Robert D. Hormats illustrates in his book, The Price of Liberty: Paying for America’s Wars, how the struggle to fund our wars shaped the fiscal policies of our country. He warns us that not applying the lessons learned from these struggles to the war on terror will jeopardize both our social programs and national security. Since the Revolutionary War, our leaders have had to struggle with equity issue of who would pay for the war, how would they pay for the war, and how would the needs of the war relate to other national economic issues.
Right from the beginning of this country, we see our leaders committed to paying down the debts of war and not passing them on to future generations. This was no easy challenge when the constitution did not provide for a direct tax on its citizens. Initially the country operated within the authority granted by the constitution to levy custom duties and excise taxes, but the cost of wars and the need to keep a nation security would eventually require more direct taxes. There was a fear that financing to much of war costs would enable the creditor class to gain too much power over the government. They would be able to use their ability to finance the government to force legislation favorable to themselves that would place a heavy tax burden on the working class. It was for this reason that Lincoln during the Civil War encouraged the sale of small denomination bonds to help fund the war. The investment of ordinary Americans in the war bound them to the Union cause and success.
When imposing direct taxes, contentious debates would break out as to which was fairer, the cost of the war being spread among the greatest number of citizens, or among those whose could best bear the burden. Usually it was a compromise between the two, taxing as many who could bear the burden, with the greatest burden being placed on those who could most easily bear it. Americans were asked and willing paid for our wars, they saw it as part of their patriotic duty. With World War II, Roosevelt called on even greater sacrifices from Americans. When congress sent him a funding bill that would have exempted more companies from the excess profit tax, he vetoed it saying that it was, “not a tax relief bill providing relief for the needy but for the greedy.” Roosevelt had to find a balance that allowed businesses to profit enough o produce the goods needs to supply a war while not overburdening working Americans who were already providing men and labor to support the war.
After each war, Americans quickly worked to pay off the debt of the war, but the cold war bought a new reality. America would need to continue high military costs without the view of victory, or end date to the high taxes, in sight. Eisenhower understood that if he was going to maintain support for long term funding of the nations security he would have to work to eliminate wasteful spending by the government, particularly in the military. This meant evaluating every program for waste and the value it provided to the nation’s security. This kind of sustained commitment is not unlike the kind of commitment that will be required by the war on terror.
However, with the Iraq war, there was no call for patriotic sacrifice to pay for the war. There was no financial planning to cover the cost of the war. Initial projections were rosy and optimistic and did not reflect the real cost we encountered. The Congressional Budget office is forecasting a cumulative ten-year deficit that would total nearly 3.5 trillion, even if U.S. military presence in Afghanistan and Iraq were phased down. The interest due on the debt will reduce our flexibility to respond to future threats. Hormats states that, “The war on terrorism requires a great deal of spending by the defense department, but it also necessitates significant outlays for intelligence, diplomatic initiatives, efforts to interdict terrorist financing, foreign assistance, first responders, police departments, homeland protection authorities, and efforts to gain support in the Islamic world.” The financially asymmetric nature of the war on terror makes us particularly vulnerable to poor fiscal planning. Hormats points out that, “In a highly publicized videotape released in October 2004, Osama Bin Laden underscored this point by referring to the estimate of a British diplomat that Al Qaeda ‘spent $500,000 on the event (9/11)’ while the United States ‘lost …more than $500 billion.’ Describing his efforts to oust the Soviet army from Afghanistan, Bin Laden boasted that, ‘the Mujahadeen bled Russia for ten years until it went bankrupt and was forced to withdraw in defeat…So we are continuing this policy of bleeding America to the point of bankruptcy.’”
The financial danger of borrowing to pay for the war on terrorism are made all the greater because, unlike previous wars when our debt was held by patriotic Americans and friendly western allies, the debt of this war is being bought up by foreign financiers. If these foreign financiers were to cut to cut off credit to the United States, interest rates would soar and the dollars value would plummet, severely disrupting our economy. By taking us through the financing of each war in American history, Hormats shows us what was learned and why not paying for or planning for the long-term cost of the war on terror places both our national security and the American way of life at jeopardy. Hormats concludes that, “The willingness of the American people and their leaders to ensure that the nation’s finances remain sound in the face of new challenges---sacrificing parochial interests for the common good---is the price we must pay to preserve the nation’s security and thus the liberties that Hamilton and his generation bequeathed to us.”