The views expressed in this article represent the opinions of the author and do not necessarily reflect the opinions of the Chattanooga Area Chamber of Commerce, its staff, or its board of directors.
On February 28, 2026, the United States and Israel launched Operation Epic Fury, a large-scale joint strike against Iran targeting its leadership, nuclear infrastructure, and military command. The opening salvo killed Supreme Leader Ali Khamenei. Iran retaliated immediately with hundreds of missiles and thousands of drones across nine countries, and twelve days later the conflict shows no sign of ending. The economic consequences are already rippling well beyond the battlefield. The Strait of Hormuz, through which roughly 20 percent of the world’s daily oil and natural gas moves, has been effectively closed by Iranian forces attacking commercial shipping. Iraq shut down oil port operations after tankers were struck in its territorial waters. The International Energy Agency coordinated a record release of 400 million barrels from member reserves to ease energy prices. It did not work: Brent crude remains above $100 a barrel. Meanwhile, the Pentagon is spending close to one billion dollars a day, and the meter is running.
Politicians and pundits have debated the strategic merits. Was Iran’s nuclear program an existential threat? Was diplomacy exhausted? These are legitimate questions, and reasonable people disagree. But there is a separate set of questions that almost nobody is asking, and they are the economist’s questions. Not whether the war was right or wrong, but what it actually costs, who bears those costs, and why our institutions so consistently lead us to underestimate them. The answers are clarifying, and a little unsettling.
War Cannot Create Growth
Let’s start with something that sounds simple but runs against conventional wisdom: war cannot create economic growth. It can destroy resources and reallocate them, but it cannot create net wealth. This matters because every major military conflict in American history has been accompanied by claims, explicit or implied, that defense spending stimulates the economy. Factories hum. Workers find jobs. GDP rises. The numbers look good on paper.
But this is an accounting illusion. Gross domestic product measures spending in an economy, counting government expenditure directly in the formula. When the Pentagon launches a Tomahawk cruise missile that costs $2.5 million and replaces it with another one, that replacement appears as economic activity. In a narrow sense, it is. But no one is any wealthier. No new good has entered the world. No family’s standard of living has improved. The treadmill is spinning, but we are not moving forward.
The nineteenth-century French economist Frédéric Bastiat illuminated this confusion with what he called the broken window fallacy. A shopkeeper’s window is smashed. The glazier gets business, earns income, perhaps buys new shoes. Someone observing this chain of transactions might conclude that the broken window was, on net, good for the economy. But Bastiat insisted we ask about what is not seen: the coat the shopkeeper would have bought instead, the book his daughter never received, the savings that never accumulated. The destruction is visible. The foregone alternatives are invisible. But they are just as real.
War is the broken window fallacy writ large. The weapons destroyed, the infrastructure bombed, the ships repositioned, the pilots flying sorties instead of commercial routes: these are real resource uses that register in our economic statistics. But the factories not built, the engineers not designing consumer products, the capital not flowing into private investment: these are invisible. They don’t show up in any headline number. They are the coat the shopkeeper never bought, multiplied by a nation.
The Seen and the Unseen
Economists Christopher Coyne and Abigail Hall have spent their careers applying this lens to American military interventions. The costs of war, they show, are systematically undercounted. Not because anyone is being dishonest, but because the incentive structure of democratic politics naturally draws attention to the visible benefits and away from the dispersed, delayed, and invisible costs.
Consider what we know just from the current conflict. The Center for Strategic and International Studies estimates that the first 100 hours of Operation Epic Fury consumed $3.7 billion. The daily operational burn rate, covering aircraft sorties, carrier strike groups, munitions expenditure, and naval deployments, runs close to a billion dollars. The Penn Wharton Budget Model puts the total economic impact at up to $210 billion.
But those numbers capture only the direct operational costs. They do not include what comes next. Munitions replacement costs more than the originals; Tomahawk Block V cruise missiles run roughly $3.6 million each at replacement cost. Equipment wear accelerates in combat conditions, and the maintenance bills and depreciation arrive years after the fighting stops. Veterans’ healthcare and disability benefits, based on historical patterns documented by Brown University’s Costs of War Project, typically run two to four times the direct combat costs, paid out over decades. A soldier who serves in 2026 may require care through 2070. That bill does not appear in any current budget discussion.
There is also an asymmetry worth noting. The destruction wrought by conflict, infrastructure, oil facilities, trade routes, is a one-time loss. The debt incurred to pay for it compounds forward, indefinitely. The damage is a single entry; the obligation is a running account.
The Fiscal Reality
Which brings us to the ledger we had before the first missile flew, because the fiscal context is essential to understanding the full weight of these costs.
The federal debt surpassed $38 trillion before Operation Epic Fury began, having jumped a trillion dollars in roughly two months between August and October of last year, the fastest accumulation outside the COVID-19 pandemic in American history. The Congressional Budget Office, in its February forecast, projected a deficit of $1.9 trillion for fiscal year 2026, with debt reaching 120 percent of GDP by 2035. Interest payments on the national debt are already approaching one trillion dollars annually, more than the United States spends on defense or Medicaid. Every dollar of new war spending is borrowed at those rates, adding to obligations that are already compounding at crisis levels.
One useful measure: national security leaders across eight administrations, Republican and Democratic, warned over a decade ago that long-term debt is the single greatest threat to American national security. The argument was simple. Excessive debt slows economic growth, raises interest rates, crowds out private investment, and ultimately constrains the government’s ability to respond to genuine emergencies. We are now testing that proposition in real time.
Why We Systematically Underestimate
None of this is an argument for pacifism or strategic passivity. There are genuine security interests at stake in the Middle East, and reasonable people can weigh them differently. But the fiscal foundation matters because it determines what is actually affordable and sustainable. A nation that cannot finance its peacetime obligations without borrowing at crisis levels is a nation with diminishing room for costly intervention, no matter how compelling the case.
So if the costs are this significant, why do they receive so little weight in public debate? This is where Coyne and Hall’s work is most illuminating, and most uncomfortable, because the answer has nothing to do with bad intentions. It has to do with incentives.
The benefits of military spending are concentrated and highly visible. Defense contractors in specific congressional districts receive specific contracts. Bases employ specific communities. Weapons manufacturers hire engineers and machinists whose jobs are traceable to specific programs. These beneficiaries are organized, well-funded, and highly motivated to participate in the political process. They know exactly what they stand to gain.
The costs, by contrast, are dispersed across 330 million Americans and thousands of businesses. Higher oil prices hit every company that moves goods. Rising interest rates, driven in part by growing borrowing needs, hit every business that carries debt or seeks capital. The opportunity cost of foregone private investment falls on enterprises that were never built and industries that never emerged. No one lobbies for the factory that wasn’t constructed. No trade association represents the R&D that wasn’t funded.
This asymmetry, concentrated benefits and dispersed costs, is a textbook public choice problem. It was not invented by the defense industry. It is a structural feature of democratic political systems, observed across domains from agriculture subsidies to occupational licensing. But it operates with particular force in military affairs, where the benefits are immediate, tangible, and draped in legitimate national security arguments, while the costs arrive slowly, invisibly, and are easy to attribute to other causes.
President Eisenhower understood this when he warned, in his farewell address, about the military-industrial complex. His concern was not that defense contractors were corrupt or that generals were warmongers. It was structural: the institutional alignment of interests between the military, its suppliers, and the congressional districts that host them creates persistent pressure toward more spending, more intervention, and less scrutiny of costs. That pressure operates regardless of which party controls Washington.
None of this resolves the hard questions of national security. Policymakers face genuine threats, imperfect information, and adversaries who do not wait for economic analysis to conclude. The decision to use military force involves considerations beyond cost-benefit arithmetic.
But the economist’s job is to make visible what politics renders invisible. War destroys resources and reallocates them. It cannot, by itself, create wealth. The costs, operational, fiscal, and long-run, are real and compounding, even when they don’t appear in the headlines. And the institutional incentives of democratic governance systematically tilt toward underweighting them.
None of this is distant from Chattanooga. The fuel surcharge on a freight invoice, the interest rate on a business loan, the price on the pump on Brainerd Road: these are the dispersed costs of concentrated decisions made in Washington. The bill always arrives closer to home than we think.
Claudia Williamson Kramer is the Scott L. Probasco, Jr., Distinguished Chair of Free Enterprise, Professor of Economics, and Executive Director of the Center for Economic Education at UTC.
