War Costs and Their Impact on Future Productivity Growth

The following quote from a recent Economy.com analysis is worth keeping in mind. It concerns the impact of the costs of paying for the War in Iraq on future U.S. productivity. This is a subtle, but extremely important issue to bear in mind.

"When the government borrows money, it taps into the pool of available savings, potentially making it harder for private borrowers to fund their investments. To the extent that government deficit spending is focused on consumption rather than investment goods, public expenditures do not offset the future productivity losses that result from less private capital accumulation. While the supplemental wartime budget request amounts to only a drop in the bucket of the total federal debt, the consumption of goods and services constitutes much of wartime spending, leading to a relatively large effect on future productivity."

Link. (If you subscribe to Economy.com.)