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Military Spending is INCREASING Unemployment and REDUCING Economic Growth

George Washington's picture




 

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).

 

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Thu, 11/12/2009 - 05:40 | 128224 Anonymous
Anonymous's picture

Uh, I don't know where that CBO projection that defense spending in 2009 would be 2.4% of GDP came from, but that's bullshit.

Defense spending is a quarter of the federal budget (and usually is), and the federal government takes 19 or 20% of GDP historically.

I agree with your premise, but don't use bogus data to support it.

Wed, 11/11/2009 - 20:31 | 127784 Anonymous
Anonymous's picture

you know george...we would not need a strong defense if the bankers would stop going around making enemies for us to fight, so they can make money off of it by supporting both sides and making it last as long as possible.....the same old story since the late 1770's at least......

Wed, 11/11/2009 - 20:27 | 127779 Anonymous
Anonymous's picture

when that stupid iraq war started i was talking about the trillions of dollars that thing would eventually cost and people laughed at me and said no way......now we know don't we?

Wed, 11/11/2009 - 19:44 | 127739 HayeksConscience
HayeksConscience's picture

I think what we really need is a tax system where we vote individually where we want our individual tax dollars to go (why not - we have technology).

Pay a lot of taxes - get to choose what you fund.

Then let's see what gets funded.  Corporate Bailouts and HealthCare Terrorism or the Military.  I bet we'd double the defense budget and the social collectivists would be selling apples on streett corners.

Of course, I'd vote for the A10 (we could line up Wall Street and Congress at one time).   Shoot to Thrill ....

http://www.youtube.com/watch?v=2bMfrixJyWc&feature=related

 

Wed, 11/11/2009 - 19:43 | 127738 Anonymous
Anonymous's picture

As a percentage of GDP, military spending is substantially less than social security, medicare/medicade and soon to be healthcare.

Your dear professor is trying to grind a potical axe and call it critical thinking. Im curious why a bright fellow like you GW swallowed the hook.

Bottom line, govt spending and the fools who mismanged it need to be halved.

Wed, 11/11/2009 - 18:57 | 127671 Tic tock
Tic tock's picture

I so love this 'we are americans...stand up for your constitution..why are we invading foreign soil' blather.  The US military has no national pretensions, if you think about it. The Air Force and the Navy can obliterate any site on the planet. The Army provides logistical follow-through. The Intelligence agencies  have their fingers in so many developments...The much-vaunted Military-Industrial complex (I've run out of hyphens!) is so far advanced of anything mere mortals can comprehend that it makes the implosion of the US economy, the poisoned apple in Snow White and the seven Blankfeins. 

Now imagine how a military mind can be twisted into drawing its own conclusions from an economic fallout..there's (quite probably) a good reason the military is engaged against (quite possibly) the best fighters on the planet on their home ground.

Screw Oil..the Saudis would have provided plenty anyway.. luv A-10's, such an ugly fekkin bastard of a plane

 

 

Wed, 11/11/2009 - 19:24 | 127711 lukahnli
lukahnli's picture

You are correct.  The US Military in and of itself has no national pretensions (or did you mean international pretensions).  It is the policy makers acting on behalf of special intersests who do, and deploy the military appropriately.  Those special interest include foreign governments, to whom the money we spend to rent the land or buildings that house our military bases is a boon to.  Hell, who would be more upset about the US leaving Okinawa, the US Army?  Or the Okinawan economy reliant on the money spent there?

Wed, 11/11/2009 - 18:27 | 127633 HayeksConscience
HayeksConscience's picture

Actually isn't the problem very partisan.  The solutions needs to be non-partisan but what are the chances of that ? 

We need to start drafting more citizen legislators like Ron Pauls, Elizabeth Warren and William Black.  If we don't throw out both sides of Congress in the 2010 mid terms and replace them with fiscal conservatives - looks like we're going to be here for awhile.

System Reset seems more likely (Soveign Default or Currency Crisis).  Then we will be in the stew.

Wed, 11/11/2009 - 18:17 | 127618 loup garou
loup garou's picture

GW should direct his crusading message of fiscal conservatism to the out-of-control socialists currently in power, who have responsibility over such matters.

But then, that really wasn’t the point…was it?

Wed, 11/11/2009 - 18:19 | 127623 George Washington
George Washington's picture

Yes, actually, this is non-partisan issue. Obama is blowing trillions on unnecessary wars just like Bush.

 

Wed, 11/11/2009 - 18:12 | 127606 HayeksConscience
HayeksConscience's picture

We can kill two birds with one stone by using the Military to attack the Banking System and Congress.

Maybe a few A-10s on Wall Street ???? 

http://www.youtube.com/watch?v=mJSk2Xc3Eq4

 

Wed, 11/11/2009 - 17:47 | 127572 tip e. canoe
tip e. canoe's picture

IKE WAS RIGHT

Wed, 11/11/2009 - 20:19 | 127769 Anonymous
Anonymous's picture

+ 1
And so was Jefferson who warned against standing armies.
And so was Smedley Butler who argued for a automatic, loophole-free public draft each time we declare war, and no war without the vote of those eligible for draft.

Enough of wars w/o a formal declaration. We've had many since WW2 and they have all been failures (except Granada).

And no more secret money or weapons to foreign groups. It's inexcusable.

Wed, 11/11/2009 - 17:20 | 127512 nicholsong
nicholsong's picture

Continental Congress 2009 live feed
http://www.givemeliberty.org/CC2009/default.htm

Wed, 11/11/2009 - 17:14 | 127501 Anonymous
Anonymous's picture

The terrorist accomplished their objective on 9-11. It was to create a disproportionate response to their actions. They spent 19 lives and maybe $1,000,000. We have spent $1.2 Trillion in pursuing them. We are dumb, dumb, dumb.

America really is a big kid with a loaded pistol out causing trouble racked with hormones.

We need to redefine winning at all cost. kinda of like too big to fail.

We need well trained troops we do not need a global footprint that we do not have the sense to protect. We are naive. Only way to win is to know when you are losing and make changes.

LCDR USNR

Wed, 11/11/2009 - 16:54 | 127473 Anonymous
Anonymous's picture

"Massive increases in cost or refusing to sell us oil, would cause massive damages, and depending on how bad, seems like it could be categorized as a WMD"

Right. So you'll just be slowly bankrupted and blackmailed for the rest of the oil age at the ongoing cost of the lives of 19 year old men and women from ass end towns all over the US?

You are the United States of America. The most consistently innovative, socially mobile and democratically benevelovent country that a people ever fought and died to put together. Get the fuck off your knees and stand up for yourself. If the Arabs and their screwed up dictator states won't sell you oil, invent them off the face of the fucking earth.

No-one wants to buy fucking sand and they have dick all going for them (look at the economic and social lapse in the Middle East area between the collapse of the Silk Trade and the oil age).

If just 25% of your military spending was deflected towards the energy problem, you'd have it cracked in a decade and Saudi Arabia and pals would go into liquidation. Thats how to play big boy in the Middle East.

Wed, 11/11/2009 - 20:27 | 127775 Anonymous
Anonymous's picture

+ 1 million... best comment ever.

Wed, 11/11/2009 - 19:24 | 127709 Anonymous
Anonymous's picture

Hear hear... +100.

Only one little problem. Ever since going off the "faux" gold standard in 1971, the US has been on the "petro-dollar standard".

What would happen to the USD if the world stopped having to buy its oil in it?

Wed, 11/11/2009 - 17:24 | 127521 lukahnli
lukahnli's picture

YUP.

Wed, 11/11/2009 - 16:48 | 127461 Prophet of Wise
Prophet of Wise's picture

There was a long ago age of man when his nations knew nothing of the burdens and shackles of debt. Since then two great and admirable pillars have been formed. On one stands jachen a mighty pillar caste in human misery and built on his dependence. Its yoke enslaves both master and servant. The other boaz built on the thresholds of great and mighty armies in defense of him. But lo, what has he [man] now to show for this indebtedness?   

Wed, 11/11/2009 - 16:46 | 127459 Paul S.
Paul S.'s picture

TD,

Someone has been playing around with your Apache redirects.  I typed in zerohedge.com and somehow ended up on MoveOn.org

Wed, 11/11/2009 - 16:54 | 127472 Rollerball
Rollerball's picture

A.N.S.W.E.R.

Wed, 11/11/2009 - 17:11 | 127494 Paul S.
Paul S.'s picture

J.U.S.T. D.I.D.

Wed, 11/11/2009 - 16:51 | 127467 lukahnli
lukahnli's picture

You being serious or are you trying to argue that the non-interventionist foreign policy is "left wing"?

Wed, 11/11/2009 - 17:05 | 127486 Paul S.
Paul S.'s picture

I guess that depends on what the point of the article is.  Does military spending constitute a drain on the economy?  No shit.  Is it necessary?  Obviously.  Are the current levels justified?  Probably not.  Did you not know this?  Any government spending is a drain on the economy.  Just like healthcare is.  Just like bailouts.  Assuming most people know this what is the point of the article other than to rile up dopey left wingers who still haven't MOVED ON.

Wed, 11/11/2009 - 17:23 | 127513 lukahnli
lukahnli's picture

Just to clarify, do you believe that Hundreds of Military bases in 60 foreign countries is a ncessary expense?

Does the drain that the article claim this spending has on our economy justify what benefits we do recieve from it?

Wed, 11/11/2009 - 16:35 | 127452 Anonymous
Anonymous's picture

If you've ever seen a government employee at work, then you'll know that the unemployment level is actually very low as the number of those receiving extended unemployment benefits effectively creates a class of government employees paid to do exactly what the majority of all other government employees do, which is next to nothing. That this class continues to eat, watch Tv and consume in some fashion is effectively a highly productive venture for GDP as instead of taking up a space on the highway getting to a job and then sitting at a desk and consuming all the fixed costs associated with employment to do essentially what they now do at home, which is surf the net and gossip, then the fact that they are paid less is counterbalanced by the savings in all the associated costs of employing un-productivity.

Wed, 11/11/2009 - 20:22 | 127770 Anonymous
Anonymous's picture

Typical right-wing propaganda. They always put down the many hard-working, dedicated government employees as 'freeloaders'. Then they get control of government and show us how to really screw it up.

Wed, 11/11/2009 - 16:21 | 127435 Anonymous
Anonymous's picture

Our economy and way of life depends on our ability to have a consistent, cheap energy source.

http://www.guardian.co.uk/environment/2009/nov/09/peak-oil-international...

If these stories have merit, then it seems like it would be in the United States best interest to maintain a strong presence in an area that has tendencies towards unfriendly attitudes towards us.

Massive increases in cost or refusing to sell us oil, would cause massive damages, and depending on how bad, seems like it could be categorized as a WMD.

God Bless Our Troops.

Wed, 11/11/2009 - 18:10 | 127601 tip e. canoe
tip e. canoe's picture

"The Department of Defense is the single largest consumer of petroleum in the U.S and the US military is the biggest purchaser of oil in the world. In 2006 the US Military consumed 117 million barrels or 320,000 barrels of oil per day."

http://www.newlaunches.com/archives/top_5_facts_on_us_military_oil_consu...

now what would happen to the price & supply of oil should that consumption be cut in let's say 1/2?

Wed, 11/11/2009 - 20:10 | 127763 Anonymous
Anonymous's picture

We're paying $400 a gallon for gas in Afganistan. Seriously.

Wed, 11/11/2009 - 17:31 | 127536 lukahnli
lukahnli's picture

Why allow ourselves to be held hostage to a resource like this when the cost of keeping it flowing outstrips the benefits to the American People?  Especially when this resource is running out?  Isn't it wiser to invest that money into alternatives? 

Wed, 11/11/2009 - 16:17 | 127427 lukahnli
lukahnli's picture

Also, all the outsourcing to thieves like Blackwater and Halliburton for services that were more expensive for them to perform than it would have been for our own military to do.  Services that we paid fo in many cases WEREN'T EVER PERFORMED by these companies.

Crazy how much money that goes to "Military Spending" gives us nothing for our investment.

Wed, 11/11/2009 - 16:13 | 127413 lukahnli
lukahnli's picture

Ron Paul would be happy about the turn in this conversation.  Aside from prosecuting and imprisoning folks for non violent drug offenses (over 40% of the entire prison population) I can think of few bigger wastes of our money than having hundreds of bases around the world that just funnel our tax dollars into foreign economies.....its just totally illogical.

Wed, 11/11/2009 - 16:06 | 127405 Invisible Hand
Invisible Hand's picture

I spent 25 years on active and reserve duty.  I think our armed forces should be supported and never sent to accomplish a mission unless there is total commitment to that mission.

However, we have protected the rest of the world (for free) for long enough.

The Koreans, the Europeans, and the Japanese (public--I mean) all seem to not want us there.  Bring our people home and let these guys defend themselves, or not, as they wish.

I have always been a free trader but maybe we should only trade freely with countries that reciprocate.

We must find some way to employ our citizens (and I don't mean government jobs).  Our standard of living is going down for as far out as I can see and at least if we paid more for American-made goods we would giving our neighbors a chance to have productive lives and a little dignity.

Bring our military home (for the most part), defend our borders and start focusing on doing what is best for Americans (not those internationalist robber barons that currently run Wall Street and our government).

Wed, 11/11/2009 - 17:12 | 127495 Anonymous
Anonymous's picture

the only thing the u.s. has been protecting is it's own narcissistic - parasitic - self interests. those bases are about imperial intimidation and control. end of story.

Wed, 11/11/2009 - 16:11 | 127410 George Washington
George Washington's picture

"Bring our military home (for the most part), defend our borders and start focusing on doing what is best for Americans (not those internationalist robber barons that currently run Wall Street and our government)."

Our heroic soldiers understand the truth.  I honor you, sir, on veteran's day.

Wed, 11/11/2009 - 16:05 | 127403 Prophet of Wise
Prophet of Wise's picture

It is our true policy to steer clear of entangling alliances with any portion of the foreign world.
George Washington

   
It is woefully time for Congress to reassert its authority over foreign policy, and for the American people to recognize that the Constitution makes no distinction between domestic and foreign matters.  Policy is policy, and it must be made by the legislative and not the executive branch of government.  

But what policy is best?  How should we deal with the rest of the world in a way that best advances proper national interests, while not threatening our freedoms at home?

I believe our founding fathers had it right when they argued for peace and commerce between nations, and against entangling political and military alliances.  In other words, noninterventionism.

Noninterventionism is not isolationism.  Nonintervention simply means America does not interfere militarily, financially, or covertly in the internal affairs of other nations.  It does not require that we isolate ourselves; on the contrary, our founders advocated open trade, travel, communication, and diplomacy with other nations.

Thomas Jefferson summed up the noninterventionist foreign policy position perfectly in his 1801 inaugural address: “Peace, commerce, and honest friendship with all nations- entangling alliances with none.” Washington similarly urged that we must, “Act for ourselves and not for others,” by forming an “American character wholly free of foreign attachments.”

Yet how many times have we all heard these wise words without taking them to heart? How many claim to admire Jefferson and Washington, but conveniently ignore both when it comes to American foreign policy?  Since so many apparently now believe Washington and Jefferson were wrong on the critical matter of foreign policy, they should at least have the intellectual honesty to admit it.

Of course we frequently hear the offensive cliché that, “times have changed,” and thus we cannot follow quaint admonitions from the 1700s.  The obvious question, then, is what other principles from our founding era should we discard for convenience?  Should we give up the First amendment because times have changed and free speech causes too much offense in our modern society?  Should we give up the Second amendment, and trust that today’s government is benign and not to be feared by its citizens?  How about the rest of the Bill of Rights?

It’s hypocritical and childish to dismiss certain founding principles simply because a convenient rationale is needed to justify interventionist policies today. The principles enshrined in the Constitution do not change. If anything, today’s more complex world cries out for the moral clarity provided by a noninterventionist foreign policy.

It is time for Americans to rethink the interventionist foreign policy that is accepted without question in Washington.  It is time to understand the obvious harm that results from our being dragged time and time again into intractable and endless Middle East conflicts, whether in Iraq, Iran, Syria, Lebanon, or Palestine.  It is definitely time to ask ourselves whether further American lives and tax dollars should be lost trying to remake the Middle East in our image.

Wed, 11/11/2009 - 16:28 | 127442 the.spear
the.spear's picture

Old Glory will fly again. The way she was supposed to.

Wed, 11/11/2009 - 19:49 | 127742 Anonymous
Anonymous's picture

old glory is a flag of military occupation. has been since the civil war. actually, martial law instituted after the civil war, down south, was never halted. we are still under martial law, technically speaking of course. old glory with the stars and stripes is a military flag of occupation. the states were supposed to be their own little countries so to speak and the united states was supposed to be a loose confederation of states, that came together when attacked etc. of course the federalist and their strong central government ideas won the day, and of course, shall we also say that this strong central government idea had the backing of the bank of england which desperately wanted a strong central bank here in the states to go along with that strong central government. when the british army surrendered at yorktown, lord cornwallis was said to have remarked to washington, that " a holy war will now begin in America, and when it is ended America will be supposedly the citadel of freedom, but her millions will unknowingly be loyal subjects to the Crown.' Cornwallis went on to explain what would seem to be a self contradiction: 'Your churches will be used to teach the Jew's religion and in less than two hundred years the whole nation will be working for divine world government. That government they believe to be divine will be the British Empire [under the control of the Jews]. All religions will be permeated with Judaism without even being noticed by the masses, and they will all be under the invisible all-seeing eye of the Grand Architect of Freemasonry"

and so it came to be so.......if only we would listen to the voices from the past whispering about what was to come then, and written down so that we may understand what is happening today......

Wed, 11/11/2009 - 16:15 | 127421 Intuition
Intuition's picture

+1000

 

IMO, From the American perspective the world was actually a far more dangerous place in the 18th century than it is today. We could scale back massively on our offense (I refuse to call it defense at this point) spending and still have the strongest military in the world. Back then we had basically no Navy, no standing Army, and we were not leaders in the constant worldwide arms race.

 

Hell, some of the founders didn't even want to establish a standing Army because they feared it would engender conflicts with foreign powers. We bought Louisiana (and thought about buying Canada) partly to get the European powers as far from our nation as possible so that we could avoid the centuries-old pettiness that existed (and still does?) between the European ruling families.

 

There's gotta be another way apart from the one we've been on for most of the last century. This one is bankrupting us and is creating enemies where there would otherwise be at least reasonably peaceful relations.

Wed, 11/11/2009 - 16:05 | 127402 Anonymous
Anonymous's picture

The world is just standing around watching the current military empire do what all military empires do: bankrupt its citizens and then fall flat on its face. Pride goeth before a fall.

Wed, 11/11/2009 - 15:57 | 127386 Anonymous
Anonymous's picture

Only if it resulted in higher interest rates. You can thank the Fed and the foreign central banks for financing the wars.

Wed, 11/11/2009 - 15:57 | 127385 Anonymous
Anonymous's picture

If that's what Defense Spending does... just imagine how much Transfer Payments are costing the economy.

Wed, 11/11/2009 - 15:54 | 127383 lukahnli
lukahnli's picture

There is nothing wrong with Defense spending.  Operative term "DEFENSE".  Invading other countries that didn't attack us hardly constitutes defense.

Also, how much of that Military budget is spent on maintaining our hundreds of military bases in over 60 foreign countries?

Wed, 11/11/2009 - 19:16 | 127694 Anonymous
Anonymous's picture

130 countries (and there's only 185 in the entire world)...

But who knows, maybe German, Japan, South Korea, Italy, Great Britain, or Greece might get "uppity" again.

Wed, 11/11/2009 - 15:38 | 127354 Anonymous
Anonymous's picture

spending money on things that are destroyed is destroying wealth is it not? Seems pretty cut and dry to me.

Fri, 11/13/2009 - 03:08 | 129451 Anonymous
Anonymous's picture

Not if it's spent in America. The tax recycles alot of what we spend on military

Wed, 11/11/2009 - 15:28 | 127337 chet
chet's picture

I'm all for a strong defense, but the levels of spending we have reached are unsustainable.  Last I checked (a couple of years ago) we were spending more than the rest of the world combined.  That includes China, Russia, the EU, Israel, Iran, all of our supposed Arab "enemies", and everyone else - all of them combined.

I for one would still feel perfectly safe and confident in our dominant position if we only spent as much as, say, the next 10 biggest spenders combined.

Defense psending is another elephant in the room, just as much as medicare or social security.

Wed, 11/11/2009 - 15:26 | 127329 Anonymous
Anonymous's picture

How many trillions do we lose when nuts destroy buildings?

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