War in Southeast Asia that helped lead to skyrocketing inflation and economic stagnation in the 1970s in the United States because of the way the administrations of Presidents Lyndon B. Johnson and Richard Nixon chose to manage the economy.
In an effort to prevent the spread of communism, the United States became involved in the Vietnam conflict in 1954. Vietnam had been controlled by the French before World War II and was conquered by Japan in 1940. Ho Chi Minh led a nationalist group that fought the Japanese and gained control over most of northern Vietnam by 1945. The French returned after World War II and attempted to regain power, but they met resistance from Ho Chi Minh’s forces as they moved north. Both Great Britain and the United States denied French requests for military assistance, but the United States, believing that Ho Chi Minh had communist leanings and fearing the spread of communism, sent military advisers. The policy of providing advisers was expanded by President John F. Kennedy, who sent U.S. Army Green Berets to Vietnam in 1961, and finally by President Lyndon B. Johnson, who refused to be the first American president to lose a war and sent as many as half a million troops into the fighting during the 1960s. The United States withdrew its forces from Vietnam in 1973, and it is generally agreed that American forces lost the war.
Estimating the costs and impact of the Vietnam conflict is difficult because of how the U.S. government financed it. Official estimations at the time excluded many costs and, under the administration of President Lyndon B. Johnson, officials recorded expenses in a misleading manner or purposely underestimated them. In fact, the government did not begin to officially estimate the costs of the war until 1965.
From 1954 to 1963, the early years of U.S. involvement in Vietnam under the administrations of Presidents Dwight D. Eisenhower and John F. Kennedy, the conflict had virtually no effect on the nation’s economy. Over the first dozen fiscal years of the war, the nation spent nearly $2.4 billion—only 0.04 percent of the gross national product and 0.53 percent of the nation’s defense spending. The cost in manpower, not figured in this total, proved even more insignificant. Throughout the 1950s, the salaries of military personnel cost the nation $15 million annually, rising to $18 million in 1961. Although economic growth in the United States during Eisenhower’s term in office (1952-1960) totaled less than in the post-World War II era (1945-1952) and the nation had experienced mild recessions in 1945,1949, and 1958, the economy continued to grow at 2.4 percent.
The 1960 recession helped John Kennedy become president. His financial advisers decided to combat this slowdown using the Keynesian method of stimulating the economy, thus leading to high employment and economic growth through increasing deficit spending, tax cuts, and increasing the money supply. In theory, the right combination of these elements would ignite the sluggish economy. Yet, such a monetary policy runs the risk of causing a rise in prices. Thus, defense spending rose to $52 billion in 1963, or 9.1 percent of the gross national product. Still, Vietnam only cost the American taxpayers $414 million in 1963.
Scholars have debated this monetary policy’s effect, but it did stimulate the economy. Economic growth revived, growing by 5.5 percent in 1964 and 6.3 percent in 1965. Unemployment fell from 5.4 percent in December 1964 to 4.4 percent in December 1965. The price index (an inflation indicator that measures how prices vary for a fixed group of products and services) remained stable, rising by 1.6 percent in 1964. By 1965, unemployment dropped down to 4.2 percent and gross domestic product grew at slightly under 5 percent. According to Keynesian thought, there would be time in 1966 to restrain the economy through decreased government spending, increasing taxes, and a tighter monetary policy; otherwise, the economy would be at risk of burning out of control.
President Johnson pursued almost the opposite track. Deeply involved in his Great Society domestic programs (welfare programs based on income redistribution), he increased deficit spending to finance the Vietnam conflict. This combination of “guns and butter” helped lead to economic inflation. As Johnson increased the U.S. presence in Southeast Asia—from 200,000 troops in 1965 to 536,000 troops three years later—the budget deficit grew. The president’s spending on the war increased from $100 million in 1965 to $28.8 billion by 1969. With the economy in full swing, the annual inflation rate rose to 4.7 percent in 1968. With the influx of cash and a limited number of goods, the consumer market experienced inflation, which would continue into the 1970s.
Some economists also believe that the Vietnam conflict created an atmosphere that affected the entire society. It altered people’s decisions, investments, and trust in the government. It also affected the career choices of young people, marriage rates, the number of children couples decided to have (in 1965 the average household had three children; by 2002 that rate had declined to 2.5 children per household), the divorce rate (which has increased since the 1960s), and home ownership (which has decreased). From the gloom of the Tet offensive (in which North Vietnamese soldiers attacked the U.S. embassy in the southern capital of Saigon before being repelled, the act that turned U.S. public opinion against the war) to the social instability of war protests on college campuses and in cities nationwide (often characterized by clashes between citizens and police and sometimes— as at Kent State University in Ohio and Jackson State University in Mississippi—in students’ deaths at the hands of U.S. National Guardsmen or local police, respectively), Americans changed how they lived their lives, and the effects on the economy cannot be estimated. Because the Vietnam conflict cost more than $500 billion and perhaps as much as $900 billion, Johnson would have to make sacrifices in his Great Society, whose costs in urban problems also cannot be calculated because housing shortages and substandard housing continued into the late 1960s and became one cause of urban riots in 1966 and 1967. The total cost of the Vietnam conflict to the economy will remain unknown.
