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Economics of the Iraq and Afghanistan Conflicts

The conflicts in the Middle East, from an economic standpoint, have been far different than any previous war the United States has fought. Although projected costs of at least $6 trillion make the Middle Eastern conflicts the most expensive wars in U.S. history, they have been funded through a series of “Emergency Supplemental Requests” instead of being budgeted for under defense spending in the yearly budget. This has contributed to a lack of knowledge and understanding about this conflict that is widespread amongst the American people. Because our defense spending is low for war-time when compared to GDP, it creates the illusion that these conflicts are smaller and less serious than they really are.

Because the conflicts in the Middle East have been funded in a way that makes it hard to tell exactly how much has been spent on what, and because these conflicts are still going on, experts have a wide variety of opinions on the way they have effected the United States economy, and how they will continue to effect in through the end of the conflicts and beyond. Some say that, just like in most periods of war, war spending has allowed the economy to grow. However, others argue that because of the inefficiency of the spending, it has damaged our economy and contributed to the recession and slow growth experienced throughout the 2000’s.

The most obvious impact that the Middle Eastern conflicts have had on the U.S. economy is rising oil prices. Iraq alone accounts for 3% of the world’s total oil production, so turmoil there has caused oil prices to increase everywhere. U.S. involvement there has at times made it difficult or impossible for us to get oil from them, which is the main factor in the steadily rising gas prices and energy costs American’s have dealt with over the course of the war.

Part of the reason that the Iraq and Afghanistan wars have been funded so differently than other wars is because at the start of these conflicts, it was estimated that costs would be around $200 million and the war would be over very quickly. Obviously those were severe underestimations, as was essentially every estimation since then. Our government has gone through this war underestimating costs at every turn. This can highlighted by the Department of Veterans Affairs, a government agency whose purpose is to provide benefits to wounded veterans. As of March 2013, almost half of the 1.6 million Iraq and Afghanistan veterans had applied for some sort of disability benefits through the VA. Because the number of wounded soldiers and the amount of money necessary to take care of them were both underestimated, the VA is vastly under prepared to take on that type of work load. Veterans generally have to wait at least three months to even hear back from the VA after applying for benefits, and most cases take at least two years to fully resolve, leaving men and women who were disabled while fighting in the Middle East to provide for themselves during that time.

Although the long term economic effects of the Middle Eastern conflicts are not readily apparent of widely agreed upon, it is safe to say that these wars have been economically inefficient. It has cost more than any war in U.S. history, contributed to the ongoing energy crisis, and has left thousands of soldiers in economic difficulty.


Economic Effects of the Vietnam War

The decade leading up to the conflict in Vietnam was a prosperous one for the United States from an economic standpoint. Aside from two minor recessions, the economy grew steadily throughout the 50’s; Unemployment was low, with a high of 6.8% in 1958 and a low of 2.9% in 1953; GDP grew steadily from $300 billion to $520 billion; and overall growth of the economy totaled 37%. Because of this economic success, much of the population was accustomed to economic comfort and stability going into the Vietnam War.

Upon entering the war, President Lyndon B. Johnson and the United States government put in place a series of wartime government policies. These policies were not much different than the policies put in place during World War Two, aside from being decidedly less drastic. However, when implementing these policies, Johnson elected to undersell their importance, and the importance of civilians doing their part to help the war effort, and thus much of the population did not understand the reasons behind the new economic difficulties they were experiencing. This contributed to an increasing dissatisfaction with Johnson and the current government.

There are many differences between the average Vietnam soldier and average soldiers in the other wars we have studied. Most of these differences stem from the fact that the average Vietnam soldier was about 8 years younger than the average WWII soldier. Because of their youth, many Vietnam soldiers had no families of their own. Also stemming from their youth was their lack of financial¬†responsibilities. Many Vietnam soldiers had not yet moved out of their parents houses, much less settled down in their own house with a wife and children. These men knew little about how to handle their finances and were irresponsible with their paychecks. Pay for a Private First Class was about $300 a month, including oversees pay, combat zone pay, and base salary. This $300 was tax free, as is most pay for soldiers stationed in a combat zone. Soldier’s savings also gained about 10% interest per year while they were in Vietnam. Because all necessities and most commodities were provided to soldiers by the military, a fiscally smart serviceman could leave Vietnam barely having spent any money, and about $25,000 richer. Unfortunately, most likely because of their youth and inexperience, most soldiers managed to spend almost all the money they made while in Vietnam, and returned home with almost nothing to show for their service.


For soldier’s with families, the government provided Dependency and Indemnity Compensation should the soldier be killed while serving in Vietnam. DIC consisted of between $167 and $426 a month, depending on the soldiers rank. While these seemed like a relatively simple and straightforward policy in theory, it was not very efficient in practice. Many times it was difficult for a widow to prove she qualified for DIC, and if she remarried she would no longer qualify. Because of the flaws in the DIC system, many families of soldiers who gave their lives in Vietnam ended up in poverty.

Overall, the United States economy was not significantly effected by the war in Vietnam. While the economy did slump slightly during the war, as with most wars, it was not to the same extent as many other wars.


Family Economics during the Second World War

The decade before World War Two is widely considered the worst economic period in the history of The United States. The Great Depression began in 1929 and lasted until 1933, and during this time period U.S. Gross Domestic Product (GDP) fell by roughly 50% and unemployment rose as high as 25%. 

The years between the Great Depression and WWII are called the New Deal Era. The New Deal was President Roosevelt’s attempt to help the economy recover from the Great Depression. Despite a diverse and extensive selection of government programs implemented to facilitate economic growth, unemployment remained around 17% and GDP still did not reach pre-depression levels.

After a full decade of economic turmoil, the United States entered WWII, and along with it, a period of rapid economic recovery. Over the course of the war, GDP skyrocketed to $223.1 Billion (more than double pre-depression levels) and full and healthy employment was achieved. In many ways, World War Two was a savior of the United States’ economy.

Upon entering the war, the United States’ government implemented a series of wartime policies that would help us win the war. Among these policies were; high taxes, the ban of durable good production (things like cars, houses, and household appliances) in order to focus on producing goods for the military, rationing of food, clothing, gasoline and other goods to ensure soldiers had enough, and price and wage controls to help prevent inflation. These policies were extreme, and caused inconvenience and discomfort for many American people, but ultimately were a tremendous factor in not only winning the war, but reviving the economy.

Another leading cause of America’s success during the war was the patriotism of American families on the home front. Many men, women and children took on a largerworkload or tougher jobs to help the war effort. Because of the ban of durable good production, housing was in limited supply, so families had to double and triple up in single family homes. American’s at home suffered through the harsh government policies because they knew that by doing so they were helping the war effort.

In some ways, family life, at least economically, was improved very quickly as a result of entering the war. Within a year of entering the war, full and healthy employment was reached. This means that the entire American workforce had jobs. In fact, there were so many war jobs that in industrial areas of the country, companies sent out sound trucks to drive through the streets asking people to come work. Savings rates were also at an all time high during the war. This is attributable to the extensive war bond advertising done by the government, as well as the lessons learned during the Great Depression.

Despite rapid economic recovery, there were still many economic difficulties faced by families during thewar. Income taxes were raised to unprecedented levels, with the top bracket paying between 81 and 94% throughout the war. Not only were taxes raised, but the income to be in the top bracket was dropped from $5 million a year to $200,000 a year. Along with these high taxes, many common household goods were rationed, causing people to have to make due without as much as they might have liked or could have afforded.

There were many economic ups and downs for families during WWII, but in the end, the war was the biggest factor in America’s economic recovery. The Great Depression forced the United States to its knees, and World War Two is what helped us back up and made us the thriving superpower that we remain today.

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Family Economics during the Civil War

Economic differences between the North and South, namely the North’s tremendous economic superiority, played perhaps the decisive factor in the outcome of the Civil War. The North’s economy was largely based around production and manufacturing. The North East was the most industrialized area of the country at the time, so it was filled with factories which were quickly converted to produce arms, ammunition, uniforms, and other supplies for use by soldiers. Because the areas of the North that were still largely rural produced food crops, the North was able to feed its entire population throughout the entirety of the war. The bank accounts and gold and silver reserves of the federal government were located in the North, so they remained in possession of the entirety of these after succession and these reserves, along with effective financial policies including an income tax and printing paper money that was declared legal tender, allowed the North to fund the war effectively, keeping interest rates below 80%.

The North’s inflation rate of 80% may sound like a lot when compared to current rates (the highest rate over the last 10 years was 4.1%) but compared to inflation in the Confederacy, 80% is next to nothing. The South was not nearly as economically equipped for war as the North. The economy of the Southern United States was centered around cash crops, like cotton and tobacco, and slavery. One of the first things the Union did at the start of the war was blockade Southern ports, preventing the shipment of cotton to Europe and other areas of high demand, and causing the South’s main source of income to disappear. With no source of income to fund their war effort, the South resorted to the only option they had; printing colossal amounts of paper money. The amount of paper money in circulation in the South at the start of the war was about $1,000,000. By the second year of the war, there was $700,000,000 of paper money in circulation. With no gold or silver to back the value of this money, and the national government unable to collect taxes according the the Confederate Constitution, inflation skyrocketed to heights that are unfathomable today. By the end of the war, the inflation rate in the South was around 9000% per year.

Families in the South fell on extremely hard times during the war. With the demand for cotton all but non existent, the economy fell to pieces, rendering many men unemployed. This forced most men to enlist in the Confederate army, whether they believed in the cause or not. Enlisted soldier’s wages were barely sufficient (and later entirely insufficient) to feed and take care of their families. If there had been work to do, soldier’s wives and children probably would have gotten jobs to help feed, clothe, and shelter themselves, but there were no factories for them to work at like there were in the North. This also meant that the Confederacy was unable to adequately equip its soldiers. ¬†In fact, the Confederate soldiers had to bring their guns to war from home. These trying circumstances led to great unrest amongst families in the South, culminating in a minor class struggle between those who were so poor that they were unable to feed themselves and those who were just uncomfortably poor. This “class struggle” consisted mostly of the starving residents of some towns joining together to take food from those who had it. These uprisings were called “bread riots”, the most famous of which took place in Richmond and ended when Jefferson Davis, the President of the Confederacy, came and told the rioters to disband.

In the last years of the war, Confederate desertion increased due to the economic difficulties experienced by soldier’s families. Many of the poorer soldiers felt they had little stake in the war, seeing as they did not own slaves and were relatively happy with life before the war. This disinterest in the conflict, combined with starving wives and children, led many to make the decision to leave the war and go home to take care of their families.

Soldier’s families in the North also felt the effects of the war, but not nearly to the degree that those in the South did. Although Union soldier’s pay was comparable to that of Confederates, they did not suffer as much, partially because inflation rates were much lower and partially because women went to work. With most of the men fighting in the war, the factories that were used to supply equipment for the soldiers were understaffed, so to solve this problem, as well as supplement their husband’s incomes, many soldier’s wives went to work in factories.

Women Working in a Factory

Women also took jobs as secretaries and government workers, which at the time were almost entirely male dominated. Although this was one of the first pushes into the workforce that women made in the United States, the majority had little desire to remain there. Many working women’s greatest desire during the war was for their husbands to return so things could go back to how they were before the war.

Families on both sides of the conflict were put into varying degrees of economic discomfort as a result of the Civil War. Many throughout the South faced a period of extreme poverty equal to, if not worse than, the Great Depression. The majority of Northerners faced situations that ranged from annoyance to real economic discomfort, but very few experienced anything that rivaled the conditions in the South. This is one of the main reason why the North was able to outlast, and eventually defeat, the South.

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