Guest Post: Military Spending is INCREASING Unemployment and REDUCING Economic Growth

[Joanne98]

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: 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 3: 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).
http://www.nakedcapitalism.com/2009/11/guest-post-military-spending-is-increasing-unemployment-and-reducing-gdp.html

[msongs]

1. our "government" is afraid to stand up to the military industrial complex nt

[bemildred]

2. Well Duh? Military spending is all about waste. nt

[AdHocSolver]

3. This thread is an example of the importance of the economic concept of opportunity cost.

Opportunity cost assumes limited resources and having to choose how to apply that limited resource to select one outcome from different possible outcomes.

An example would be where you have $20.00 to spend, and you can either use that $20.00 to buy a new CD or to buy a shirt that is on sale at your local department store. You have enough assets (the $20.00) to buy one of these items, but not both. The opportunity cost is the benefit foregone of the item that you didn't buy.

This concept does not apply only to items involving monetary value. If you have one TV and there are two programs on at the same time that you would like to watch, then you can watch only one of them, and the opportunity cost is the pleasure that you would have gotten from viewing the one that you missed watching.

While these are simplistic examples, they should convey enough of the concept to understand the point of the original post. The billions spent on the wars in Iraq and Afghanistan could have been spent on rebuilding infrastructure, expanding educational opportunities, developing green industries, and/or expanding the availability and affordability of health care to more Americans, all without increasing the national debt.

The billions spent on a war of dubious value to the security and welfare of this country (not even considering the bottom line of Halliburton and its ilk) is the opportunity cost of rebuilding the U.S. economy and infrastructure.

[wuvuj]

4. But polls say that 70% of Americans...

...trust the military...how can 70% be wrong?