An Economist’s Guide to War and Peace

NEW YORK – Stories of conflict fill today’s headlines: whether it is Syria’s civil war, street battles in Ukraine, terrorism in Nigeria, or police crackdowns in Brazil, the gruesome immediacy of violence is all too apparent. But, while commentators debate geostrategic considerations, deterrence, ethnic strife, and the plight of ordinary people caught in the middle, dispassionate discussion of another, vital aspect of conflict – its economic cost – is rare.

Violence comes with a hefty price tag. The global cost of containing violence or dealing with its consequences reached a staggering $9.5 trillion (11% of global GDP) in 2012. This is more than twice the size of the global agriculture sector and dwarfs total spending on foreign aid.

Given these colossal sums, it is essential that policymakers properly analyze where and how this money is spent, and consider ways to reduce the total. Unfortunately, these questions are seldom given serious consideration. To a large extent, this is because military campaigns are usually motivated by geostrategic concerns, not financial logic. Although opponents of the Iraq war might accuse the United States of coveting the country’s oil fields, the campaign was uneconomical, to say the least. The Vietnam War and other conflicts were also financial catastrophes.

Similar doubts accompany arms spending during peacetime. One might, for example, question the financial logic of Australia’s recent decision to spend $24 billion on the purchase of problem-plagued Joint Strike Fighters while simultaneously preparing the country for the most stringent budget cuts in decades.