The Cost of War, Unnoticed

Lyndon B. Johnson, who tried to protect a 1964 tax cut and his Great Society programs while escalating U.S. involvement in Vietnam, eventually signed both a tax increase and spending cuts in 1968 -- too late to avoid touching off more than a decade of inflation.

Bush, in contrast, has allowed domestic spending to rise and cut taxes repeatedly since taking office, adding more than $3 trillion to the national debt. He signed a huge stimulus package two months after marching on Baghdad in March 2003. A few months later, he signed legislation to create a Medicare prescription drug benefit, the biggest expansion of the federal health program for the elderly since its creation in 1965.

That combination is unprecedented, Hormats and others said.

"This may be the first war in history -- in the history of the world -- in which there was a tax cut rather than a tax hike," said Alan S. Blinder, a Princeton University economist who was vice chairman of the Federal Reserve in the Clinton administration.

Administration officials say the 21st-century economy is different from that of the 1960s, when the U.S. government had no easy access to cheap capital. To the extent that fighting in Iraq has contributed to higher oil prices, it has added to inflationary pressures, economists said. But they added that military spending alone has not done so. And the low cost of borrowing today makes a rising debt worth the investment "in the safety and security of Americans," said White House spokesman Tony Fratto.

Though the administration has not cut domestic spending, it has managed to hold the budget for discretionary programs relatively flat in recent years, Fratto said. After the 2001 terrorist attacks, a tax increase to pay for the ensuing war could have devastated the economy, he said.

"Could it have been paid for by tax increases? I suppose it could have been," Fratto said. "But at what cost to the economy?"

Grover Norquist, a Bush adviser and anti-tax lobbyist, argued that the tax cuts have helped create millions of jobs and trillions of dollars in new wealth, which will ultimately make the debt easier to pay off.

"If you're going to finance a war, it's better to finance it through growth and higher revenue" than through raising taxes, Norquist said. "Would you be better off spending less money? Yes. But my argument is that economic growth that creates jobs is a fine policy whether we're at daggers drawn or at peace with the world."

Norquist was among the few analysts willing to offer a spirited defense of the administration. Many conservatives said they are troubled by Bush's inability to restrain non-military spending.

"In their defense, I think they would say they wanted to do that, but were basically unable to because Congress wouldn't comply," said Kevin A. Hassett, director of economic policy studies at the American Enterprise Institute.

Hormats called Bush's war financing "shortsighted," not only because of the potential fiscal consequences but also because it bypassed an opportunity to engage the support of the public, which has grown increasingly skeptical of the war.

"They tried to do this on the cheap and without a candid conversation with the American people about the cost," Hormats said. "But the irony is the great wartime leaders have seen it in the opposite way," theorizing that a call to sacrifice would "tie people to the war effort."

Joseph E. Stiglitz, a Columbia University professor who was chairman of the Council of Economic Advisers under President Bill Clinton and who was among the winners of the 2001 Nobel prize for economics, said Bush has undertaken a "deceptive policy of saying you can have both guns and butter" -- a strategy similar to Johnson's in the early years of Vietnam. In December, Stiglitz co-authored a study that predicts the Iraq conflict alone will eventually cost taxpayers more than $1 trillion, counting military rebuilding and health care for wounded veterans.

"It's actually turning out to be a very expensive war," Stiglitz said. But "it has been designed to be a war the American people don't feel."