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Defense Spending and the U.S. Economy
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16939 |
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CURRENT ISSUES
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4 / 1990 |
4,096 Words |
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Murray Weidenbaum
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Public policy in the United States sometimes seems to shift as rapidly as seasonal fashions. For years, many analysts bemoaned the heavy burden of military expenditures borne by the American economy. Nowadays, in contrast, a feeling is growing rapidly that a generous peace dividend could finance all sorts of "unmet" social needs. Some perspective is very much needed in order to contain any impending shift from gloom to euphoria.
Paul Kennedy of Yale warned in 1987 that too large a proportion of a nation's resources being allotted to military purposes most likely would lead to "a weakening of national power over the longer run." Former Sen. J. William Fulbright seemed to believe that the United States had already attained that sad state. In early 1989, he wrote that the United States had "become a militarized economy." By December 1989, Seymour Melman of Columbia University was renewing his perennial plea to convert a military establishment that in his view was the reason the United States is "no longer a first-class industrial economy."
This article examines the changing role of defense in the American economy in an effort to shed some light on the emerging debate on "peace dividends" and "conversion." On the basis of a variety of economic and statistical analyses, I arrive at a very different set of conclusions than those cited above. First of all, the military burden, although significant, has been far from overwhelming. In fact, the trend has been downward for decades. Second, the reductions now contemplated would be merely a modest acceleration of that downward-sloping trend line. Surely, economic adjustments to the contemplated changes in defense spending also will be modest - both in terms of dislocation to be suffered and opportunity to redirect the nation's resources.
In order to increase the factual foundation of the emerging debate, let us begin by measuring changes in the size of resources. Let us also address several related points: What is the real cost of defense spending? How much do we need to assure national prosperity? Can we afford to cut more? What will be the impact on the defense industries, and what should they do?
Measuring the defense sector
There is no generally agreed upon method of measuring the burden of military spending on the economy, in part because many of the items purchased by the military establishment are so different from typical consumer goods. Supersonic fighter aircraft, nuclear-powered submarines, aircraft carriers, and ICBMs have few commercial counterparts.
In absolute terms, the outlays of the Department of Defense (DOD) are huge, totaling $293 billion in fiscal year 1989. That sum exceeds the combined sales of General Motors, Exxon, and IBM. The DOD budget is greater than the gross national product of Australia, India, or the Netherlands.
In any event, U.S. defense spending has been expanding in absolute size over the past century, from about $1 billion in 1938. Because the overall economy was expanding during the same period as was inflation - it is more helpful to focus on the changing relative position of military outlays, especially for the period since the end of World War
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