DoDBuzz: Defense Spending Boosts the Economy? Data Says, Not Usually

[unhappycamper]

Defense Spending Boosts the Economy? Data Says, Not Usually
By Greg Grant Thursday, February 5th, 2009 12:53 pm
Posted in Policy

As policymakers in Washington desperately search for ways to resuscitate America’s moribund economy a popular meme is taking hold that higher military spending can help boost the economy. Is that true? Theory aside, the historical evidence is not so clear.

Even House Republicans appear to be jumping on the spend defense money bandwagon, apparently eager to show they remain “strong” on defense. The GOP spokesman, Josh Holly, sent out a response to the initial Obama plan to cut 10 percent from the defense budget with this pop quiz:

~snip~

While the answer would seem to be obvious from Holly’s very rigged choices, the answer is not so simple. The general idea is that when the government increases military spending through borrowing or printing money, it boosts aggregate demand for goods and services. One of those pushing this line is Martin Feldstein, professor of economics at Harvard, and a former Reagan administration economic advisor, who says a chunk of military spending should go into the stimulus plan being debated by Congress. “If rapid spending on things that need to be done is a criterion of choice, the plan should include higher defense outlays, including replacing and repairing supplies and equipment, needed after five years of fighting. The military can increase its level of procurement very rapidly,” he wrote in a Jan. 29, Washington Post op-ed.

Feldstein suggests adding $30 billion a year in military spending to the stimulus package. We’ll look at that figure in just a second. First, does higher military spending really boost economic growth? Two economists at the non-partisan Congressional Research Service recently examined military spending and its effect on the economy. Their analysis shows that only on two occasions, during World War II and the Korean War, can higher military spending be associated with an economic boom.

As the CRS economists explain, World War II stands in a class all its own. Trying to compare a period when military outlays from 1943 to 1945 reached 37 percent of GDP and the structure of the American economy was fundamentally altered, to other post-war economic events is foolish. During the Korean War years, military spending reached 14 percent of GDP, and real GDP grew during the early 1950s. After Korea, the evidence is murky at best. “Vietnam, the Reagan military buildup, and the two wars in Iraq were not large enough to dominate economic events of their time,” CRS says.


Rest of article and discussion at: http://www.dodbuzz.com/2009/02/05/defense-spending-boosts-the-economy-data-says-not-so-much/?wh=wh

[elleng]

1. I wouldn't expect an economic boom from any continued military spending.

Rather, I'd hope for no HARM from a lack thereof.

'only on two occasions, during World War II and the Korean War, can higher military spending be associated with an economic boom.'

[Bonhomme Richard]

2. I understand why WWII and Korea were booms. They were....

the initial massive increase in military spending. From that point on we have maintained huge spending on the military so it has become a mature industry. To put more money into the defense industry would create a few more jobs but certainly no large jump.
On the other hand, pulling a lot of money out of the defense industry would create a large number of layoffs, not unlike to the auto industry closing down. Defense spending and the number of people employed in that industry have become an economic drug that the nation is dependent on.