Is the Iraq war a relative bargain?

updated 6:04 p.m. ET March 18, 2007

NEW YORK - After four years, America’s cost for the war in Iraq has reached nearly $500 billion — more than the total for the Korean War and nearly as much as 12 years in Vietnam, adjusting for inflation. The ultimate cost could reach $1 trillion or more.

A lot of money? No question.

But even though the war has turned out to be much more expensive than Bush administration officials predicted on the eve of the March 2003 invasion, it is relatively affordable — at least in historical terms.

Iraq eats up less than 1 percent of the nation’s gross domestic product, compared with as much as 14 percent for Vietnam and 9 percent for Korea.

“I think it’s hard to argue it’s not affordable,” said Steven M. Kosiak, director of budget studies at the Center for Strategic and Budgetary Assessments, a defense think tank in Washington, D.C.

The problem, he and other budget analysts argue, isn’t so much the overall cost of the Iraq war. It’s the way the government has chosen to pay for it.

Unusual payment method
For one thing, war funding for both Iraq and Afghanistan has come in the form of supplemental appropriations outside the normal federal budget process. Typically these “supplementals” are used to pay for unexpected emergencies such as Hurricane Katrina, and they receive much less scrutiny from Congress.

President Truman quit asking for supplementals after the first year of the Korean War. The Vietnam War started appearing in the federal budget beginning in 1966, the year after regular troops were committed.

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But after four years the Iraq war is still being funded with supplementals. In December, congressional budget leaders from both parties sent a letter to President Bush asking him to start paying for Iraq through the traditional budget process. The administration has done that in its 2008 budget year request — but not before asking for another $100 billion supplemental to keep the war going through the end of this year.

And during previous wars, presidents have asked Americans to make tough sacrifices in order to help pay for the war effort, said Robert Hormats, a managing director at Goldman Sachs and author of the forthcoming book “The Price of Liberty: Paying for America’s Wars.”

Paying on credit
Virtually every war in U.S. history has required the government to borrow at least some money, Hormats said. But Franklin D. Roosevelt also eliminated some New Deal programs and cut others to help pay for World War II (the most expensive of American wars, it cost more than $2 trillion in inflation-adjusted dollars). Truman raised taxes and slashed domestic spending to help pay for Korea.

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“No such thing has occurred” during this war, Hormats lamented this month during a panel discussion held at the New School’s Schwartz Center for Economic Policy Analysis in New York City. “This war we had no reassessment of fiscal policy, no alteration of fiscal policy to make room in the budget to pay for the war.”

Instead, the war is being paid for with debt.

Administration officials downplay the war’s cost and the growing defense budget, which will be larger by the end of this year than at any time since World War II.

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