The Economic Effects Of The Wars

Using an example of your choice, what light can the ideas and analysis of an economist throw on a major current problem or issue of public concern? The invasion of Afghanistan in 2001 and Iraq in 2003 have and will be in the news day after day, with growing casualties demoralising many nations around the world. Another major problem, especially significant for both the United States of America and the United Kingdom, is the momentous financial costs that are being experienced by the governments, and it is this issue that I shall investigate.

I will also try to show how defence can be accounted for as market failure. Defence is a public good, provided for by the government, not private markets. To understand what a public good is, I must first introduce two characteristics of a public good. Firstly, a public good is non-rivalrous. This means that even if someone consumes or utilises this product, the supply for others will not be diminished. This is very relevant when it comes to defence as it is there to defend the whole of the country.

Secondly, another characteristic of a public good is that it is non-excludable. Non-excludability is when the people that don't want to or can't pay for a product cannot be excluded form it as they are already using the product and its benefits. In the example of defence, if a certain person didn't want to get the benefits from defence it would be impossible to ensure that they didn't get those benefits while the rest of the country did. This is also a reason why the government is in control of defence and why a private market isn't in control.

If a private company did try to impose pricing for the use of defence there would be a problem as they wouldn't be able to stop those that didn't pay from reaping the same rewards. This comes onto the problem of the "free rider" problem. The "free rider" problem is when people don't want to pay, know that they will still be getting the benefits of a product. This is the main reason why defence is controlled by the government and why it is very difficult to impose prices on public goods. The US government has spent an estimated $360 on the Iraq War since it began in 2003. At this time the current rate of U.

S. expenditure in Iraq is approximately a staggering $6. 4 billion a month. In addition the United Kingdom has spent i?? 4. 5 billion of a i?? 7. 4 billion budget for Iraq. Below is a pie chart showing the US budget in 2006 and it's Gross Federal Dept (from 1940 to 2010). [Fig 1] [Fig 2] [Source- US Office of Management and Budget ] The pie chart [Fig 1] shows that 57% of the US Federal Budget was allocated to National Defence, with a substantial amount of this figure due to be spent on the wars in both Iraq and Afghanistan (the actual amount estimated to be spent on Iraq in 2006 was $60 billion)

At this time on Fig 2, the Gross Federal Dept was at around 7. 5 trillion dollars, a huge cost. This figure is an increase of $2. 5 trillion from 10 years before. There are many reasons for this large fluctuation with one of the overriding factors undoubtedly being the wars on both Afghanistan and Iraq. The effects of war are negative externalities. An externality is the spill over effect on a third party. For this example, the innocent people killed, the land destroyed, the extra noise and air pollution are all examples of negative externalities.

There are possible ways in which the government could introduce in order to minimise these negative externalities. There could be forms of regulation that could be brought into affect. Possible examples could be setting limits to the pollution that is releases from the vehicles used by the armed forces in other countries. This wouldn't be very difficult to impose but would be a very expensive procedure as all of the powerful vehicles that are needed to protect the forces would be hard to replace.

The obvious way the government could stop all of these problems would be to pull the troops out of Iraq all together. This move would probably be welcomed by a large proportion of the British population, but would be seen as a sign of weakness from the Prime Minister and his government. The obvious reason for a return of the troops is the fact that many people in Iraq have died (the war is estimated to have resulted in the deaths of 655000 Iraqi civilians in just 4 years).

Other possible reasons are the huge financial burdens that have been experienced and will continue to be experienced by the governments of the United States and the UK, or the fact that there is no real legal reason why there are troops there at all. The process of rebuilding Iraq will be a very long one, probably taking decades to resolve whilst the hugely powerful states of the USA and the United Kingdom have the resources that mean that this hugely expensive invasion of Afghanistan and Iraq, will only be a small blip on their national dept.