Garret

The recent legislative dispute between Congress and President George W. Bush, generally described as a contest over war funding, scheduled to resume in September 2007, is not primarily about money. By historical standards, the Iraq war -- while soon to be the second most expensive in American history (second only to World War II) -- is relatively inexpensive as a portion of the U.S. gross domestic product (GDP). At its height, the Second World War cost nearly 40% of annual gross domestic product, the Korean War almost 15%, and the Vietnam War 10%. Iraq, although costing a hefty $9 billion per month, amounts to less than 1% of this year's GDP.

This clash involved conflicting views about the wisdom of continuing U.S. military engagement in a war that to a growing number of Americans looks like a tragic blunder, and what leverage Congress had to force a change. The confrontation was the result of Congress' limited powers to alter war policy. After the revolution, the founding fathers gave Congress the power to tax and determine how revenues are spent. So while they made the President the Commander-in-Chief of the military, he could not conduct a war without the willingness of legislators to appropriate the funds. That, in theory, gave them enormous powers to influence wartime policy. However, cutting off funds is a blunt instrument, which Congress has been reluctant to exercise lest it be accused of undermining troops in the field.

It was not always so. War funding was a deeply divisive issue in the war of 1812 -- which was perhaps even more unpopular than the Iraq war. Officials in some states advocated secession in protest. The Federalist Party, the dominant political force in the late 18th century, sought to deny President Madison, a Jeffersonian Republican, funds for the war, hoping he would make an early peace. It failed, but many Americans viewed the tactic as unpatriotic -- and within a few years, the Federalists ceased to exist.

That technique was never attempted again. At the height of the Second World War, in 1943, a Democratic Congress voted down President Roosevelt's request for a large tax hike because it thought taxes were already too high, but never cut war appropriations.

During the Vietnam War, Congress gave President Lyndon Johnson money for the military, but insisted on a tax increase and cuts in his Great Society social programs. As casualties mounted, the draft expanded, deficits rose and inflation increased, support plummeted. But Congress still did not cut off money for the troops, all of whom were withdrawn in 1973. In 1974, legislators ultimately used their power over spending to impose ceilings on the number of U.S. officials authorized to be in South Vietnam and later cut off military assistance for the Saigon government.

Despite a heated debate, when financing the war came before Congress, they ultimately provided U.S. troops the funds they needed -- as they have over the past 200 years. But sustaining a war without the support of a large segment of the population and Congress will prove immensely and increasingly difficult as in the case of Vietnam -- and pressures for withdrawal will intensify even without a cut in war spending now.

As the U.S. military presence in Iraq declines, a debate on how to meet longer-term security needs is imperative. Iraq has diverted money from other requirements. Even if stability in Iraq could somehow be achieved, the greater Middle East and other regions will continue to be dangerous places and may require a prolonged military presence, e.g., a continued naval commitment in the Persian Gulf. Equipment destroyed or worn out in the Iraq War must be replaced; outreach programs will be needed to improve relations with countries alienated during recent years; intelligence capabilities and homeland security will need extensive shoring up; anti-terrorist forces and the weapons they need must be augmented; and wounded veterans will require help for many years. Thus, Americans should not expect a large "peace dividend."

The current dispute will leave a legacy of bitterness on both sides, as after Vietnam. That is understandable, but allowing it to divert attention from other security needs would be dangerous. The toxic legacy of Vietnam lasted for nearly a decade and led to big national security cuts. Facing a continued terrorist threat, the country cannot afford that now. Preventing another attack - and if necessary responding to one - will require substantial resources. And other new crises are likely to erupt.

Both sides need to work towards a sound financial strategy to meet these needs and ensure that the U.S. financial system and economy remain resilient to cope with future emergencies, including war, a major hurricane, or a pandemic. The sooner they get to it, the more secure the country will be.

Robert D. Hormats is Vice Chairman of Goldman Sachs (International) and managing director of Goldman, Sachs & Co. Mr. Hormats served as Assistant Secretary of State for Economic and Business Affairs from 1981 to 1982, Ambassador and Deputy U.S. Trade Representative from 1979 to 1981, and as Senior Deputy Assistant Secretary for Economic and Business Affairs at the Department of State from 1977 to 1979. He served as a Senior Staff Member for International Economic Affairs on the National Security Council from 1969 to 1977, during which time he was Senior Economic Advisor to Dr. Henry Kissinger, General Brent Scowcroft and Dr. Zbigniew Brzezinski.

Mr. Hormats was a recipient of the French Legion of Honor in 1982 and Arthur S. Flemming Award in 1978. Mr. Hormats has been a visiting lecturer at Princeton University and is a member of the Board of Visitors of the Fletcher School of Law and Diplomacy. He also is a member of the Council on Foreign Relations.

Mr. Hormats' publications include "Abraham Lincoln and the Global Economy"; "American Albatross: The Foreign Debt Dilemma"; and "Reforming the International Monetary System." Other publications include articles in Foreign Affairs, Foreign Policy, The New York Times, The Washington Post, The Wall Street Journal, American Banker and The Financial Times.
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ABOUT THE BOOK

THE PRICE OF LIBERTY: Paying for America's Wars
by Robert D. Hormats
Published by Times Books
ISBN 0-8050-8253-0

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Copyright (c) 2007 by Robert D. Hormats. All rights reserved.
Please feel to duplicate or distribute this file as long as the contents are not changed and this copyright notice is intact. Thank you.