Are You Paying For All Those Wars?

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The United Nations has raised $1.5 billion this week to support humanitarian needs of Syrians civilians affected by a civil war that started in March of 2011. Sixty countries have contributed to this amount, including Canada, The United States, Russia, Japan and several European and Arab countries. As much as I salute this necessary act of solidarity, I can’t stop asking myself in the middle of a worldwide recession, where the money came from.  As a matter of fact, how do most countries involved in one of the ongoing thirty military conflicts finance those activities? Do you and I somehow end up paying for that? The short answer is yes, and here’s why:

 Countries spend millions of dollars each year in wars, even if they are not directly involved. Common costs include military equipment, weaponry, salaries, veteran care, interest on borrowed money, homeland security and foreign aid. The U.S. alone has already spent 4 trillion dollars on wars in Iraq, Afghanistan, and Pakistan combined since 2001.

 There are 4 ways a country can finance a war and somehow you always end up carrying the burden of the costs:

  1. Higher Taxes: A tax increase or a special tax can be imposed on individuals in order to finance war-related programs and operations.
  2. Borrowing money from the public: This consists of issuing and selling bonds to domestic and foreign institutions. This inevitably increases the country’s debt, with a high risk of balance deficit that usually gets carried over decades. Also, the perceived risk of default of a highly indebted country pushes interest rates up. This affect rates banks will charge you on credit products.
  3. Reduction in government spending: Each penny spent on war is money that could have been invested in local infrastructure, social benefits and public assets. This is an opportunity cost you inevitably pay as a resident.
  4. Money creation: Government can print money to finance war activities. However, this represents a big risk of inflation. When Zimbabwe decided to print tens of millions per month to finance the war in Democratic Republic of Congo, they ended up with a monthly inflation rate of 79,600,000,000% in November 2008. At the time, a bottle of water cost 100 Million Zimbabwean dollars. Other factors certainly contributed to this extreme example of hyperinflation, but in general when money supply increases faster than the value of goods produced and sold on the market, prices of goods surge. Mitigation options like price controls seldom work because consumers end up going towards the black market.

In today’s economy, wars generate financial costs far in excess of the benefits associated with geo-political and business opportunities. In my opinion, citizens and immigrants of any country financially involved in a war today are paying an expensive bill that will probably be passed on to future generations.

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