Tag Archives: Hayek

Want to Help the Economy? Spend Less on Defense, Not More

Screen Shot 2013-03-22 at 3.28.14 PMIn the past year, leading political figures from John McCain to Mitt Romney–and even unto Paul Krugman–have claimed that military spending can spur economic growth. Here’s why that’s a fallacy:

First, military spending does actually create jobs. Huffington Post points out that it doesn’t create as many jobs as, say, investment in business; but it’s statistically impossible for a government to pump $931 billion a year (most recent estimates for all 2013 ‘defense’ spending) into a sector and not yield some jobs. The question is: what do those jobs produce?

And the answer is: not much.  This is something that many Progressives instinctively recognize; you cannot just build tanks and fighter jets until we have so many sitting around that we’re all rich. It doesn’t work.

In this, Progressives have an unlikely ally: Austrian economists (if you think that term refers to people in Austria, click here). Austrians are the ones who originally claimed that military spending might sometimes be necessary for national defense, but economically it’s dead weight.

It’s important to note that I’m not attacking all military spending. Governments need a military for national defense; you can’t grow an economy if you’re being invaded. Similarly, there are international arguments to be made: one could argue that having only one superpower makes the world a more peaceful place. But I’m not talking about international or defensive strategy. My point is narrower: no matter how strategically useful (or useless) military spending it, it’s an economic drag.

Consider the F-35 (which, even at a price tag of $1.5 trillion, will never be used); the tax dollars at work, and the productivity of the men and women designing it, are wasted. Or consider Congressmen who want to build $3 billion of tanks that the military says it doesn’t want. That’s not economic growth. That’s largesse for defense contractors.

Building tanks that the military doesn’t want would be like building laptops and then burying them in a ditch somewhere.  Either way, we’re building something that we’ll never use. When you build a laptop and sell it, you create value for everyday Americans. The person who buys your laptop will use it to start a business, or do better at her job. But the tanks that we build will never be used. They will never contribute to society. Neither will those expensive F-35s.

No-one in their right mind would say building and burying laptops could spur economic growth; so why do we say that doing the equivalent with tanks can?

Real economic growth means producing what consumers demand. It means making corn and apples, laptops, housing, cars. Making more of those things improves every American’s life by growing the economic pie. Military spending just doesn’t do that. If the government produced 10,000 F-35s (at a cost of $130 million apiece), that would be government spending on a scale to make Paul Krugman faint from pleasure. And it wouldn’t do a thing for everyday Americans.

But what about the boom after World War II? Wasn’t that created by military spending?  Refuting this claim would take a whole book but in brief, there are a lot of factors that went into the post-war boom. The lessening of wage and price controls created market flexibility. Millions of US soldiers returned home, lending their considerable skills to rebuilding our economy. Many of them went to school and built businesses; others became productive employees. It’s a complex subject that deserves much more space than one blog, but we shouldn’t use a post-war boom to justify increasing our bloated Pentagon budget.

Of course, all of this military spending does produce a multiplier effect: government pays a Lockheed employee to build tanks, he takes that money and buys flowers, which gives the florist money to expand operations, etc.  To be sure, this gives real people jobs and money to spend. So we cannot call military spending completely useless.  Rather, all those bloated defense contracts that government gives to companies like Lockheed are the equivalent of welfare. Our government is writing them a check to do nothing economically useful.

Any multiplier effect achieved is no greater than it would be if we cut Lockheed a huge check to have its employees sit at home.  If we did that, they could still use the funds to buy flowers, or suits, or a car; and help those industries.  But no-one would claim that we can give everyone a welfare check and end up in a boom. By the same token, we can’t just pay people to build tanks until we’re all rich.

If we want to provide welfare to the poorest among us, that’s a discussion we can have. While I’m personally opposed to it, I recognize that social safety nets help real people put food on the table. But let’s not extend welfare to already-wealthy defense industries. Let’s not pay them to do nothing for us.

And the fact that Lockheed is doing wasted work is a shame, because companies like Lockheed employ some of the smartest people in the world. Rocket scientists, engineers, advanced chemists. Can you imagine the good work they might do for all Americans if they didn’t have to spend their days making F-35s that will never be used? 

To be sure, military spending has led to some cool new technologies, like GPS, the internet, and radar. These side benefits shouldn’t be dismissed, because they’ve resulted in great things. Any concentrated R&D is going to produce technological wonders, and military R&D isn’t exempt from that rule. But while defense companies were designing GPS, they were primarily focused on helping the military. Can you imagine what other technologies would have been created if defense companies had been free to pursue their own (non-military) projects, instead of spending the bulk of their time and energy building fighter jets?

Every dollar spent on military spending is a dollar not spent making something that will help all Americans. I’m not suggesting we replace that spending with domestic government stimulus. What I am suggesting is that, by pursuing military-based stimulus programs—what Krugman praises as “weaponized Keynesianism”—the government does worse than just nothing. It gives welfare to giant defense companies, and stops them from producing things real Americans could actually use.

You want to grow the economy? Try cutting military spending.