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Nov 02 2011

Defense Spending, Employment and Republican Cluelessness

The defense industry is now promoting a report that says cutting defense spending will lead to more unemployment. A trillion dollars in cuts over a decade, they say, will lead to the loss of one million jobs. Republicans will undoubtedly start using this report as a reason not to cut defense spending.

An economic impact analysis projects more than one million American jobs could be lost as a result of defense budget cuts if the deficit reduction select committee fails to reach agreement on alternative balanced budget solutions and total cuts to defense reach $1 trillion.

Dr. Stephen S. Fuller, Dwight Schar Faculty Chair, University Professor and Director, Center for Regional Analysis at George Mason University and Economic Modeling Specialists Inc. (EMSI) conducted the analysis on behalf of the Aerospace Industries Association. “Our analysis reveals bleak outcomes for both the defense industry and the economy as a whole if the budget sequestration trigger is pulled and $1 trillion is cut from defense,” said Dr. Fuller.

“Dr. Fuller and EMSI’s study shows the dramatic and devastating impact these cuts would have, not only on our industry but on the economy at large,” said AIA President and CEO Marion C. Blakey. “Congress must find budget deficit solutions that don’t sacrifice the jobs of those who supply the American warfighter.” “We cannot add .6 percent to the current 9.1 percent rate of unemployment, it would devastate the economy and the defense industrial base and undermine the national security of our country,” she added.

Funny, Republicans seem to think that defense spending is the only kind of spending that creates jobs. Infrastructure projects, it seems, are completed without a single worker. Except at the local level, of course. After the stimulus bill was passed, every single Republican legislator was writing letters to the Department of Transportation, the Department of Energy and other agencies tasked with spending the money, begging them to fund projects in their district because of all the jobs those projects would create there. And yet nearly every one of them still went out and argued that the stimulus bill didn’t create any jobs at all.

And this report, while likely exaggerated, is undoubtedly correct. Less spending on defense does reduce employment. But that isn’t really an argument against those cuts. Defense is not a make-work program. The same should be true of infrastructure spending. We shouldn’t be funding useless projects just to create jobs. But there are lots and lots of things we need to build or maintain far more than we need more bombs and tanks. We should start by building a smarter, more robust electrical grid and upgrading our terribly outdated water and sewage systems.

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  1. 1
    fifthdentist

    You know who else funded road projects?

    You know who else spent massive amounts of money on a military that was much more than needed purely for national defense? Oh, wait …

  2. 2
    davidct

    After bouncing along Interstate 20 through Alabama and Mississippi, I can see better uses for money that to keep our killing machine bigger than it needs to be. We don’t even have a good idea how to use it. We have the finest military machine in the world but we are unable to achieve anything but Pyrrhic victories. Spending more money on the machine will not help this. It would be better to spend money on learning how to avoid wars that do not improve the lives or real security of Americans. Having a superior military seems to make it just too easy to use foolishly.

  3. 3
    Doug Little

    The jobs won’t be lost, they will just move to a new industry. Hopefully one that doesn’t involve the killing of others. Why does it seem that Republicans have short memories and are short sighted, they seem to be living in a bubble of now unable to look back at mistakes made in the past or to look forward at the potential problems of the future.

  4. 4
    paulwiele

    More dedicated passenger rail lines would be nice, too. Except for the Acela line, our tracks are old, not built for high-speed travel, and used primarily for huge, slow freight… which would be fine if there weren’t passenger trains stuck in traffic behind them.

    I live in Rochester, my family lives in southern NH. I hate TSA and mildly dislike flying anyway, I don’t own a car, and 3 of the 7 times I’ve taken the bus, it has broken down. Amtrak would be incredibly convenient for me if it didn’t take 13 hours to get to Boston from here… If it’s on schedule, which it’s usually not, because it has to yield to every freight train in the world and if it approaches a decent speed (read: slower than many highway drivers or any train in Europe) it starts wobbling alarmingly.

    Sadly, as far as I can tell, those high-speed rail lines they were going to have “shovel-ready” seem to have gotten stuck in development hell thanks to idiot congresscritters (usually the ones with an “R” and a southern state next to their names) who think a train from Los Angeles to Las Vegas is going to undermine the moral fiber of the entire Southwest or something. Ugh. My hometown, Nashua, NH, used to be right along the line from Boston to Montreal. I wish we’d had that when I was growing up… it closed in the 60s.

  5. 5
    Zugswang

    Given the incredible amount of fraud defense contractors engage in, I’m sure we can afford to not only cut defense spending, but also divert funds to hire more government contract auditors. I bet the amount of money saved by rooting out more bad players pays for itself and then some.

  6. 6
    Vall

    “We should start by building a smarter, more robust electrical grid and upgrading our terribly outdated water and sewage systems.”

    I feel we need a strong military, but how strong? Charles Maynes points out in his paper “Principled Hegemony” that “the American military budget is larger than all the other major military states combined.”

    I wouldn’t slash the military budget, but it damn sure can be scaled back a little at a time. Like Ed says, we can spend on roads, electrical grid, etc.

    Thunderf00t had a good idea too. Build hospitals with some of that money. Train doctors.

    There are many ways to put our wealth to better use.(make no mistake, that is OUR money and our elected officials always forget).

  7. 7
    Michael Heath

    Cutting guns without reporting the resulting uptick in jobs by increased spending in butter, whether by the private sector if the spending cut is real or whether government spending is transferred to butter projects, is either incredibly dishonest or they’re incredibly illiterate. I go with both conclusions.

    I think it’s safe to assume Republican leaders will continue to avoid the subsequent ramifications beyond Defense when it comes to debating Defense spending. I think it’s also safe to assume many Democrats with a vested interest in the Defense industry will do the same.

    I do think we need to be careful about how we cut defense spending, not primarily due to security concerns because much of the current infrastructure contains a threat which no longer exists, but instead because of the effects of such cuts on economic growth and jobs. There’s also no doubt our security priorities are mismatched to threats, we still fight the Cold War while avoiding adequately preparing for and containing biological, chemical, and cyber-attacks. Instead cutting defense without thinking about the bigger economic ramifications is a mistake we can’t afford to make. Especially given the fundamental and structural weakness of our economy given our failure in the 80s, 90s, and 00s to transform ourselves into a global economic participant specific to our labor, energy, healthcare, and capital markets. From this perspective cutting defense needs to be considered within the light of how we simultaneously use butter to defend and grow our economy; an area of the economy where conservatives repeatedly and falsely claim government can’t create one single job – in spite of begging for those same monies for their districts.

  8. 8
    fifthdentist

    Vall said: Charles Maynes points out in his paper “Principled Hegemony” that “the American military budget is larger than all the other major military states combined.”

    Not only that, most of the rest of the top 10 are our allies. One of my senators here in Georgia has never met a wasteful defense project he didn’t love, especially if the pork is being shoveled into a local defense black hole.
    We could easily cut our military budget significantly and have a more than adequate defense force. We probably wouldn’t be able to invade every country that pisses us off, which is why Republicans are against it.

  9. 9
    Doug Little

    More dedicated passenger rail lines would be nice, too.

    Hell to the Yeah, on that one, living in the suburbs of a major city that doesn’t have any established rail system sucks. I’m sure that the revenue raised by nailing drunk drivers offsets the will to install one though. Actually I really think that without a mass transit system Detroit is severely handicapped when it comes to trying to revive the inner city, I know that I would spend more dollars downtown if I could just hop on a train .

  10. 10
    Vall

    @Michael Heath,

    I can’t judge the whole military, but the Navy has been moving away from the Cold War model for a long time.

    I agree any cuts should be carefully considered. It is a complex machine.

  11. 11
    The Lorax

    I’m seeing paved roads in my town turn slowly into gravel, due to shoddy upkeep or a complete lack thereof.

    Why are we putting all this money into defending America? Shouldn’t we be putting some of it into making America worth defending?

  12. 12
    had3

    Wait a minute, doesn’t $1T divided by 1m workers equal $1m per worker? It would seem that we could hire 2m people @ $50k/yr for 10 years and come out with a net increase of 1 million jobs, not including the ‘trickle-down’ effect of having an extra 1 million employed. Maybe my math’s incorrect.

  13. 13
    gingerbaker

    Michael Heath:

    “…There’s also no doubt our security priorities are mismatched to threats,…”

    Here is a simple solution – redefine our definition of a ‘threat to national security’.

    Considering the challenges which lie ahead for the U.S. because of peak oil and the global warming effects on agriculture and seaboard flooding, our greatest threats lie within our borders, not from those that are outside. Defending our ability to feed our people, revamp our energy and transportation systems, and protect our economy from the devastating effects of our major port cities from being destroyed by rising waters, could be the new mission for our military.

    The Army Corps of Engineers and the CIA should be the only divisions that get any money in future, at least in Gingerbaker World.

  14. 14
    Abby Normal

    How about a compromise, order our soldier to upgrade our power grid, rail lines, and sewage system. Order them to repave our roads, and fix our bridges. A strong infrastructure supports a strong national defense. Military spending stays high, jobs are preserved, and the nation gets it’s much needed repairs.

  15. 15
    Dennis N

    I’m sure we could re-purpose many of those military scientists and funding from building missiles and bombs to woefully underfunded NASA. It’s not like NASA hasn’t been a huge return on investment or anything.

  16. 16
    Area Man

    “Wait a minute, doesn’t $1T divided by 1m workers equal $1m per worker?”

    First of all, it’s $1T over ten years, or $100B a year. That would be $100,000 per worker. Secondly, not all of the money is spent on labor. A lot of it goes to materials, etc.

    Actually, $100,000 per worker seems too low. I’m quite certain that they’re calculating knock-on effects, such as the people who are hired to work in the restaurants that feed the people who work in the defense industry, etc.

  17. 17
    Area Man

    Cutting guns without reporting the resulting uptick in jobs by increased spending in butter, whether by the private sector if the spending cut is real or whether government spending is transferred to butter projects, is either incredibly dishonest or they’re incredibly illiterate.

    There’s no reason why cutting defense spending itself would increase demand by the private sector, unless we were already at or near full employment. And if the idea is to cut the deficit, then it would not be off-set by increased government spending elsewhere either. So, at least under current circumstances, cuts in defense spending would indeed cost jobs. That’s because cuts in any spending costs jobs.

    The real issue of course is the right’s incredible capacity for double-think. We need to address the deficit right now! But don’t cut defense spending, because that would be bad for the economy! But don’t spend money on roads and schools, because that’s just wasteful!

  18. 18
    Vall

    @Abbey Normal,

    I like the idea, but consider soldiers don’t build OR maintain infrastructure even on post anymore. It is all sub-contracted out to companies like Haliburton and Gneral Dynamics. This is recent and all thanks to that nipplehead Rumsfeld. Funny how this happened when the Darth Cheney was in office.

    If you want to cut military spending without upsetting the whole thing, I would suggest starting with sub-contractors.

    If our politicians just have to spend, NASA is a good place.

  19. 19
    lynxreign

    The same should be true of infrastructure spending. We shouldn’t be funding useless projects just to create jobs. But there are lots and lots of things we need to build or maintain far more than we need more bombs and tanks. We should start by building a smarter, more robust electrical grid and upgrading our terribly outdated water and sewage systems.

    Sure, a smart electrical grid and better water and sewage systems are great, but it isn’t like we have a lack of infrastructure projects that are really needed. Road and bridge repairs are desperately needed across much of the country. I believe most estimates are somewhere in the range of $4 trillion worth of repairs on existing systems are needed. Throw in a smart energy grid and improving other systems with new technology and we could probably double that number.

    The real shame is that the “debt crisis” is entirely imaginary and we could spend this money and employ people right now. Unfortunately nearly all pundits and politicans are horribly ignorant when it comes to economics and have no interest in learning. It doesn’t help that a lot of economists are more wedded to political ideology than actually researching economic theories.

  20. 20
    Michael Heath

    Area Man in response to me:

    There’s no reason why cutting defense spending itself would increase demand by the private sector, unless we were already at or near full employment.

    Yes it would, absolutely and unequivocally. If we cut taxes equal to defense cuts than we would absolutely see an increase in investment in butter-type projects as private investors make plays with their increased savings. If we instead redirect defense spending we absolutely will see increased investment/expenditures in butter projects. I didn’t provide a net change impact on GDP or jobs, I instead argued one can’t make any conclusions on defense spending cuts without considering all the marginal impacts that go along with such cuts. Analyzing marginal changes based on competing policy prescriptions is one of the fundamental reasons we study economics.

  21. 21
    Michael Heath

    lynxreign:

    The real shame is that the “debt crisis” is entirely imaginary and we could spend this money and employ people right now. Unfortunately nearly all pundits and politicans are horribly ignorant when it comes to economics and have no interest in learning.

    First no one is behaving as if the debt is a crisis. We hear some rhetoric like that but usually it’s from people who have no intentions of confronting this topic unless it helps them cut taxes further and slash entitlements, which would of course aggravate debt due to decreased economic growth.

    But the debt is an incredibly big problem which is becoming increasingly more urgent that we solve. First due to an aging population, second due to our increasing mismatch between the characteristics of our supply of labor compared to the type of labor demanded, third because in the future we’ll have higher interest rates which will significantly consume future federal budgets – leaving less money for current spending needs, and lastly because we’ll have less money to spend on mitigating the costs of climate change.

    I think the big lie which even Democrats almost universally and passively concede or support is we don’t have an ample amount of wealth and income to reform our budget and invest and spend in items necessary for future growth and security. The president leads this group when he won’t even propose budgetary reform without massive spending cuts. We have more than enough money; we instead are faced with an obstructionist Republican party who have no interest in working in the nation’s interests, enjoy sufficient political power to obstruct working in the nation’s interest, and are morally bankrupt enough to be effective obstructionists.

  22. 22
    Area Man

    Yes it would, absolutely and unequivocally. If we cut taxes equal to defense cuts than we would absolutely see an increase in investment in butter-type projects as private investors make plays with their increased savings.

    First of all, no one is talking about pairing cuts in defense spending with equal dollar cuts in taxes. Cuts in defense spending are on the table as a means of reducing the deficit. Of course, whether we cut taxes or borrow less, there’s more money available to the private sector.

    But here’s the rub: If private investors were willing to put their savings into private sector investments, why aren’t they doing so now? Firms are sitting on huge piles of cash, interest rates are near zero, and unemployment is 9%. Instead, investors are lending money to the government for free. This is their way of saying that there are no good private sector investments. Giving them even more money will not change that. It might increase investment a little at the margins, but investment spending would necessarily be far less than the government spending cuts.

    If we instead redirect defense spending we absolutely will see increased investment/expenditures in butter projects.

    This is true. But the deficit commission is being tasked with, you know, cutting the deficit, not redirecting spending in a budget-neutral way. And if the commission can’t reach an agreement, defense spending gets an automatic cut with nothing to take its place.

  23. 23
    lynxreign

    @Michael Heath – 21

    But the debt is an incredibly big problem which is becoming increasingly more urgent that we solve.

    I’m sorry, but that’s simply wrong.

    First, 90% of the debt is owed to the US Government. If the president wanted to, he could use coin seigniorage to wipe out that portion of the debt and the interest payments that go with it, payments that are just the government paying itself.

    Second, study Modern Monetary Theory. I thought it sounded weird at first, but the more I read, the more sense it made. It is the only economic theory that recognizes that we’re not on the gold standard any more. The limiter for inflation and debt is unemployment and at 9% we have plenty of room for spending. We can’t go broke, we control our money supply.

    A Primer on MMT.

  24. 24
    lordshipmayhem

    I seem to recall a story – I’m unsure if it’s urban legend or not, but…

    It seems the Chinese government was looking to save some money. They discovered a rail line, and a unit of PLA infantry, in the middle of the desert.

    When asked why the troops were there, the PLA officer in command said they were assigned to keep the sand from the desert from covering up the railway tracks.

    When asked why the rail line was there, the investigators were told, “We need to keep this unit of the Army supplied!”, indicating the same unit whose job it was to keep the tracks clear of sand.

    The troops were reassigned and the tracks abandoned.

    Lesson: there are times when you’re just making work for each other. The defence industry is just making work for the other countries’ defence industries. Let’s cut back just enough to keep everyone from going bankrupt, shall wee?

  25. 25
    Aquaria

    More dedicated passenger rail lines would be nice, too.

    This.^

    We’re supposed to get a high speed rail between San Antonio and Austin, which would make my life last longer and be a hell of a lot more relaxing. Driving between the two cities on I-35 is like asking to be killed. When I have time, I try to take 281 to 290, but I usually don’t have the time to spare. So it’s onto the 35 with all the lunatics who seem to think that the posted 70 MPH speed limit is a mere suggestion.

    The rail was supposed to come on line next year. Now it’s looking like we won’t have it until 2013. If that. What takes so long? I want to tell them to hire those guys down in the Valley who got a freeway mixmaster up and operational within a year.

    But it’s being bogged down–of course.

  26. 26
    Marcus Ranum

    That fits real well with the report that over $600m in fraud, waste, and abuse was identified in the Iraq and Afghanistan wars, amounting to $1 in $6 spent.

    We could replace all those jobs cut from the DoD with minimum wage positions. Isn’t that what the republicans want? More wage-slaves!

  27. 27
    Michael Heath

    Me earlier:

    But the debt is an incredibly big problem which is becoming increasingly more urgent that we solve.

    lynxreign:

    I’m sorry, but that’s simply wrong.

    First, 90% of the debt is owed to the US Government. If the president wanted to, he could use coin seigniorage to wipe out that portion of the debt and the interest payments that go with it, payments that are just the government paying itself.

    Do you such a peer-consensus citation your solution wouldn’t be catastrophic? This seems more extreme than Ron Paul wanting to go the gold standard or using prayer instead of science to treat infirmities.

  28. 28
    Michael Heath

    Also, lynxreign, do you have a citation that corroborates your claim that 90% of the federal debt is owed to itself?

  29. 29
    lynxreign

    @Michael Heath

    Nice Ad Hom there. Don’t bother to do any reading, just declare it crazier than Ron Paul and faith healing. I know learning new things can be scary, but give it a try. “Do you such a peer consensus citation” that is it crazier than Ron Paul?

    Funny, I thought you were smarter than that.

    I got the information on-line with a break-down, but I have to try to find it again. The highest foreign debt owner is China, they own all of 8% of our debt and they are far and away the largest non-US-Government owner of our debt.

  30. 30
    dingojack

    So, lynxreign, the answer is no, then. Thanks
    :) Dingo

  31. 31
    lynxreign

    @Michael Heath

    My apolgies about the 90%, I misremembered what I’d read. I can’t find the original post, but looking on the web, it appears to be 40% US Government, 30% US Investors, 30% other nations.

    So we could pay off the 40% to ourselves with little problem, I don’t think you’d want to force investors to give up their 30% and deny them new investment opportunities, but who knows, maybe you do.

    And none of that addresses the point that we control our own money supply and literally cannot go bankrupt. Try reading up on MMT and keep an open mind. I was very dubious when I first started reading about it, but I read and then read the criticisms and then read rebuttals and so on. In the end, it makes sense. Keynes was great, but he had to worry about the gold standard. The right-wing trickle-down nonsense has been proven wrong in the real world three times now (Long Depression, Great Depression, Current Recession) and deserves little further consideration.

  32. 32
    lynxreign

    Dingojack

    No to what? The link? I was trying to find it at the time and when I realized I’d remembered what it said incorrectly (though I am unable to find the original I accepted what I found at other links, checking multiple links to get the consensus) and corrected myself.

    If you think the debt is actually a problem, why not tell me why you think that? I told you why I don’t and provided a link.

    Or are you implying that because I didn’t immediately respond to someone who provided no evidence for their point or refutation beyond calling me crazy, that that perons is automatically right and I’m wrong? Sad if that’s the case.

  33. 33
    Michael Heath

    lynxreign:

    So we could pay off the 40% to ourselves with little problem

    Uh, no, because those borrowings were used to pay entitlements which are owed to current beneficiaries. When we look at unbooked liabilities for future entitlement liabilities that calculates out to more than $58 trillion the last time I saw this report (which was in 2010). As I noted earlier, our federal debt is a very real problem which guarantees far less than optimal results if don’t confront that debt. Interest paid on the debt is real where we can’t inflate our way out of this problem; in fact using inflation ultimately increases the share of federal revenues which must be allocated to debt service as interest rates rise, decreasing the amount which can be allocated for other budgetary items.

    lynxreign:

    And none of that addresses the point that we control our own money supply and literally cannot go bankrupt.

    I highly suggest reading credible economists to understand why this is an incredibly absurd comment.

    lynxreign:

    Try reading up on MMT and keep an open mind.

    This is exactly why I used the creationist reference, because it is equivalent to the creationist argument, not merely similar, equivalent. Feasible explanatory models survive the scrutiny of peer-review, therefore those of us who are not leading experts in the field are wise to consider only those explanatory models which are able to survive the scrutiny of experts and become consensus positions. Certainly I have my positions which differ from the consensus view*, but they are humbly held and held and argued within the context of the best and brightest in the field assert. I do not make provocative and bold claims with certainty on how to mitigate our challenges which you’ve repeatedly done here.

    *I’m skeptical we haven’t encountered a fundamental paradigm weakening in the strong correlative relationship between GDP and demand for labor. I think it’s dramatically weaker and can’t be wholly explained away by productivity gains. Krugman et al, including fresh water economists I’ve encountered disagree and remain optimistic that all we lack is political courage on fiscal budgetary policy to return to a healthy labor market. I’d instead argue the past paradigm is dead given the advent of the global economy where we require dramatic reforms of domestic policy and defense spending well beyond mere prudent fiscal policy in order to return to a thriving labor market. Such as a dramatic transformation of skill sets in our population.

  34. 34
    lynxreign

    Uh, no, because those borrowings were used to pay entitlements which are owed to current beneficiaries.

    So if one part of the government borrowed from another to make those payments, why is paying off that debt a problem?

    As I noted earlier, our federal debt is a very real problem which guarantees far less than optimal results if don’t confront that debt.

    No, it isn’t. You haven’t given any solid reasons it is. You claim the interest owed is a problem, but 70% is investment of one kind or another by American citizens or is simply interest we’re paying to ourselves.

    I highly suggest reading credible economists to understand why this is an incredibly absurd comment.

    I have, it isn’t.

    This is exactly why I used the creationist reference, because it is equivalent to the creationist argument, not merely similar, equivalent.

    No, you used it because it was a simple way to ridicule without bothering to understand.

    therefore those of us who are not leading experts in the field are wise to consider only those explanatory models which are able to survive the scrutiny of experts and become consensus positions.

    Like all those “consensus opinions” that lead to the last 10 years of disasterous, wrong-headed economic policies?

    but they are humbly held and held and argued within the context of the best and brightest in the field assert.

    Bull. You’re asking me to rely on your definition of “best and brightest” for one thing and I’ve already pointed out their failures. There are huge problems with the exercise of economics the way those “best and brightest” practice it, not least of which is their marked preference for theory over reality to the point of ignoring reality completely and dismissing where their ideas fail.

    I think it is hilarious how you claim your ideas fall within the context of these “best and brightest”, but your comment below explains how you disagree with them all. Humble, my ass.

    Such as a dramatic transformation of skill sets in our population.

    Now that is some “pie in the sky” crap if ever I heard it. Completely unachievable, unsupported by evidence and vague to boot.

    You simply have no idea what you’re talking about and don’t want to put in the effort of learning. That’s why you make dismissals like “crazy as creationists or Ron Paul.” I’m sure you have fun being part of the problem.

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