Would sequestration bring defense-cuts disaster? No, say Center for International Policy, Cato Institute | The Business Journals

By Kent Hoover, Washington Bureau Chief

The across-the-board cuts to federal spending known as sequestration go into effect in only three weeks, and as this deadline nears, we’re going to hear lots of reports about how bad these cuts are going to be for the economy.

Today, for example, the Potomac Research Group released a survey that found that most investment managers think the Dow Jones Industrial Average would drop by 5 percent or more if sequestration goes into effect. A study released last year by the Aerospace Industries Association estimated that sequestration’s $1.2 trillion in spending cuts over 10 years would cost the economy more than 2 million jobs.

But would sequestration really have that much of a negative impact? Today, experts from across the political spectrum got together for a press call to argue that it wouldn’t.

Half of the spending cut by sequestration would occur in the nation’s defense budget. Those cuts alone would cost the economy more than 1 million jobs, according to the AIA study.

But a study released today by the Center for International Policy concluded those job loss claims are double or triple what they actually would be if sequestration goes into effect.

Bill Hartung, the study’s co-author, said the AIA study included spending reductions that were agreed to by Congress in 2011, as well as sequestration, in calculating these potential job losses. Plus, he found, defense spending creates fewer jobs than almost any other use of federal money — tax cuts that increase personal consumption, investments in infrastructure, or education spending, for example.

“Pentagon spending is a drag on the economy, not a spur to economic growth,” Hartung said. “Defense contractors’ attempt to make jobs a central issue in the sequestration and budget debates, as evidenced by their back-room meeting with White House officials yesterday, is pure misdirection.”

Plus, sequestration’s defense cuts will “be more of a glidepath” than a steep dropoff, he said. Many major defense contractors have billions of dollars’ worth of backlogs on existing contracts that won’t be affected by sequestration, he added.

Consider the source, you might argue — the Center for International Policy is an left-of-center organization that advocates a U.S. foreign policy “based on cooperation, demilitarization and respect for human rights.”

But the libertarian Cato Institute agrees with its analysis.

Christopher Preble is Cato’s vice president for defense and foreign policy, and a former surface warfare officer in the U.S. Navy.

He thinks AIA’s job loss numbers “just don’t add up.”

Besides the reasons cited by Hartung, the AIA study also largely ignored “the long-term beneficial effects” that flow from moving resources from government spending to the private sector, where the money could be used to satisfy consumer needs or create new industries, Preble said.

Retired U.S. Army Lt. Col. Anthony Shaffer, a senior fellow at the Center for Advanced Defense Studies, pointed out that sequestration’s cuts to defense spending are smaller than the cuts that occurred when the Cold War ended. Plus, he said, the Pentagon needs to “fundamentally rethink” how it plans for and conducts military operations now that times and national security threats have changed.

“We need an effective defense, not an expensive defense,” Shaffer said.

There are “tons of cuts we can still make,” he said.

“We’ve got to look at what’s best for the country, not what’s best for some of these contractors,” he said.

“Some of these companies are addicted to money,” he added.

That’s harsh — you can almost hear Bob Dylan’s “Masters of War” playing in the background.

These opinions do seem to be a minority view in Washington — both President Barack Obama and Republicans agree that sequestration should be avoided, they just can’t agree on an alternative way to reduce federal budget deficits.

Rep. Buck McKeon, R-Calif., who chairs the House Armed Services Committee, said sequestration’s defense cuts “would devastate our armed forces.” Defense Secretary Leon Panetta said sequestration would put the nation’s defense industrial base at risk.

Those are serious concerns. When it comes to defense cuts, shouldn’t national security be the focus, not jobs?

via Would sequestration bring defense-cuts disaster? No, say Center for International Policy, Cato Institute | The Business Journals.