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Will American Economy Benefit From The War Against Terrorism?

Introduction

After the collision of twin towers in New York, the United States has been raising a global war against terrorism. Even a successful defeat of the Taliban Omar and the pacification of Iraq, the public are still focusing on the big problem the economy. An ABCNEWS/Money magazine poll conducted in April this year found that 76 percent of Americans saying the national economy was in bad shape, the most since December 1 (Langer, 00).

Purpose of this paper is to discus the effect of American economy by the war. Economy is now suffering from depression after the blooming decade of the 10s. This paper is trying to answer will the economy benefit or suffer by the war against terrorism through the following aspects.

Research

1. Progress of the war

U.S. and the coalition won the war in Afghanistan and Iraq after the September 11. It is clear that the coalition can win in Afghanistan and Iraq in one way or another, but it will be a long slog. The question is how the United States tell if it win the war on terrorism. There is no way to forecast how long the war is likely to last, or what forms the fighting may take in the future.

Terrorists' camps in Afghanistan have already been destroyed by the coalition bomber. U.S. troops are still making slow progress tracking down the Taliban Omar, Hekmatyar, etc. Saddam Husion's region has been overthrown by the military action against Iraq. U.S. government has made reasonable progress in capturing or killing the top 55 Iraqis. Saddam Husion is till hiding somewhere in this planet. Black Hawk was knocked down by RPG again last week, not in Somali this time, but in this hostile country where U.S. casualties are increasing every week. With respect to the Ansar-Islam, American is just getting started.

Summing up the record since the September 11, 001 attacks on the United States, US Defense Secretary Donald Rumsfeld addressed that grelatively little effort has gone into developing a long range plan to stop the next generation of terrorists even though great efforts are being made to stop terroristsh (Rumsfeld, 00).

. Cost of the War

American still can not see the end of this war. The cost-benefit ratio is against the United Sates. The cost against the terrorists is billions against the terrorists' cost of millions, which is still escalating.

Estimate of the war is a blow. International Horizons Unlimited (IHU) projects that the United States will divert a total of more than $470 billion to combat terrorists in 00 and 004 (Bailey, 00). By the end of this year, IHU projects that the United States will have spent nearly $74 billion in its war efforts in Iraq alone. That does not include an additional $7. billion IHU says will be spent to reconstruct Iraq and another $00 million to reconstruct Afghanistan this year (Bailey, 00).

According to IHU, there will be another $48 billion spent to upgrade airport security and some $50 billion to upgrade U.S. power grids. American has real problems with infrastructure. Furthermore, ports are a sieve, borders remain a series of holes and airport security is still weak. With the second anniversary of the attack, the federal government is heading toward a record $480 billion deficit in 004 (Bailey, 00).

. Economy status

Two years into the war on terrorism, hopes that the struggle would be only a brief drag on the economy are fading. Businesses and consumers are facing a growing list of security-related burdens. The federal deficit is ballooning from increased military spending and Americans are jittery about the future. We have reasons believe that the first decade of the 1st century could well be a mirror-opposite of the 10s.

According to a CBS news poll conducted in 00, % American think economy/job is the most important problem face this country comparing with 16% respond on terrorism. 61% responded that Gorge W. Bush should be paying more intention to economy (Concerns at Home The economy & Terrorism, 00).

Investments on business in the last decade helped spur a record-long 10 years of economic expansion and a surge in productivity. But now, Congress is debating President Bushs request for an additional $ 87 billion for the Iraq occupation, and soaring spending on defense and homeland security has brought back the era of massive budget deficits (Crutsinger, 00).

If you add everything up, a significant weight has been placed on the economy, said Mark Zandi, chief economist at Economy.com. Going forward, we are just not going to see the kind of investment and productivity growth we would have had because we are devoting so much more to defense and homeland security (Crutsinger, 00).

The increased government borrowing will definitely drive up interest rates not only for consumers trying to buy new homes and cars but also for businesses. That will make it more expensive for companies to get the money they need to expand and modernize, the kind of investment that boosts productivity.

U.S. manufacturing is already in a deep slump with .7 million job lost over the last three years according to a statistic on U.S.A. Today. Tourism, already hard hit since the /11 attacks, is losing business to other countries because foreigners must wait so long to obtain travel visas. The increased emphasis on security has also created new problems for businesses. American companies are having trouble obtaining visas to get customers into the country to inspect everything from jet airliners to machine tools. Chip Storie, a vice president at Cincinnati Machine, said one of the companys top Chinese customers is now considering switching to a Japanese or European competitor because it took six months to get the visas needed to travel to Cincinnati to inspect a $ 5 million machine tool purchase (Crutsinger, 00).

4. Economy prospect

There are two different points of view on the economy prospect in the war against terrorism. Many analysts believe U.S. economy will suffers from this war, while some argue that the war on terrorism will help America get out of a recession. The following is the analysis of these two kinds of theories.

¡ Theory 1 The war will boost the economy

Robert J. Barro concludes in Business Week that the current war will be expansionary and will, therefore, help the U.S. economy recover from its current slowdown.

In his article Why the War against Terror Will Boost the Economy, Barro analysises that if we consider World War II, Korea, and Vietnam, we have examples of large, medium, and small wars. In World War II, peak military spending in 144 was 60% to 70% of prewar gross domestic product. During the Korean War, spending peaked at around 11% of GDP in 15, and during the Vietnam War, it peaked at about % of GDP in 168. The evidence is that economic activity expanded during each war but by less than the amount of wartime spending. Barro estimates that each $1 worth of military outlays led to a 60 cents-to-70 cents increase in GDP. To put it another way, while military spending raised output, there was no free lunch. The spending had to be paid for by decreases in other forms of spending, especially business investment.

Given the insecurity of the post-September 11 world, Barro expects a long-lasting increase in defense spending. If the U.S. responds as it did during the Reagan Administrations defense buildup of the early 180s, defense spending would rise another 1% to 1 1/% of GDP over a one- to two-year period (Barro, 001). Thus, the overall spending stimulus from the war on terror will likely be similar to the extra % of GDP that was expended at the peak of the Vietnam War. Using the kind of economic response mentioned before, where GDP rose by 60 cents to 70 cents for each dollar of military outlay, this stimulus is likely to help the economy avoid a recession in 00 (Barro, 001).

¡ Theory . U.S. economy will suffer from this war

Many economists believe that economy does not benefit from war. In fact it suffers from it. Sometimes putting an economy on a war footing can have positive results, because people become more public spirited and work harder. Andrew Oswald, professor of economics at Warwick University, says most of the recent evidence has shown, however that the localized conflicts and periods of heightened military tension since 145 have been anything but good for western economies, with any short-term benefits from higher defense spending outweighed by dearer energy, higher inflation and lower consumer confidence (Denny and Elliott, 001).

Let us say that somebody broke the window of a shop by a stone. The shopper will have to buy a new window. People think that creates business for the glazier and that is good. This is the gbroken window fallacyh described by Henry Hazlitt in his book Economics in One Lesson. Now let us look at the shopkeeper, though. He has $00 with which he was going to buy a new coat. However, now he must buy a new window with that money instead of a new coat. This means that the tailor is going lose the business that the glazier is getting. No new business has been created, only transferred. But the shopkeeper only has a window, instead of a window and $00 or a window and a coat. Hence there has been a net loss, and the economy did not benefit from the broken window (Hazlitt, pp.11-1). If a brick is thrown through a window, than the person who has to buy a new window has suffered a loss of wealth. If a war takes place, the same thing happens, but on a larger scale. Many people suffer great losses. The recent terrorist attacks on the United States, and the ensuing retaliation has already started to affect the American economy. There have been large layoffs in the aviation industry. Consumer confidence has been badly shaken. Some people think government spending, even spending on its war against terrorism, will help the economy. But the money expected to be spent as a result of the attacks overstates the simulative impact of fresh government spending, since much of it will simply go to replace lost incomes (United States How big a blow?, 001) In the long run, things could get even worse. Permanently heightened security within America and on its borders could raise business costs and reduce productivity. (United States How big a blow).

Conclusion

I can drive a conclusion from the analysis above that the U.S. economy is obviously suffering from the war against terrorism.

It has beenyears since the terrorism attack. U.S. government has spent a huge amount of resources on fighting the enemies. Yet it is still early to tell how long this war will last. Sometimes American doesn't even know where our enemy is. America is experiencing the depression after the expansion of the 10s. 800,000 American have lost their job (Bushs address to focus on war, economy, 00). War might create some opportunities for business, while war can not create fortune. This war is still gulping the necessary resource, investments and even consuming confidence which are critical for our depressing economy meantime.

Some politicians and economists will argue whether or not war is or is not good for the economy, if they do or do not wish to go to war. But the only reason that a country should go to war is when it is absolutely necessary, not because of a mistaken idea that war is good for an economy.

Reference

Bailey, Scott (00, September 08). War on terrorism has cost U.S. $600 billion. Retrieved October 10, 00 from http//sanantonio.bizjournals.com

Bushs address to focus on war, economy (00, January ). Retrieved October 05, 00 from http//www.cnn.com

Barro, Robert J. (001, November 5). Why the War against Terror Will Boost the Economy. Retrieved October 06, 00 from

Concerns at Home The economy & Terrorism (00, May 7-8). Retrieved October 05, 00 from http//www.google.com

Crutsinger, Martin (00, September 6). War against terrorism turns into big drag on economy. Retrieved October 05, 00 fromhttp//web.lexis-nexis.com/

Denny, Charlotte and Elliott, Larry (001, September 001). Economy Pays High Price for War. Retrieved October 05, 00 from http//www.google.com

Hazlitt, Henry (17). Economics in One Lesson, San Francisco, Laissez Faire Books

Langer, Gary (00, April 15). Economy Is Bush's Next Problem. Retrieved October 08, 00 from http//www.abcnews.com

Rumsfeld, Donald (00, October ). Rumsfeld questions success of war on terrorism in memo. Retrieved October , 00 from http//straitstimes.asia1.com.sg

United States How big a blow (001, September ).The Economist; London. Retrieved October 01, 00 from http//www.google.com