War Costs Money. Why Can't Politicians Say So?

Entitlement programs have dramatically changed the budget landscape. Today, national security spending accounts for less than 5 percent of the nation's gross domestic product -- compared with nearly 40 percent during World War II, 15 percent during the Korean War and 10 percent during the Vietnam War. That makes it sound like it should be easy to win the needed defense funding. It won't be. The enormous sums committed to mandatory federal programs such as Social Security, Medicare and Medicaid dwarf all other aspects of the budget. Left unchecked for a decade or two, they will consume a larger share of the nation's GDP than all our federal programs today combined. Coupled with increasing interest payments on the government's rising debt, they will either force up taxes or produce dangerous deficits. Unless we get entitlement costs under control, Social Security will inevitably square off against national security.

Since 9/11, we have also tolerated a series of budget deficits that make us financially vulnerable. In 2001, a flush budget surplus gave the United States the resources to recover and retaliate after al-Qaeda's attacks. But now we face a deficit and the prospect of very large ones late in the next decade. Moreover, in 2001, the nation was only half as dependent on foreign money as it is today -- and the more the budget deficit rises, the deeper in hock we find ourselves to countries that may not wish us well. A new act of catastrophic terrorism would weaken the economy, thereby sharply cutting federal tax revenues and increasing the deficit. The high costs of recovery (imagine what it would cost to clean up miles of Manhattan or Washington after a radioactive "dirty bomb" attack) and retaliation would further expand the deficit. That, in turn, would make many foreign investors nervous, which could cause them to sharply reduce investment in the United States -- sending the dollar into a nosedive and interest rates through the roof.

Bipartisan efforts could still avert such calamities. The president and Congress must set clear priorities for defense spending, start serious reforms to make entitlement programs sustainable, and begin funding the war through the usual budget process rather than through supplementals and other gimmickry.

As in earlier wars, Americans deserve credible estimates of the costs of protecting the nation -- a burden they're likely to tolerate if they're given the unvarnished facts. More than 200 years ago, Alexander Hamilton squarely confronted his fellow citizens with the need to pay off the enormous debt the country had incurred during the revolution. Doing so, he wrote, was "the price of liberty." We still need to pay for our freedom today, and all Americans need to share in the cost.

robert.hormats@gs.com

Robert D. Hormats is vice chairman of Goldman Sachs (International) and a managing director of Goldman, Sachs & Co. He served on the National Security Council staff under presidents Nixon, Ford and Carter and is the author of "The Price of Liberty: Paying for America's Wars."