One of the great constants in an otherwise uncertain 21st century is spending on the U.S. military. Despite increasing debt and reduced war operations, the Pentagon knows how to keep both sides of its bread slathered in butter.
"The total request for next year's Pentagon budget is a robust $583 billion," write Ryan Alexander and William Ruger in Stars & Stripes, "more than half the federal discretionary budget." And if military hawks at places such as The Heritage Foundation and American Enterprise Institute get their way, we'd be shelling out a minimum of 4 percent of GDP for defense ("4% for Peace!"), which would goose spending by another $120 billion a year.
Here's the amazing thing about the Pentagon: It manages to do fine regardless of which party is in power. "The United States," write Alexander and Ruger, "has averaged higher levels of defense spending under President Barack Obama compared to the George W. Bush administration, even when adjusted for inflation. Indeed, defense spending in 2010 and 2011 exceeded any year since World War II." It's easy to see why. Conservatives love the military and though they will tell you that the government is incompetent and wasteful in whatever it does, they turn a blind eye to defense spending and accountability (David Stockman, Ronald Reagan's first budget director, has suggested that his boss was the initiator of this dynamic). As can be seen by the way in which the GOP leadership fought to save the useless Export-Import Bank, conservatives also love cronyism as long as they're favored vendors are getting taxpayer funding. On the liberal side, the calculus is a little bit different. There are plenty of Democratic hawks—Hillary Clinton certainly counts as one, despite recent attempts to cast her as something else—but as important, there are many Democratic Keynesians who believe government spending buoys the economy. Military contractors are smart, too, to site their various manufacturing contracts in as many congressional districts as possible.
Cronyism is so entrenched in the defense bureaucracy that even when the Pentagon tries to cut a wasteful program, parochial interests decry the potential loss of jobs. This is pure military Keynesian economics, often advanced by supposed conservative champions of free markets. Increased military expenditures, they argue, will be a cushion against economic downturn. But the military is not a jobs program.
Special interests have long treated the massive Pentagon budget as a dumping ground for programs that don't make us safer. For instance, until last year, Congress required the Pentagon to ship coal from Pennsylvania to Germany to heat U.S. military installations. Why? Because in the 1960s, some Pennsylvania congressmen wanted to prop up the declining fortunes of the anthracite coal industry in their state. Last year, the House voted 252-179 to strip the requirement and it was stopped. But like a legislative zombie, it was resurrected this year. The House spoke again, rejecting the provision with an even bigger majority. Hopefully that was its death knell.
That's a rare victory over stupid, wasteful spending, write Alexander and Ruger. When it comes to projects like the F-35 fighter, which will likely be obsolete by the time it is fully operational (really), there just seems to be no stopping the pork.
Does military spending increase overall economic activity? Those of us who took intro economics classes through the mid-1980s or so may remember being taught that America's massive, government-financed buildup for World War II was what finally pulled the country out of The Great Depression. But a closer look at empirical results of deficit-financed military spending and, as important, cuts in military spending tell a very different story. This is from a 2013 Mercatus Center paper by Robert J. Barro and Veronique de Rugy, published when many people were freaking out over the impact of minimal spending cuts related to the sequester and the Budget Control Act:
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….
In 1943, Keynesian economist Paul Samuelson predicted the dramatic drop in federal defense spending and the reintegration of 10 million servicemen into the civilian labor force following the end of World War II would usher in "the greatest period of unemployment and industrial dislocation which any economy has ever faced." He recommended the government maintain wartime price controls, implement "income maintenance," and engage in large-scale public works to avert this dire outcome. But the postwar bust Samuelson and many others expected never occurred.
Despite plunging war production and massive discharges of soldiers, the government offered no dismissal pay for soldiers, dismantled direct controls on the private economy, and did not implement any large-scale public works programs.
As Henderson (2010) points out, despite the massive drop in government spending—from 41.9 percent of GDP in FY 1945 to 14.7 percent in FY 1947—unemployment rose only modestly from 1.9 percent to 3.6 percent. Similarly, the economy grew a respectable 3.3 percent annually from 1978 through 2000, even as the share of defense spending dropped from 7.4 percent of GDP to 3.7 percent.
The entire paper is well worth reading, both in connection to military spending and to debt-financed stimulus spending more generally.