Beyond The Opportunity Costs of $1 Million Tomahawks


On March 19, American-led allied forces initiated Operation Odyssey Dawn to enforce United Nations Security Council Resolution 1973 and implement an authorized no-fly zone over Libya and to use all means necessary short of foreign occupation to protect civilians. One facet of the operation has received attention to a degree not previously raised in similarly small-scale interventions -- cost -- as coinciding news coverage and analysis has been substantial. The costs of military operations are hardly peripheral to their execution, but rarely has such an exercise of power been so immediately scrutinized in fiscal terms. The attention may indeed be one of the rare constructive legacies arising from the American invasion of Iraq, but it also may signify a broader (and overdue) readiness to recalibrate the expectations and responsibilities placed on the federal government.

Cost of the No-Fly Zone in Terms of What is Known

On March 9, the Center for Strategic and Budgetary Assessments (CSBA) issued a report identifying cost estimates against options ranging from “full no-fly zone” to “stand-off no-fly zone”; the corresponding estimates ranged from $100 to $300 million per week to $15 to $25 million per week. CSBA based the estimate on earlier similar undertakings, principally Operations Northern Watch and Southern Watch over Iraq following the Persian Gulf War in 1991. CSBA produced the analysis to inform decision-making and illustrate available options.

However, as evidenced by subsequent news coverage, the estimate has been used to demonstrate the cost in terms of foregone priorities, specifically deficit reduction.

Evoking President Eisenhower's lament about how military expenditures could have funded hospital and school construction for a decade, operations in Libya have already been criticized for impinging on the (meager) budget reductions already enacted by the new Congress.

According to the January 2011 Congressional Budget Office's "The Budget and Economic Outlook: Fiscal Years 2011 to 2021" (PDF), deficits that will accumulate under current law will increase the federal debt to significantly higher levels. In FY2009, debt totaled less than $6 trillion, or about 40 percent of gross domestic product (GDP), conversely in the FY2010, the debt approximated $9 trillion, or 62 percent of GDP, and by the end of 2021, is projected to total $18 trillion, or 77 percent of GDP.

To date, Congress has only succeeded in reducing planned government spending by approximately $10 billion. The Democratic President has declined to present a budget for consideration and the Republican House of Representatives continues to face off with the Democratic Senate over $61 billion in proposed total reductions.

Regardless of which side prevails, proposed reductions are nowhere near what is required to address the debt crisis.

Returning to CBO projections, interest payments on the debt will "skyrocket" over the next decade. In a December 2010 report, the CBO stated net interest outlays in 2010 totaled $197 billion, or 1.4 percent of GDP.

Stated alternatively, proposed reductions are only 31 percent of interest payments on the debt alone.

Present interest rates are at historic lows -- and they will inevitably rise. By 2020, the combination of rising debt and rising interest rates could result in net interest payments rising to nearly $778 billion, or 3.4 percent of GDP. That figure is 17 percent greater than the Administration’s proposed defense budget of $663.8 billion for FY2010.

And this is the foreseeable future...

Cost of the No-Fly Zone in Terms of What is Unknown

On March 11, 2011, Japan suffered a a 9.0-magnitude earthquake, which triggered extremely destructive tsunami waves of up to 77 feet minutes after the quake, in some cases traveling up to 6 miles inland.

To date, the Japanese National Police Agency has officially confirmed 11,168 deaths, 2,778 injured, and 16,407 people missing across eighteen prefectures, as well as over 125,000 buildings damaged or destroyed. The earthquake and tsunami caused extensive and severe structural damage in Japan, including heavy damage to roads and railways, fires in many areas, a dam collapse, and explosions at three nuclear reactors.

Early estimates placed insured losses from the earthquake alone at US$14.5 to $34.6 billion. The Bank of Japan offered ¥15 trillion (US$183 billion) to the banking system on 14 March in an effort to normalize market conditions. On 21 March, the World Bank estimated damage between US$122 billion and $235 billion.

Japan's government said the cost of the earthquake and tsunami that devastated the northeast could reach $309 billion, making it the world's most expensive natural disaster on record. Estimates of the earthquake's magnitude make it the most powerful known earthquake to have hit Japan, and one of the five most powerful earthquakes in the world overall since modern record-keeping began in 1900.

Japanese Prime Minister Naoto Kan stated, "In the 65 years after the end of World War II, this is the toughest and the most difficult crisis for Japan."

The suddenness and staggering impact of the disaster led two scholars to characterize the earthquake as “Japan’s Black Swan,” employing the label popularized by Lebanese theoretician Nassim Nicholas Taleb.

The earthquake was indeed such an event, but the increasing frequency with which these rare and high impact events have occurred since Taleb published his eponymous book on the phenomenon should give the American body politic pause.

As successive black swan events (the attacks on September 11th, Hurricane Katrina, the economic collapse of 2008) have demonstrated, the present political leadership is incapable of reorienting the government to cope with such contingencies.

To date, the country has been fortunate black swan events have been singular ones. As a recent March 2011 Center for a New American Security (CNAS) report tactfully observed, "U.S. policymakers have not sufficiently considered the impact of limited finances and stretched military capabilities on crisis response in a systematic way, or planned for crises that strike in such quick succession."

Time to Identify What Is Necessary and Sufficient

To be direct, if the country were to suffer multiple emergencies simultaneously, it would be an unprecedented catastrophe -- one that would impair the nation’s future for a generation.

The CNAS report counseled decision-makers to be prepared to weigh the "opportunity costs" of matters peripheral to U.S. interests, but the present circumstances demand a more exacting determination of what will be necessary and sufficient to secure the nation’s well-being into the future.

Acknowledged -- such a proscription is more easily stated than accomplished.

As black swan events cannot be predicted or avoided, Taleb advised minimizing risk, instituting redundancy, and simplifying where possible.

Unfortunately, the nation’s political elite have rarely questioned the expansive functions assigned to American government, even though such expansion has only exacerbated risks (through uncontrolled spending), abetted needless duplication (via the proliferation of bureaucracy and regulations), and complicated routine matters needlessly (see health care and tax code).

Beyond programmatic and spending reductions, decision-makers should be pursuing the comprehensive rationalization of governmental structures and processes and the general retrenchment of roles and responsibilities assumed in the past fifty years.

The Simpson-Bowles Deficit Commission recommendations have received few endorsements, but their breadth provides a benchmark for evaluating the sincerity of decision-makers. If a decision-maker fails to match or exceed their recommendations, they are simply not serious about the crisis facing the nation.

The 2010 election marked a key milestone toward installing new political leadership toward realizing this end. While Tea Party foreign policy inclinations may remain indeterminate, the movement has been consistent and, to date, has evinced a commitment to fiscal prudence that will (hopefully) translate into more judicious use of American power abroad -- where penny-pinching precision munitions is peripheral to the debate.


For additional reading, see 
03/28/11 CRS R41725 "Operation Odyssey Dawn (Libya): Background and Issues for Congress"
04/01/11 Aviation Week, Ares, Libya: NATO Contributions (By The Numbers)