By George Washington of Washington’s Blog.
I have written extensively on the fact that this is not a normal cyclical recession, and we’re not in the type of “jobless recovery” which we’ve had a couple of times in the last 50 years. Unemployment will continue rising in America for some time, which will make a real, sustainable recovery very difficult.
The heads of two Federal Reserve banks are now saying something similar:
Janet Yellen, president of the Federal Reserve Bank of San Francisco, and Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, warned that rising unemployment could crimp consumers, restraining the recovery. Consumer spending accounts for about 70 percent of economic activity.
But instead of doing anything to encourage a sustainable recovery in employment – such as rebuilding America’s manufacturing base, or breaking up the too big to fails so that the smaller banks have a chance to grow and lend more to individuals and small businesses (see this and this) – the government has simply thrown money at the banks.
Moreover – contrary to what you might have heard – PhD economist Dean Baker pointed out yesterday that America’s massive military spending on unnecessary and unpopular wars actually lowers economic growth and increases unemployment:
Defense spending means that the government is pulling away resources from the uses determined by the market and instead using them to buy weapons and supplies and to pay for soldiers and other military personnel. In standard economic models, defense spending is a direct drain on the economy, reducing efficiency, slowing growth and costing jobs.
A few years ago, the Center for Economic and Policy Research commissioned Global Insight, one of the leading economic modeling firms, to project the impact of a sustained increase in defense spending equal to 1.0 percentage point of GDP. This was roughly equal to the cost of the Iraq War.
Global Insight’s model projected that after 20 years the economy would be about 0.6 percentage points smaller as a result of the additional defense spending. Slower growth would imply a loss of almost 700,000 jobs compared to a situation in which defense spending had not been increased. Construction and manufacturing were especially big job losers in the projections, losing 210,000 and 90,000 jobs, respectively.
The scenario we asked Global Insight to model turned out to have vastly underestimated the increase in defense spending associated with current policy. In the most recent quarter, defense spending was equal to 5.6 percent of GDP. By comparison, before the September 11th attacks, the Congressional Budget Office projected that defense spending in 2009 would be equal to just 2.4 percent of GDP. Our post-September 11th build-up was equal to 3.2 percentage points of GDP compared to the pre-attack baseline. This means that the Global Insight projections of job loss are far too low…
The projected job loss from this increase in defense spending would be close to 2 million. In other words, the standard economic models that project job loss from efforts to stem global warming also project that the increase in defense spending since 2000 will cost the economy close to 2 million jobs in the long run.
Note 1: Global Insight is:
Recognized as the most consistently accurate forecasting company in the world.
Note 2: A paper published in 2007 by the The Political Economy Research Institute at the University of Massachusetts, Amherst entitled “The U.S. Employment Effects of Military and Domestic Spending Priorities” concludes:
We present in Table 1 our estimate of the relative effects of spending $1 billion on alternative uses, including military spending, health care, education, mass transit, and construction for home weatherization and infrastructure repair…
As we see, defense spending creates 8,555 total jobs with $1 billion in spending. This is the fewest number of jobs of any of the alternative uses that we present. Thus, personal consumption generates 10,779 jobs, 26.2 percent more than defense, health care generates 12,883 jobs, education generates 17,687, mass transit is at 19,795, and construction for weatherization/infrastructure is 12,804. From this list we see that with two of the categories, education and mass transit, the total number of jobs created with $1 billion in spending is more than twice as many as with defense.
Note 3: I honor the brave veterans and active-duty soldiers who have served our country. They are not responsible for the policies of the civilian leadership. Indeed, if you talk to soldiers, many will tell you they think we are involved in wars we shouldn’t be in.
Note 4: I am for a strong defense. That’s not what this is about.
But we got into the Iraq war based on the false linkage of Saddam and 9/11, and false claims that Saddam had WMDs. Nobel prize winning economist Joseph Stiglitz says that the Iraq war will cost $3-5 trillion dollars.
And experts say that the Iraq war has increased the threat of terrorism. See this, this, this, this, this and this.
(Incidentally, torture also reduces our national security).
71 comments
Comments are closed.
Deficit spending should be an investment, like all debt, and should be justified by providing a high return on the spending for the country.
One would think that defense spending on foreign wars, with its high uncertainty and costs, would be held to a higher standard than spending on infrastructure, health care, and education, where the return is better known and the cost more controllable.
The opposite seems to be the case, and the reason why seems to have more to do with what is best for defense contractors than what is best for our country.
“Defense spending” is the only thing sustaining leading edge industrial technologies inside the USA at this point.
There is zero point zero zero indication that given authority over the resources currently devoted to “defense spending” that the “private sector” as it is presently constituted would do anything different than what it has already done with now-defunct domestic consumer industries and just about everything else.
This is off-shore and outsource in pursuit of short term buy-low sell high profits for a tiny of circle of upper management. The method is the usual labor arbitrage by partnering with foreign firms and regimes following longer term strategies.
If “George Washington” has any evidence to the contrary, please produce it. And it had better be pretty compelling. Mere assertion simply doesn’t cut it in view of the “private sector’s” demonstrated track record of the last two decades.
Also, Global Insight and PhD economist Dean Baker are the ones running the numbers, not me.
Not having spent $3-5 trillion in Iraq means the GOVERNMENT would have $3-5 trillion more to spend on job creation.
True?
I’m afraid I have to side with charcad here. Government jobs aren’t the same as private sector jobs. Yes, they’re jobs, but they’re not oriented towards the production of goods and services in the same sense.
You can talk about Keynesian multipliers until you’re blue in the face, but there is no empirical evidence for them — and if you insist on using model estimates, then “defense” spending should have a very healthy multiplier as well.
I’m very much against the wars for humanitarian, diplomatic, and international not-looking-like-an-arse-because-you’re-kissing-Israel’s reasons. We should transition off oil and get the hell out of the Middle East.
But when it comes to economic problems, we have much larger fundamental issues right now. charcad enumerates a few of them. We really need to get our houses in order on a lot of really basic real economy things before further distorting the real economy by throwing a bunch of big numbers around in the financial overlay.
ndk: I take your posts seriously. Your thesis that “we” cannot inflate ourselves from our predicament given the yuan-dollar tie lingers in the back of mind whenever I read macro-policy. But are you committed to some “Ricardo-ian” equivalence? Is a multiplier theoretically impossible, or is its occurrence dependent on circumstances, or ….?
I did anticipate where this exchange might go, and confirmed that by glancing over the later comments (which I still might join, as if it matters); but the obvious question was raised: Haven’t we all read, more than once the last year or so, from both critics of Roosevelt and defenders of Keynes, that not until the run-up to the war was enough “money printed” (I love the inaccuracy) to end the Great Depression I?
“m” Marxists like me get the idiocy of breaking-windows to create jobs that warfare amounts to. But you’re categorically opposing deficit spending for any purpose in any circumstance?
And charcads retort that “defense” spending is the only thing sustaining leading edge technology in the US today is not a refutation of Baker’s argument. It’s only evidence for these being the direst of economic circumstances.
ndk: I take your posts seriously.
I wouldn’t, were I you. :D
But are you committed to some “Ricardo-ian” equivalence?
I think some limited amount of equivalence exists, but surely not enough to offset the government expenditures completely.
Is a multiplier theoretically impossible, or is its occurrence dependent on circumstances, or ….?
It’s theoretically quite possible. Lots of things are theoretically possible.
Empirically, it’s never been observed, even when tried in more closed modern economies. And even if you are fond of models, there are different ways to model the problem, leading to different answers. As the depressed Japanese conclude in one of a large number of papers(they’re much more pessimistic about fiscal stimulus than we are at this point):
I did anticipate where this exchange might go, and confirmed that by glancing over the later comments (which I still might join, as if it matters); but the obvious question was raised: Haven’t we all read, more than once the last year or so, from both critics of Roosevelt and defenders of Keynes, that not until the run-up to the war was enough “money printed” (I love the inaccuracy) to end the Great Depression I?
Yes, but as Barro’s empirical work has demonstrated fairly conclusively to me, this is basically a myth to suit biases.
“m” Marxists like me get the idiocy of breaking-windows to create jobs that warfare amounts to. But you’re categorically opposing deficit spending for any purpose in any circumstance?
No, not at all. It has its place in the world.
I just think that it’s exceedingly unlikely to generate positive growth in a liquidity trap, and can at best just increase the welfare and happiness of people in a depressed economy. If we’re not in a liquidity trap, it’s likely to raise real interest rates and exert deflationary pressures in the process — a stance that puts me pretty squarely at odds with most economists.
That all aside, see Osaka’s earlier analysis that shows we theoretically may see crowding out of private demand anyway(again, I prefer empirical studies, but hey). We certainly at the very least should agree that we will see reallocation of supply to meet the set of goods and services the government demands, which will by definition be different from those of the private sector. This is the entire point of government spending in normal times, after all: help those less fortunate and do the projects that make sense for the community that are too large or too inherently difficult for the private sector.
Krugman conceded that the prospects for fiscal stimulus were poor (particularly with negative real equilibrium interest rates, which I believe we have today here) back when he was sane, before the Bush the Second. It remains the most brilliant writing I’ve seen on the subject, and I wish we had that Krugman back.
And charcads retort that “defense” spending is the only thing sustaining leading edge technology in the US today is not a refutation of Baker’s argument. It’s only evidence for these being the direst of economic circumstances.
Agreed. My hunch is they’re right but for the wrong reasons. But that’s just a hunch; they’re the pros, and I’m the punter in the basement.
Sorry, those are terrible links to have chosen. I found what I wanted in a cache, as the original seems to be gone(warning: PDF): Why has Fiscal Policy Disappointed in Japan? – Revisiting the Pre-Keynesian View on the Ineffectiveness of Fiscal Policy, by Werner
So ndk . . . look. Barro is not a sufficient source for your sweeping contention. I would further say that he’s not even a credible source. And, btw, he has _no_ idea what Keynes said or supposed, or at least based on his published remarks in that article he presents not a glimmer of it. Instead, he sets up the usual ‘reality denier’ strawmen of the last generation as a basis to advance his _highly_ questionable assertions.
I’m not really prepared to delve into this issue in detail. I don’t have the time. And frankly, I don’t have the interest, not least because an inordinate amount of the discussion in regarding this particular debate is absorbed in weaving through _ideological fog_ of the sort that Barro is blowing heavy. But please, this ‘multipliers don’t work’ position, give it a rest. One can argue against stimulus, government ‘spending’, or both on numerous substantive grounds; this just doesn’t happen to be one of them.
I concur about Barro. He is not a credible source on these issues.
George,
I read Stiglitz’ $3-$5 trillion jello-at-the-wall article. Most of it has yet to be spent. It was pure Democratic manure produced in time for the 2008 campaign season. +/- $1 trillion is the best a “Nobel Prize” economist can do?
This was combined with shameless pork barrel pandering to well-known Democratic constituencies like the NEA and the unversity nomenklatura. Rather than thowing more money into the government academic complex sewer Stiglitz could earn another Nobel if he explained why Washington DC metro doesn’t get better results for the amount already spent per pupil.
btw, George, I was against Iraq ahead of the event. And predicted we’d end up mired in counter-insurgency operations. This was a very common view among active and retired Army officers in late 2002 and early 2003. Not a difficult call. Force/space calculations were easy.
As for Afghanistan, imo that should have been limited to a punitive expedition designed to kill whatever number was required satiate people’s desire for revenge over 9-11. And also instill a healthy fear in foreign governments of allowing any repeats to emanate from their territories. Followed by early departure.
In money terms these wars presently cost the annual supplemental funds being appropriated for them. That number is running $80-$100 billion per year. And it far from clear all of this is really funding Iraq/Afghanistan operation costs.
My personal preference was and still is to build 200-300 more nuclear power plants, all to a standard – large – design. Provided that “Made In USA” can be specified. This would effectively spur quite a few sectors, and result in lower electricity costs at the end.
“Cash for clunkers” flowing to Toyota, Honda, Hyundai and VW is not my idea of effective “stimulus” for American jobs. Nor are direct stimulus checks which are then spent on Chinese imports at Wal-Mart. Nor is more money shoveled into the AIG blackhole, or into Goldman Sachs’ latest market bubble.
Do you have *any* evidence at all to offer that $100 billion cut from “Defense” and spent by the government or civil sectors won’t simply go as trillions went before? That is, “clunkers”, “bailout”, etc?
You talk about revitalizing “industry” at large. But in practice your proposals would only remove money from what industry remains.
@charcad like what your saying, although the $$$ for the war are much bigger I would suggest. Adjusted the petrol is $400 a gal, now bring in the warlord payoffs off the books of course, plus the return home cost of training and health care, not to mention societal family problems ie. split family, divorce pressure, all add to social systems et al.
Skippy..when I was a baby ranger we had a 75% divorce rate and that was in peace time, now think 8 years, ooo rah!
although the $$$ for the war are much bigger I would suggest.
I doubt they’re really any larger currently than the supplementals. Just spread around differently than the budget headings suggest. F-35 funding is clearly not an ongoing cost although lots of it has been in the supplemental appropriations.
Speaking of which, the bulk of these war costs are in “Operations and Maintenance Accounts”. This pays for fuel, Halliburton’s $150k per carpenter/truck driver cost, Blackwater’s $150k @ collection of ex and never-were mercs playing gate guard Rambos in between sex tours to Bangkok, etc. Also more maintenance on transport aircraft and helos due to above average flying hours.
These particular wars have featured relatively little industrial procurement compared to WWII, Korea and Vietnam. Armored hummers and more lately MRAP trucks. Some dozens of RPVs. That’s about it.
health care, not to mention societal family problems ie. split family, divorce pressure, all add to social systems et al….75% divorce rate…
Those costs are beyond money. And these particular wars haven’t been worth it.
Back to “industry”. During Vietnam the USA was producing thousands of helicopters annually for the war. Plus thousands of jet fighters and bombers, hundreds of ICBMS, a huge SSBN and SSN submarine program, numerous supercarriers and conducting the Apollo program. And the USA was also building the interstate system and had a significant nuclear power plant program underway. DoD’s active duty personnel strength in those days was close to 3 million.
And US industry then was…?
To sum up, not only is there no evidence for the “George Washington”-Joseph Stiglitz-Dean Baker thesis, there is a very large body of contrary data.
No sale, George. “F”. Its a worn out partisan Democrat shibboleth that gets trotted out every election cycle. Why did you chose to buy into it at this time?
I suggest you go back and redo the thesis starting at Page 1. Some good candidates for causative factors for deindustrialization are:
— external dependence on fuels.
— EEOC
— OSHA
— EPA
— GATT. The 1972 Tokyo Round is particularly suspicious as the “straw”
These first five all came in during the early 1970s. And we had what occurring come the late 1970s early 1980s?
— Mutations in the US educational system from pre-K to post-grad. I think this factor has done at least as much damage to US industry as everything I’ve listed prior.
Note 4: Invading and occupying countries, then killing the people who live there, is wrong.
But, wait, this cannot be true. Dr. Krugman just told me that the Great Depression was ended by the military spending in World War II. He told me that when the government spends lots of money blowing things up the economy prospers. Help, now I am so confused.
Not exactly what Krugman said. He said that after WW2, we basically were the only one left standing with intact infrastructure and an industrial sector ready to roll out all the needed goods for reconstruction.
This is WAY different than military spending per se.
As for reducing military spending, don’t count on it until at least 2013; Obama has no intention of becoming a one-term President.
john is half-right to catch Krugman on this one. He has argued that WW2 was finally stimulus big and aggressive enough to end the Great Depression. (here, here, here, and a thousand more places).
He’s certainly not arguing for war, and has been fairly stridently and correctly against the wars. But he’s absolutely been arguing that WW2 is what ended the Great Depression, and that we should have a similarly large fiscal intervention today.
ndk, this is not the late 30s early 40s the world has changed dramatically, what worked back then was almost by luck and not by design, planetary synergy maybe.
We face what on the surface seems a repeat, but due to ever changing global conditions and I must add, at greater speeds, a new beast.
Failure to recognize the inability of the system to function on old prerequisites established norms which at best were forensic works will not bode us well. Hell they had NO computational capacity compared to to day, which I might add assisted in this debacle.
Skippy..if this economy was run on a carburetor sure, but to day we use programming assisted by chips, screw drivers will not work..me thinks.
Private debt was wiped out during the war, too, so even though the U.S. took on a lot of debt, its population was debt free with social security, a massive GI bill, and even a semblance of savings.
It is sad but true that Prof. Krugman flirts continually with “military Keynesianism”, most recently in this blog post:
http://krugman.blogs.nytimes.com/2009/11/10/depression-multipliers/
He should know better.
This is an illogical theory.
Government is almost 30% of GDP, including the military. Any increase in Govt spending by definition increases GDP.
Best ignored.
Matt, I’d suggest that different types of government spending have different effects. I think what is being discovered is that military spending, among the other forms of government spending, has much less of a stimulative effect on the rest of the economy. Of course, if we really wanted to stimulate the economy, fix our over-reliance on debt, save the banks and have pie in the sky, we’d give every man, woman and child in America $20,000 out of thin air. It would cost less than what we’ve already spent on “trickle-down” pump-priming, and it might actually work. But that would never fly, and I digress. Military spending is among the least productive of government spending.
SWMN, Try not to “over think” it. Here’s the equation:
Y = C + I + E + G
where
Y = GDP, C = Consumer Spending, I = Investment made by industry, E = Excess of Exports over Imports, G = Government Spending.
None of these variables are “stimulative” or not. They’re independent variables. The amounts need to be sustained or grow year over year or GDP will fall, including the military portion of “G”, if it is cut all else equal GDP falls (bad).
(I – C) / G
focus on short-term revenue irrespective of long-term cost is what got everyone into this mess. E is a symptom.
the shrinkage of C and G is due to the the financial Law of Retribution (basic physics). Mr. Buffet turns out to be Doubting Thomas.
One of Graham’s Ten Pieces of Silver
? is short-ism like narcissism or capital flows in the now like blow up the nose.
Skippy…I know its remedial school for me, sigh.
blow is a frequent symptom. It makes people go faster, at what they don’t know, the down is dreadful, but they keep trying again and again, consuming more and more, faster and faster, expecting a better result, and gather with others telling each other how great it is.
Ahh! you have waited in line at the room of relief only to find protracted discussions by the fairer of us. Never fear your expanded balder will ensure a higher survival rate down the road.
I Dirai your insinuation that Mr. Buffet turns out to be a Doubting Thomas, he is just reverting into his child hood dreams of playing with choo Choo’s, ROSE BUD! He just wants to be an engineer further down the tracks and with all the mistakes he’s seen / made I’m sure it will work out.
Skippy…his investment prospectus is cautionary on the state of his meds..eh..or alt wave theory aka the perfect high.
What use is increasing GDP if the income goes to somebody else? It’s called “increasing inequality”. There has been some discussion of it recently around the blogs and elsewhere.
Ohhh please, Matt buddy, winterwarlock, did either of you even _read_ the post, let alone the articles regarding WHY spending on defense is argued to surpress employment in the broader economy over the long term. I mean, I understand from your remarks that you reeaalllly don’t like that contention, but discomfort doesn’t amount to a refutation. Evidence and argument, guys.
Thank you. This is the classic “guns or butter” dilemma of Econ 101, yet for its political divisiveness, it is the elephant in the room seldom addressed openly on market blogs.
Guns are necessary to a point, but a poor investment (unless you steal butter from others at gunpoint). Yet here we are with over 700 bases in 120 countries around the globe, spending half our budget on the military. We are mired in two wars at once, trapped in a destructive spiral of military overreach exactly when speculative financialization is collapsing—just like every empire before us without exception (see Kevin Phillips “Bad Money”). Afghanistan is now likely to become our Rubicon, a terrible tragedy for an president who brought so much bright hope for changing the rutted course of history.
US DoD / DARPA is following orders, under the constitution, to protect a failed civilian policy of submission to multi-national control.
“The same economic pressures that pushed California to the brink of insolvency are wreaking havoc on other states, a new report has found.
And how state officials deal with their fiscal problems could reverberate across the United States, according to the Pew Center on the States’ analysis released Wednesday.
The 10 most troubled states are: Arizona, California, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin.
Other states — including Colorado, Georgia, Kentucky, New York and Hawaii — were not far behind.”
Constitutions are an agreement between the old families (counterweight/nucleus/capital) and the new families(fulcrum extenders/new processes/talent/electrons). It is an understanding that capital must be infused with talent/effectiveness/direction to remain viable. Talent may leverage capital to create multiplier effects, or form a new system, at will. The natural tendency of new families/electrons to expand the economy outward, to avoid competition on old family terms, creates the bipolar motor.
Because evolution/physics favors countervailing powers, maximum participation, a semi-neutral nexus forms in the middle, as new families become old families, creating a battery/capacitor. The corporation/efficiency/speed distribures the infusion of new processes and recycles the old ones.
Cancer/self-liquidation occurs when a nexus forms between less capable old families, who are subject to enormous internal nuclear pressure, and the leading edge of the middle class, which recognizes that further migration is not possible if new families choose to jump to another system, or form a new system. They make the pre-emptive mistake of limiting new family process development, and hi-jack the system with replication/incremental improvement, to maintain their own growth rate.
Evolution / universe expansion is a self-reinforcing mechanism that mandates increasing diversity. It ensures that new family formation always has an alternative, capital becomes inert without talent, and any subsystem short-circuiting the process will develop cancer, and consume itself to death, for recycling by surrounding subsystems.
In shorting the US Constitution, they triggered massive economic activity to no useful end, except their own demise. They cut off their own oxygen, and devolved relatively into an anaerobic virus, which is why their system volume is decreasing from external pressure, and their internal pressure is increasing from highly efficient reproduction. The bomb is armed and the countdown has begun, and they cannot change the bred behavior in real time.
Getting away from the bomb:
The law bridge is purely municipal interest : “An exception to this general rule allows a charter city to regulate the subject even if its regulation conflicts with state law when the matter is considered a “municipal affair.”
Each clause in a constitution is a stack, connected by legal doctrines that first form seperately within each stack, and then form relationships among the stacks. Absent forceful application of misdirection, algebraic reduction assures a living constitution, as new understanding pops laws off all the stacks. The current “expert” system (all expert systems are invalid because their are infinite possible futures) is growing the law, without circulation / algebraic reduction to enforce its own future in violation of the laws of physics, a war that it has no hope of winning.
NY & MA are the most glaring omissions. It’s going to get ugly fast in New England, once that spring releases.
There’s a big caveat to the whole “military spending kills jobs” idea, which Dean should have emphasized, but readily stated in comments on his blog. In his own words:
“these are stories that are supposed to apply during normal times. When you have 10 percent unemployment, spending on defense, shuffling paper, or anything else is a job creator”.
He makes another key point only in comments:
“There are economic models that do show job loss from the type of climate legislation being debated. I am not a big fan of these models, but my point is simply their selective use.”
Note that he says he’s not a big fan of these models. Less diplomatically I’d say they’re nonsense. The evidence is that we’ve had periods of both very high defense spending and very low unemployment. I’d love to know what these models says about WWII, that we should have had 90% unemployment?
The real problem with excessive spending on defense, GHG reduction, whatever, is that it reduces the economy’s capacity to produce other goods and services. Obviously what constitutes “excessive” is subject to a little debate. In plain language if you think that we need to spend only $X gazillion on defense instead of $Y gazillion, then $(Y-X) gazillion is being wasted. The same applies to spending to reduce GHG’s if you think they’re not a problem.
Dean is a master of arguments based on pointing out the logical inconsistencies in other people’s statements. I think that’s his real point here, as another comment of his shows:
“The Post feels obliged to hype the projected job loss in the context of global warming, but has literally never raised the much larger job loss that would be projected based on recent increases in military spending”.
See http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=11&year=2009&base_name=why_does_the_post_never_report
I recall this factoid from the late ’80’s: “the Japanese had 10X the number of engineers per capita as the USA. the US had 10X the number of lawyers per capita as Japan”. since the mid ’50’s, how many engineers were ‘streamed out'(from university) of the REAL US private sector to go into jobs in military aerospace, or, deeper, into the ‘black’ classified areas of ballistic missiles, nukes, NSA, reconnaisance, etc?
popular myth has it that the US fumbled the ball in the ’70’
s, allowing Japanese automakers to gain market share they have never relinquished since then
but in the early sixties, the average age of machine tools in US auto assembly plants EXCEEDED those in Japan SOURCE: Chalmers Johnson, “Nemisis”
over decades, the trend in diverting both capital and skilled labour from wealth producing activities is inexorable: just like the ‘miracle of compound interest’
The function of divergin resourses into less capital-reproductive activities over the long-term in societies isn’t by any means settled, Chuck, but there is some tendency toward what you say. More directly, there is the well-evidenced effect of the retarding lead, that one’s capital and skills get tied up in one set of productive regimes whereas newcomers optimize the best of the new. And there is the further issue of technological/productive regime saturation.
There are many reasons that the advantages the US had c. 1965 declined. What I would stress is that many of those declines were both structural and locked in, and the only real response would have been to drive investment into new _productive_ regimes in the 1970-2000 period. To a degree that happened with the internet and some aspects of software development and deployment, but these really haven’t proven to be mass employers, and moreover we are competing with global development of many of the same functions, driving down our relative advantage. We didn’t do a very good job of investing in our human and physical capital over that time, and we will live out the consequences of that for the next generation.
The increase in military spending is in significant ways driven by long term social cyclical functions. I wish that wasnt’ so. One could say, the US would buy the bombs than find the target, to put it very crudely, but this is my observation of the behavior involved. But even considering that, we are going overboard, and the spending is at the very least colossaly wasteful compared to what else we could do with the money. So this is simply the final nail in the coffin of our _own_ economy, give or take a nine-penny shaft. We’ve under-invested in ourselves, overpowered our speculative class, and are blowing the last of the money we can borrow from overseas on boats, bombs, and robotics we don’t remotely need for our own security (and so thereby promoting our destabilizing insecurity).
‘Go long, go dumb, bill the kids’ could be the new American motto.
The Dean Bakers, Joseph Stiglitzs and “George Washingtons” conveniently leave out one little detail from their partisan agit-prop: DoD has shrunk by 1/3 since 1991.. Read this as many times as it takes.
Nor have the two most capital equipment intensive services, USAF & USN, experienced any great “surge” due to Iraq, Afghanistan and the “War on Terror”. This has been an Army and USMC war.
The fleet size and number of air wings have been contracting faster than “industry”. If there was any case here it might be that DoD forms a base demand. I think this either, though.
Once offshoring/outsourcing/globalized labor arbitrage has been fixed it’ll be time to revisit “military spending”. But until then I think the subject is just bad economists and ideologues flailing around looking to excuse their own failures.
Numbers have shrunk, costs have more than risen in proportion, charcad. And you’re not even counting other aspects of the War Budget, such as the spy satellite program, money in robotics, and the fantastic scam which has been missle ‘defense.’ In understanding this issue it’s necessary to look at it comprehensively beyond the portion one actually finds personally interesting, yes. Not to late to start . . . .
I listed some other scams, such as the costs of outsourcing logistics and security functions to Blackwater and Halliburton. In this case tax dollars are directed to connected Republicans. The Stiglitz-Baker articles however merely advocate redirecting the public spigot towards Democratic dominated constituencies.
So I’ll call mendacious partisanship what it is: mendacious partisanship.
The major defense conglomerates (Boeing, Lockheed and General Dynamics) are also very active in providing high margin “logistics services”. (psst Democrats: Before you start ranting about “Republicans” look hard at the political affiliations of General Dynamics’ chairman.)
In understanding this issue it’s necessary to look at it comprehensively beyond the portion one actually finds personally interesting, yes. Not to late to start.
It is true that DoD industrial activities in general require a higher average intelligence and skill level. Certainly higher than the average of the semi-literates produced by the millions by our Democratic dominated public education establishment. And also higher than the tens of millions of illiterate legal and illegal immigrants the Democrats (and GOP elites) have allowed to flow in unchecked.
Now you’re talking about the general DoD budget, as opposed to direct war costs. I actually know one or two things about the DoD budget.
The amounts of DoD dollars flowing to Piled Highers and Deepers has certainly increased many fold. During the Clinton Administration Boeing, Lockheed & General Dynamics were permitted to pacman up any other defense contractor they desired. The promised reductions in unit costs didn’t occur. But barriers to entry (the high cost of DC political fixing) were multiplied. In fact many of these contractors have found it unnecessary to produce much of anything to be profitable.
But getting back to “industry”. Below the prime contractor level “industry” notices little difference between “military” and non-military production.
For instance, Haas and Hardinge machine tools don’t know they’re making parts for F-35s rather than cars. Neither do Starrett and Brown & Sharpe metrology instruments. Iron & aluminum atoms are indifferent as hell, so far as we know. So are polymers.
What George Washington (and you) have failed to show is that if we redirect this money it won’t simply follow all the rest to Beijing, Shanghai, Moscow and Riyadh via Wal-Mart and other channels such as the indescribably bloated and unproductive government-academic complex.
A pertinent question is will we have ANY machinetool industry left?
The reason ‘military stimulus’ is pursued is that it is ‘constituency focused.’ Once a plant or a base or a contract or the like is attached to a community, they’re for it, and keeping ‘em happy becomes a reason in and of itself, having nothing to do with either the materials produced/maintained or the opportunities cost or costed.
You’re striking far closer to bone here. It’s pointless to blame “the military” for this, though. It’s all arranged in Congress.
During the F-22 brawl earlier this year Lockheed announced the program has 1,000 different suppliers in about 45 states. This is not atypical for a major modern procurement program. North American Rockwell pioneered this kind of politicization with the B-1 program in the early 1980s.
When you consider the sheer overhead involved you start to understand why it’s impossible to ever obtain meaningful unit cost reductions in these programs.
1,000 companies = at least 1,000 lawyers specialized in federal contract law and 1,000 EEOC/EPA/OSHA compliance specialists or consultants. Add in secretaries and here’s at least 8,000 lotus eaters doing nothing but filling in pdf forms with computers. Assume *only* $60k per employee in wages and bennies (stop laughing) and here’s a cool $480 mil annually before Bolt 1 is turned.
Considering the capabilities of computer controlled tooling these days these 8,000 should have been enough to build the entire program. And at a far higher rate than was ever achieved.
Back to reality. There’s Lockheed’s clerical bureaucracy to manage all this. Shipping specialists to prepare everything for repeated x-country linehaul, the cost of semi-transport itself, quality control inspectors to check everything time and time again. Add in airline, rental car and hotel costs for these hordes of inspectors (including EEOC/EPA/OSHA) to roam across the continent at per diem rates.
At the end we had a “production program” that never exceeded four units per month down on the “floor”. Imagine a virtual Astrodome filled with spectators being paid to sit and watch it being done. Is $170 million per unit more understandable now? The only reason the F-35 will cost somewhat less than F-22 is they took out one engine and reduced performance specifications.
(Taking careful notes, “George Washington”?/b> Much of this nonsense is also inflicted on non-DoD American “civil” industry by legislative diktat. The difference is they don’t have the US Congress mandating “buy American” as with DoD procurement programs and providing tax dollars to do it.)
What little growth we are seeing is coming from government spending or government sponsored programs like Cash for Clunkers. Overall I agree with alex’s analysis. Defense spending, even on stupid imperial adventures, is a form of what is sometimes called military Keynesianism. It increases aggregate demand. Are there better, less destructive, ways of increasing such demand? You bet, but this is nonetheless the effect of Obama’s continuing Bush’s wars and making them his own. So in absolute terms, Baker is wrong. Military spending does create jobs. In a relative sense, he is right. There are much better ways of accomplishing this.
Well said. No doubt building hummers, shipping them to the Afghan theatre, having them blown to bits and doing it all over again does in fact give GDP a pop.
A similar analogy would be the increase in local GDP in post Katrina New Orleans, or even destroying cars to build new ones via Cash for Clunkers.
It is the RELATIVE misallocation of resources that gets lost in the shuffle. That is very difficult to quantify, but common sense should lead you to believe that military spending is typically a dead end. What of all the billions spent on ICBM’s during the Cold War in purely economic terms? Yes it put some engineers to work at Raytheon, but could they have developed renewable energy in the meantime?
We got the internet from DARPA, but at what cost? No one can say.
So to me…… Military Spending = Not alot of bang for the buck…
but alotta bucks.
Yep, these are the “classic” parameters of things I thought I’d learned, and upon which I thought even the conservative “bourgeoisie” were in agreement: If the government borrows money to build shit that consumers cannot purchase nor function as capital goods, you get both inflation and resources sucked out of the real economy – at the same time. That’s why Lyndon Johnson needed the 10% income tax surcharge – or so I was told as a young child by grandparents who were hardly leftists. I’d always thought the moral of the story was: Gonna fight a war, then you pay as you go. People do without. You do not fight a war by borrowing from capitalists, or sovereigns, who will demand repayment in the future. And if people won’t do that – then the war is not worth fighting. And from there, it doesn’t take much to conclude that there should be no “equity” holders or “creditors” in defense matters. We eat the costs, or the missiles really don’t need burying…
But I digress. Reading through all this has provoked this amusing recollection of a fact: The US Government, through Fort Hood, is the largest employer in the state of Texas …
Truth just is stranger than fiction …
So Dave, much though I’m sympathetic with your viewpoint, history directly contradicts what you suppose here: Virtually _ALL_ major wars of the modern era (think since 1550) have been financed by borrowing from capitalists on the credit markets. The reason for this is that wars are so incredibly expensive that they cannot be financed out of ongoing revenues, and governments almost never can establish sufficient reseves to pay for wars direct from such a resource. China today with $2T US cool could ‘do an Iraq’ out of savings; could do two. But that would be it. And I hate to be the one to tell ev’rbody here but these are piddly, cheap-ass little wars compared to the real deal. Take a look at the cost of WW II relative to annual GDP and you get an idea of the scale. And the fact is that the US was only in that one for less than four years of active conflict (though it was a multi-theater effort). Wars are always paid for by borrowing, and many wars end specifically because the ability of the states involved to raise further funds is exhausted.
And my fear is that we will get to really live out this trajectory. Consider if we decide to get into a real war during the next ten years, with real high volume casualties and the real $3-5 trillion dollars a year in costs. That could break the kitty for a generation. And there is NO reason to believe our citizenry is prepared to stop our government from committing to such an endeavor. A real worry . . . .
“Virtually _ALL_ major wars of the modern era (think since 1550) have been financed by borrowing from capitalists on the credit markets.”
Yes, I did not mean to suggest otherwise with my example (and could there be the family tree of Rothschild Conspiracy if not for this history?) I am mostly now trying to sort out, analytically, those various “Bastiat broken window parables” and military spending. That then gets complicated by creditors and debtors (Why assume the glazier didn’t borrow the shilling to pay the kid to break the window?)
“The reason for this is that wars are so incredibly expensive that they cannot be financed out of ongoing revenues, and governments almost never can establish sufficient reseves [[sic] to pay for wars direct from such a resource.” But isn’t this a political decision – people will not tax themselves, but they will let the government borrow from those with enough to lend to wage it?
This circles back to where we came in – under what circumstances, if any, will military expenditures make an economy “bigger”? Does it matter whether the money is borrowed or raised in taxes? It would seem on a first glance that the global warming measures and military measures are too dis-similar for comparison – the former involves a reallocation of resources from consumers and producers of capital goods and services to OTHERS in the same sectors, but those are invested back in those sectors; the latter reallocates resources away from consumers and capital goods, to produce goods and services that consumers cannot consume. (We know the retort: They consume defense, safety, but of course….) The Baker summary says the model demonstrates the matters are similar enough to both have negative effects – slowing GDP growth. (I hinted in the links before GW posted on it that perhaps Baker is running a reductio – either the model goes, or anyone opposed to global warming initiatives for negative GDP effects must logically oppose defense spending for negative GDP effects…)
Well, I’m feeling fairly stymied right about now ….
For some reason, discussions of military Keynesianism seem to turn off people’s memory of a thing called opportunity cost.
This is a pretty basic economic concept, but rarely seen in discussions like this one. To bring it back in, we have to ask not “Does military expenditure create jobs/provide stimulus?”, but rather “Does a dollar spent on the military provide as many jobs/as much stimulus as the same dollar spent on something else?” That is the real question.
The CEPR paper that Dean Baker talks about goes some way towards answering it, but not the whole way. That paper showed that the effects of military spending are short-term, and over a longer term they go negative. To go further, we need direct comparisons of the effects of that dollar of spending directed towards the military or towards other uses.
We can find such a comparison in another paper, also published in 2007, entitled “The U.S. Employment Effects of Military and Domestic Spending Priorities” by Robert Pollin and Heidi Garrett-Peltier, downloadable from here:
http://www.peri.umass.edu/Publication.236+M5165ab37bd4.0.html
On employment effects they conclude:
“We present in Table 1 our estimate of the relative effects of spending $1 billion on alternative uses, including military spending, health care, education, mass transit, and construction for home weatherization and infrastructure repair…
“As we see, defense spending creates 8,555 total jobs with $1 billion in spending. This is the fewest number of jobs of any of the alternative uses that we present. Thus, personal consumption generates 10,779 jobs, 26.2 percent more than defense, health care generates 12,883 jobs, education generates 17,687, mass transit is at 19,795, and construction for weatherization/infrastructure is 12,804. From this list we see that with two of the categories, educa-tion and mass transit, the total number of jobs created with $1 billion in spending is more than twice as many as with defense”.
They also include a discussion of the quality of jobs created.
In the face of evidence like this, military Keynesianism is hard to support.
good link
all of government is an opportunity cost, which must be continually scrutinized, and the latest ideas to take bits and pieces from other countries, best business practice, ignores two problems, the american military is subsidizing other countries to a tremendous extent, allowing them to lower internal program costs, and comparative advantage may not be gained from replication. The gears are going to be different sizes.
Gordon,
Thank you for the great link! I have added as a new footnote.
guns or butter argument
Butter is more effective stimulus than guns.
gordon, buddy, lemme shake yer hand: a man who actually _read_ the papers involved.
Military Keynesianism is well-understood to be less effective as a stimulant than domestic spending. The reason ‘military stimulus’ is pursued is that it is ‘constituency focused.’ Once a plant or a base or a contract or the like is attached to a community, they’re for it, and keeping ’em happy becomes a reason in and of itself, having nothing to do with either the materials produced/maintained or the opportunities cost or costed.
Once a plant or a base or a contract or the like is attached to a community, they’re for it, and keeping ‘em happy becomes a reason in and of itself, having nothing to do with either the materials produced/maintained or the opportunities cost or costed.
This is very true. And this economic phenomenon is not limited to military bases. A university campus and a federal military base have a lot more in common than most people are willing to admit.
A problem with military Keynesianism is that it unavoidably leads the nation into wars. While those wars may seem to present an immediate profit and even job creation, there are hidden costs such as that of maintaining a large VA hospitals network, the cost for disability payments to disabled veterans, loss of productivity among employed vets suffering from PTSD, and other less tangible societal costs, are likely to greatly offset any benefits.
Vinny
Since people seem interested, I’ll take it another step.
I know that many Americans are glad of the “spin-offs” of military expenditure, particularly the opportunities for young people who otherwise might have few prospects to learn some skills and get paid while doing so. I’m happy to admit that such a “spin-off” is a good thing, but I’m still entitled to ask whether providing such Federal assistance through the military is the most efficient way of doing it.
To provide paid employment while learning a skill doesn’t necessarily imply military service. It would be quite possible to do the same thing via a civilian agency. Such an agency wouldn’t need to buy billions of dollars of military equipment to do an employment/training function.
I suspect that the military would oppose such an idea. After all, without the employment/training function, the scale of recruitment might shrink dramatically. Nevertheless, excusing the scale of the US military on the basis of its employment/training function is, from an economic point of view, a very bad argument.
The thing about many of those ‘skills’ learned in the military is that though they are real skills they are specific skills, tailored to systems often only used in the military. Some aspects translate into similar lines of work, a la skippy’s experience, but for many they do not. Inventory control is inventory control, but the military’s inventory system is theirs alone, and those demobed have to start all over again learing some civilian operation. The skill-transfer of many in the military back to civilian life has proven to be much less than the ‘go in, get skills’ argument implied, unfortunately. The best skills are often the life-skills and confidence; those are real, personal gains to which many who have served in the military attest. But yeah, we could pay to put them all through a year of Outward Bound and get much the same multiplier on supposes.
but the military’s inventory system is theirs alone, and those demobed have to start all over again learing some civilian operation.
You’re overreaching, Richard. Anyone who worked as a parts clerk in DoD would have little to no trouble fitting into any auto dealership or Autozone. Ditto for Navy nuclear power personnel and civilian nuclear power plants. Ditto for heavy equipment mechanics and local Cat dealers.
Real combat arms used to be more problematic for post employment but the feds and Blackwater have even solved that.
A more useful focal point would be the complete failure of our public trillion$ educationese establishment to teach industrially useful skills such as CAD, CNC machining, math, applied chemistry, electronics…
In the current system the high schools are entirely focused on getting kids signed up for college. The (Democrat dominated) colleges are then focused on stripping the kids and their families of as much money as possible to sustain their swarms of rent seekers. The UC system for instance has swollen to 1 employee for every 1.2 students. And I used to think DoD was too extravagant in its logistics.
To accomplish this eternal student debt bondage has been freely promoted. And promoted by people who proclaim themselves the most progressive, righteous and moral beings ever to inhabit the Earth. And what was taught? Useless “business” for the most part, and even more useless ethnic studies, women’s studies and other contentless disciplines.
And academic creatures like Stiglitz and Baker want to blame DoD for the inevitable societal results?
Pardon me while I barf.
charcad said…Real combat arms used to be more problematic for post employment but the feds and Blackwater have even solved that.
Skippy here..um you really don’t want that, especially in country, history is replete with bad out comes of having private army’s loitering around. If they wish to go merc there is aways off shore employment and the consequences of that stay off shore.
The romantic return of soldiers from WWII is just that a romantic story where the money came back home and a job was waiting for you, today we have the opposite. Many things besides hard working patriotic prolific breeders ensued that event in the 50s, ugly things, things we as a nation like to over look. That time and place_to me_has very little to do with today and as long as we try and devinne the answers in this manner we will fail.
Seems one way or another job creation/retention is the issue with out resolve. Under our present system that cannot be achieved do to Mfg, command HQ, relocation for better more beneficial environments ie: lower tax, labor costs etc, hence the forced mobile workforce.
I just can’t see the 38/40hr work week anymore, sorry there will always be X jobs and P workers and no fed or state agency can ever win that fight. Workers are encouraged in many ways to spend/barrow to the hilt and then on a dime reverse their trajectory or crazily enough extend even further.
Unpalatable as it may be to those generationaly affixed to our present system, a major rethink is in order. Less work hours, more affordable longer lasting shelter, consumption of locally grown foods with the reintroduction of home food preservation (health benefits/cost savings +), a more static life style (own the area and tend to it), the end to a high energy lifestyle in short we need to conserve not just the land we live on, but more importantly our selves.
Skippy…The more combat one sees the more effort they will need long term to re-enter society or we all will suffer the consequences.
Skippy here..um you really don’t want that
I agree with every last word you wrote.
“…would be held to a higher standard than spending on infrastructure, health care, and education…”
Japan has proven that infrastructure spending can also be useless. We have the most expensive health care in the world, which will be more expensive next year no matter what Congress does. In one of his previous jobs, our president helped spend a bunch of extra money on education, which had no discernable effect.
Pouring borrowed money down a rathole is unlikely to solve any of our problems, but if we insist on the practice, the choice of ratholes is only a matter of taste.
In one of his previous jobs, our president helped spend a bunch of extra money on education, which had no discernable effect.
And the First Lady was also collecting several hundred thousand from Chicago area hospitals for something or other. When lawyers who’ve surrendered their licenses are being paid such large retainers by medical facilities we can start to understand where all the healthcare dollars go.
The metaphor is the answer. Rats are intelligent, resourceful, and have a more egalitarian social structure than we do, but lack access to capital. Why not find out what they can do with a few billion?
The dispassionate analysis and rational discourse evinced by the preceding comments attests to the first-rate minds involved. But I must admit that I don’t give a FLYING F_CK if it can be demonstrated EMPIRICALLY whether a billion dollars of defense spending creates/generates 20,000 jobs or only 10,000. As if the number of jobs created is all that matters or would somehow make it right!
The debate itself obfuscates the human dimension and consequences of spending billions to design, develop, manufacture/assemble, deploy, and ultimately use such devices to KILL human beings. And to what extent has the sanitized air in which such cost-benefit analysis taken place blurred the distinction between DEFENSE and OFFENSE? Why does the author even have to qualify this discussion with #3 and #4? Since when is it unpatriotic to question defense policy/expenditures? Why did I wonder if my subsequent commentary would be appropriate? Would it be germane or just shrugged off as an emotional rant?
Nevertheless, I do want to thank all of you in advance because it got me to thinking and made me wonder if the terms – opportunity costs, multiplier effect, and the like – or their functional equivalents were used in determining whether to route four trains per day to Auschwitz and only two to the Russian Front or vice versa? Dispassionate rationality employed to enhance the efficiency of the process… science at its very best!
Mind you, no one individual is responsible, but collectively we are all guilty, MYSELF included, because it has all been presumably done in our name and on our behalf. Nor am I advocating that such debate not occur as it probably needs to. Perhaps now more than ever. But the fact that it does occur in such a sanitized, technocratic manner testifies, I fear, to the more disturbing fact of just how far WE, as Americans, have traveled down the road to “the banality of evil.”
Mickey, I think you might enjoy reading J.R. Saul’s book “Voltaire’s Bastards” (1992), if you haven’t read it already.
Gordon,
Il faut cultiver votre jardin, n’est-ce pas? Voltaire and I go back a long ways…
Merci beaucoup!
It has more to do with Maurice Godelier’s “The Irrationaity of Rationality” read back when I was in graduate school. The “madness” was well on its way then and has certainly become even more refined since…
I just felt someone old enough to remember had to say it again.
I suspect that Saul has imported some attitudes and approaches which are typically Francophone into the Anglophone discourse. You might be able to enlighten us further if you are more familiar with the French literature.
R Kline wrote:
The reason ‘military stimulus’ is pursued is that it is ‘constituency focused.’ Once a plant or a base or a contract or the like is attached to a community, they’re for it, and keeping ‘em happy becomes a reason in and of itself, having nothing to do with either the materials produced/maintained or the opportunities cost or costed.
Just came across this in Hayek’s *Denationalisation of Money*, p. 102
Government CANNOT act in the general interest
[FH quotes a Prof. Eckstein: Governments are not able to live by the rules even if they were to adopt the philosophy (of providing a stable framework)]
Once governments are given the power to benefit particular groups or sections of the population, the mechanism of majority government forces them to use it to gain the support of a sufficient number of them to command a majority. The constant temptation to meet local or sectional dissatisfaction by manipulating the quantity of money so that more can be spent on services for those clamouring for assistance will often be irresistible Such expenditure is not an appropriate remedy but necessarily upsets the proper functioning of the market.
[snip]
Countervailing power.
And in breaking news, I find that Robert Pollin & Heidi Garrett-Peltier have issued an updated version (Oct. 2009) of their 2007 paper I linked to above.
http://www.peri.umass.edu/236/hash/9b5e62a1aa/publication/382/
I haven’t read it all yet.
From the Abstract: “We show that investments in clean energy, health care and education create a much larger number of jobs across all pay ranges, including mid-range jobs (paying between $32,000 and $64,000) and high-paying jobs (paying over $64,000). Chan-neling funds into clean energy, health care and education in an effective way will therefore create significantly greater opportunities for decent employ-ment throughout the U.S. economy than spending the same amount of funds with the military”.