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US response to 9/11 contributed to causes of current debt crisis

The costs of military engagement in Afghanistan and Iraq account for well over one-quarter of the increase in US national debt since 2001. Financing wars and defense build-ups in this way is an historical aberration. Americans have typically paid for wars through higher taxes.

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First, the Iraq war and the resulting instability in the Gulf put upward pressure on oil prices, which rose from $25/barrel in 2003 to $140/barrel four years later. Second, these higher oil prices depressed US economic activity, prompting the Federal Reserve to loosen monetary policy. Finally, this additional liquidity contributed to the housing bubble and the financial collapse that followed.

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The policies that were adopted after 9/11, including the decision to wage two wars with a small all-volunteer force, to rely on a large supplement of private contractors, and to pay for the entire campaign through debt, are still reverberating through American society. The vast economic costs may ultimately be dwarfed by the social costs of the wars, which are evident in the epidemics of suicides and post-traumatic stress disorder among returning military veterans. But this much is certain: The attempt to get both guns and butter for free is an important factor in the financial mess. The fallout of this mistake will continue to burden the US economy for decades to come.

Looking forward, we need to learn these lessons as we consider our future course in Afghanistan. Although some US troops will depart by year’s end, tens of thousands of our military personnel and contractors are scheduled to remain through the end of 2014. That is likely to cost a further $300 billion or more. At a time when we are laying off policemen and schoolteachers for lack of government funds, we need to engage in an open debate about whether this money will buy the increased stability and security we crave. Could we achieve the same ends at a lower cost? Or will we simply end up adding the US to the long list of foreign powers who have tried – and failed – to pacify Afghanistan?

Linda J. Bilmes is Daniel Patrick Moynihan Senior Lecturer in Public Policy at Harvard Kennedy School. She has held senior positions in government, including assistant secretary and chief financial officer of the US Department of Commerce. Ms. Bilmes is coauthor (with Joseph Stiglitz) of “The Three Trillion Dollar War: The True Cost of the Iraq Conflict.”

This piece first appeared on the Power & Policy blog at Harvard Kennedy School’s Belfer Center for Science and International Affairs.

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