up the national debt. The result, economists said, is a war that has barely dented the average American’s pocketbook and caused few reverberations in the broader economy.
Mark Thoma also notes that Ms. Montgomery claims that the cost of this war did not lead to the “guns and butter” problem or higher interest rates. Mark also objects to the omission of the cost of human lives. While Mark is right to raise the human cost of this failed military adventure, but let’s stick to the macroeconomics. Three simple points:
1) Defense spending in 2006 was $621 billion according to this source. That’s 4.7% of GDP – not the 4% that Montgomery’s sources told her (I guess she thinks Karl Rove is a reliable source).
2) The rising debt does represent an increased in deferred taxes – which will dent the pocketbooks of Americans at some point.
3) Her implicit claim that interest rates have not increased since the start of the war isn’t quite true.
Now one can argue that this war began at a time when we were below full employment. But as we approached full employment, the Federal Reserve did decide to raise interest rates.