By Rebekah Johansen
While Pentagon spending remains as ever, a sacred cow, new evidence emerges that suggests perhaps it is time to rethink this approach.
A recent report by the Mercatus Center‘s senior research fellow Veronique de Rugy and Harvard University professor of economics Robert Barro suggests some surprising conclusions.
The existing studies found that a dollar increase in federal defense spending results in a less-than-a-dollar increase in GDP when the spending increase is deficit financed. Combining this with a tax multiplier that is negative and greater than one, the authors estimate that over five years each $1 in federal defense-spending cuts will increase private spending by roughly $1.30. [emphasis added]
Yes, you read that right: the report suggests that decreasing Pentagon spending is shown to increase private spending. The ultimate GDP effects are positive. We encourage you to read the summary or the rest of the study, which offers an exciting new perspective to the old assumption that spending on the defense industry automatically helps the economy.
Conservatives hearken back to the crowding-out effect argument in many areas. This study shows that there is reason to believe this phenomenon exists in the military realm as well.
Over the years, Pentagon spending has risen relatively consistently. Even so-called “devastating” sequester cuts reduce this spending to barely under Cold-War levels.
And as the chart below shows, US military spending is fantastically large compared to the rest of the world, more than that of the next 14 countries combined.
Of course, the various rationales for this level of spending are up for debate. A sizable majority of the American public and political class of both parties are committed to the idea of the US as military superpower. And this is a conversation worth having. But beyond that commitment lies reality.
And the reality is, that all the noble aims in the world cannot escape the inherent unsustainability of the US budget trajectory. As Chairman of the Joint Chiefs of Staff Admiral Mike Mullen recently said, “the single, biggest threat to our national security is our debt, so I also believe we have every responsibility to help eliminate that threat.”
And now, with this report, there is strong evidence that there is not only national security but also economic value to be gained by refocusing the nation’s longtime approach to Pentagon spending.