The Hidden Costs of the Viet Nam War

An end to the war would be good, not bad, for American business. War is, as we would say in business, a low-yield operation. --Louis B. Lundborg, Chairman, Bank of America

THE myth that capitalism thrives on war has never been more fallacious. While the Nixon Administration battles war-induced inflation, corporate profits are tumbling and unemployment runs high. Urgent civilian needs are being shunted aside to satisfy the demands of military budgets. Businessmen are virtually unanimous in their conviction that peace would be bullish, and they were generally cheered by last week's withdrawal from Cambodia. But they have begun to realize two disquieting facts. First, the real costs of war in Viet Nam and of the nation's total defense effort are far greater than anything reflected in the military budget. And though military spending is declining, the U.S. will have to bear a heavy financial burden from the Viet Nam War long after the shooting stops.

The military budget for fiscal 1971, which began last week, stands at $71.8 billion, but that is only the beginning. Nondefense segments of the federal budget are laced with costs that are basically military. By conservative estimates, these allocations in the new budget come to $20 billion, raising the annual cost of defense to $91.8 billion. Arthur Burns, chairman of the Federal Reserve Board, makes a much higher calculation; he figures that the tangential military costs lift defense spending to more than $106 billion.

Debts from Deficits. The Atomic Energy Commission, the Selective Service Commission and other agencies spend an estimated $1.6 billion a year for defense-related projects. At least one-half of the $3.4 billion allocated for space programs can be considered defense-connected. The Agency for International Development spends roughly $950 million of its $1.9 billion budget to help the U.S. meet its military commitments around the world, including $474 million in AID funds for Viet Nam.

Much of the Coast Guard's budget of $625 million and the U.S. Information Agency's $189 million are really defense spending. About $50 million in aid to impacted school areas is a consequence of the crowding caused by military families. Federal highway overpasses have been built to expensive heights to accommodate tank carriers, and roads have been extended to pass close to military bases. Advocates of subsidies for shipping, airlines and oil often win their case by arguing that federal handouts are needed for reasons of defense.

A major item is the public debt, which has risen from $323 billion to $373 billion since 1965. largely because of the deficits caused by the Viet Nam War. Interest payments on this debt for fiscal 1971 are expected to reach $ 19 billion, of which $11 billion can be traced to the costs of Viet Nam and past wars. The interest paid on the debt from World War II has amounted to about $200 billion so far.

The Economic Drain. Veterans Administration payments constitute another long-lived but little-noted expense of every war since the Civil War. This year they will add up to about $8.9 billion in disability pensions, education aid and medical care. Since 1965, costs of VA medical care have climbed by $500 million; almost all of the rise is attributable to the Viet Nam War. And forthcoming costs to the nation amount to a large mortgage on the future. Economist James Clayton of the University of Utah estimates that the total cost of pensions for Viet Nam veterans alone will eventually reach $220 billion.

Economist Robert Eisner of Northwestern University calculates that the Viet Nam conflict has already cost the nation $219 billion.

Direct war expenditures accounted for $113 billion. In terms of production lost because young men went into service or stayed in school to avoid the draft, the civilian economy lost another $82.5 billion, by Eisner's estimate. The human cost of the dead and wounded is incalculable; the economic drain, in terms of demand and production that will never be realized, is calculated by Eisner at $23.1 billion.

Since 1965, Eisner figures that real corporate profits, adjusted for the war-fueled inflation, declined by 17%. He calculates that soaring prices also have caused the real average income of the U.S. production worker to dip by about 2% in the past five years. 'This loss in income," says Eisner, "must be a major factor in working-class malaise and tension."

Technological Drip-Out. The debilitating effects of the nation's longest war will probably forestall many of the anticipated advantages of a peacetime economy. For example, concern is growing about the economic distortion created by the relationship between the Pentagon and defense companies.

Some of the nation's most inventive companies, and many of its best managers, scientists and skilled workers, have devoted their energies to military production. Assistant Treasury .Secretary Murray Weidenbaum wonders whether they can ever contribute much to a civilian economy. In a paper written just before he joined the Administration. Weidenbaum observed: "The Defense Department has slowly taken over many of the decision-making functions which are normally the prerogative of business management: the choice of products to produce, the source of capital funds, the internal operations of the firm." As a consequence, these firms have drifted far from the marketing realities of a civilian economy.

Most of the federally sponsored research in the last decade has focused on space and defense and has had limited practical use. "The supposed technological fallout from the NASA program has been more of a drip-out," says Physicist Ralph Lapp. He characterizes the Saturn F-l moon rocket as a typical example of "techno-giantism," which involves enormous effort and expense to perform an exquisitely specialized task, but so far has almost no application for a civilian market.

Abraham Morganstern, research director of the Electrical Workers Union, believes American workers have become overly dependent on war work. He predicts that the transition to a peacetime economy, which President Nixon has talked much about lately, will be more difficult than is generally realized. For one thing, says Morgan stern, the backlogged demand for consumer goods is far less than it was just after World War II and the Korean War. Certainly there will be other demands--for pollution control, school construction, mass transit, urban development. Work on some of these problems has been delayed by the war, but the needs will be met only if peace brings a reordering of priorities and a redirection of the nation's resources.

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