There are at least three ways to think about the economic costs of these wars: what has been spent already, what could or must be spent in the future, and the comparative economic effects of spending money on war instead of something else.

Spending to Date: How much have the wars in Afghanistan, Iraq and Pakistan since 9/11 cost?  The answer to that question depends on what you count as a war expense and how you estimate inflation over the last 10 years.  It also depends on whether you count only the money that the U.S. has already spent or if you include the money the U.S. is committed to spending in the future.

These are the budgetary costs for the bombs, bullets, and fuel that go into making war, the troops’ pay, veteran benefits, war related foreign assistance, homeland security, and interest already paid on war related debt. 

The Costs of War economics research team used the most up-to-date publicly available figures at the time of their writing to calculate the spending on the wars from 2001 through fiscal year 2011. To make comparisons across categories and over time easier, in this summary we have converted current dollar figures to inflation-controlled 2011 dollars (constant dollars) using standard Bureau of Economic Analysis (BEA) deflators.

What was the Department of Defense allocated? 
The Pentagon's total allocation for war from 2001-2011 in current dollars was $1,208.1. The DOD has its own way of calculating inflation.  Using standard BEA deflators the total is $1,311.5 billion in constant 2011 dollars.  The DOD was also allocated additional funds for its base budget.  This totals $652.4 billion, some portion of which has been used for war expenses, and all of which might be counted as having been appropriated as a result of the war climate in Washington.  A conservative estimate might count only a portion of these additions to the budget over what might have been expected to be appropriated to the Pentagon. Our calculation of spending to date uses both a conservative and moderate estimate of the addition to the Pentagon's base budget.

How has the U.S. paid for the wars so far?  The United States paid for past wars by raising taxes and or selling war bonds.  The current wars were paid for almost entirely by borrowing. This borrowing has raised the U.S. budget deficit, increased the national debt, and had other macroeconomic effects, such as raising interest rates. The U.S. must also pay interest on the borrowed money. The interest paid on Pentagon spending alone, so far (from 2001 through FY 2011) is about $185.4 billion in constant dollars. 

War related spending is also found in the foreign assistance budget, known on Capitol Hill as "International Assistance" spending. Aid to Afghanistan, Iraq and Pakistan grew because of the war to 74.2 billion in constant dollars.   Much of that spending by the State Department and USAID directly supported military efforts.

The U.S. also increased spending on homeland security by more than $400 billion in constant dollars beyond the levels already in place.  We include this as excess spending on homeland security that occurred as a result of the war on terror. Considered by many an important part of domestic mobilization for the wars, there continue to be questions about the effectiveness of this spending.

What has already been spent to care for the medical and disability needs of U.S. veterans?  As of December 2010, the U.S. had already spent more than $32 billion for both medical care and disability for more than a million veterans of these wars. Each day, more veterans continue to apply to receive their benefits.

Obligations for Future Spending: The costs of war don't end when the fighting stops.  Specifically, the U.S. has incurred obligations by fighting the wars.  For example, the U.S. is obligated to pay the future medical and disability costs of veterans. As in past wars, medical and disability costs will peak in about 30 to 40 years, totaling from nearly 600 billion to almost $1 trillion.

Unless the U.S. immediately repays the money borrowed for war, there will also be future interest payments. <highlight “future interest payments” and link to page 28>  We estimate that interest payments could total about one trillion dollars by 2020.

Opportunity Costs of War Spending: What could the economy look like if we had not spent that money on war?  Were jobs lost or gained by war? Military spending does produce jobs.  But spending in other areas could produce more jobs.  

Military spending has also affected investment in public assets and infrastructure.  While investment in military infrastructure grew, investment in other, non-military, public infrastructure did not grow at the same rate. 

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