The Military and the Economy

by Judy Reynolds

According to an article in the Bulletin of the Atomic Scientists, "In 2008, the United States will spend more than $600 billion on defense, including funding for the Iraq War. If Congress adds the remainder of what President George W. Bush has requested for Iraq and Afghanistan, spending will top $700 billion." (http://www.thebulletin.org/web-edition/columnists/gordon-adams/how-much-defense-spending-enough) This means that in the two minutes it takes to read this article, our government would have spent approximately $2,600,000 on defense.

We have noted in the past that the more than $700 billion defense budget does not include other related military expenses such as recruitment and re-enlistment bonuses, maintaining and developing nuclear weapons, treatment of wounded veterans, or interest on past debt-financed military expenditures. In light of recent developments, , it does appear ironic that the amount of projected defense spending of at least $700 billion mirrors the amount that Congress has approved as the maximum for the bank bailout in our economic crisis. The economic crises is in large part the result of corporate greed reflected in the subprime mortgage debacle. The present military budget, which reflects the "tax cut but spend" philosophy of our government, has the potential to add its own serious damage to our economic future by increasing budget deficits.

Deficits occur when spending exceeds revenue for one year. Year after year of deficit spending is not good for the economy. After noting in a recent article that the Pentagon currently plans to spend more than $2.75 trillion during the next five years, not counting the incremental cost of future combat operations, the Project on Defense Alternatives states, "There also may be detrimental macro-economic effects associated with the scale of federal deficits and debt -- unless remedial action is taken. Concerns such as these recently led the World Economic Forum to lower America's competitiveness rating, dropping it from first place to sixth." (http://www.comw.org/pda/0703bm41.html )

Increases in military and other security programs between 2001 and 2008 have been mentioned as key factors, along with tax cuts, in turning a projected $710 billion surplus for 2009 into a projected $546 billion deficit for that year. (http://www.cbpp.org/9-12-08bud.htm ) The Congressional Budge Office's estimate for the cumulative deficit over the next 10 years is now $2.3 trillion. Earlier this year, the CBO estimated the country would have a $300 billion surplus by 2018. But that was wiped out in part because of new spending approved by lawmakers for the war in Iraq and Afghanistan and revised economic projections. If the Alternative Minimum Tax cuts and Bush' 2001 and 2003 tax cuts are extended, the CBO's estimated budget deficit for 2018 is $7 trillion. (http://money.cnn.com/2008/09/09/news/economy/cbo_budget_update/index.htm?cnn=yes) This estimate was made before the recent government bank bailout.

In its report, the CBO noted that over the long run, growing budget deficits and the resulting increases in federal debt would lead to slower economic growth. This is not surprising. Basic economics teaches that large amounts of government borrowing over the long run can lead to higher interest rates to encourage purchase of government bonds which in turn can result in higher bank interest rates that make borrowing more difficult, leading to slower economic growth and fewer jobs. (http://www.foxnews.com/story/0,2933,181726,00.html) Substantial deficits projected far into the future may also adversely affect expectations and confidence, leading to reallocation of funds away from dollar-based investments, higher interest rates on U.S. government debt, and myriad other factors that can lead to adverse affects on the balance sheets of banks and other financial intermediaries. http://www.brookings.edu/papers/2004/0105budgetdeficit_orszag.aspx) deficit.)

Military spending by itself can create problems noted in the traditional "guns vs. butter" argument that spending on the military (guns) results in cuts in spending for vital domestic needs such as health care, education and infrastructure repair (butter). Military spending "generally acts to slow economic growth, since it diverts capital and labor from more productive investment (such as in roads, schools, or basic research)." (http://www.joshuagoldstein.com/jgeconhi.htm ) It does not build the infrastructure that gives returns over time.

We are at a serious crossroad in our history. We can continue to borrow to bail out private institutions and pay more for war, and try to ignore the fact that Social Security and Medicare will be claiming an increasing larger share of our budget as the baby boomers age. Or we can start to take steps to balance our budget. A first step away from further budget deficits is to cut spending on the wars in Iraq and Afghanistan. As recently as a month ago, it was reported that Iraq officials want all foreign troops out by the end of 2011. Transferring these troops to Afghanistan will, in the long run, drive up deficit spending and threaten a war with Pakistan for even more of the same. The United States already has been spending close to half (45%) of the total world spending on defense. Changing course could mean that we could be spending at least $2,600,000 every two minutes on health care, education and infrastructure instead of defense, spending that would help our economy. It's time to take this first step.