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).