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Why the Jobs Argument Against Military Cuts is Bogus
Submitted by Robert Naiman on 16 August 2011 - 4:56pm
For the first time in a decade, significant cuts in projected military spending are on the table. If the "Super Congress" doesn't reach a deal on $1.2 trillion in debt reduction over the next ten years by Thanksgiving, $1.2 trillion in automatic cuts will be triggered, half of which must come from the military; and if the Super Congress does reach a deal, the prospects are good that cuts in projected military spending will be a significant part of the story (you can add your voice for cuts in projected military spending here.)
Obviously, however, the prospect of significant military cuts has well-heeled opponents. The military-industrial-Congressional-lobbyist-think tank-corporate media complex is not just going to roll over and play dead. In the next three months, we can expect a steady stream of pro-military spending propaganda. Expect to hear a lot about China, Iran, North Korea, and "global terrorism" as the beneficiaries of the military-industrial complex try to justify why we must continue to spend much more on the military than we did while opposing the Soviet Union during the Cold War.
But another argument against cuts to projected military spending is sure to rear its ugly head: we shouldn't cut military spending, because that would cost American jobs.
In the current political context, this "jobs" argument is 100% nonsense. Here's why.
The (first-order) Keynesian economics story for government spending to boost employment has three basic elements:
1. The economy is not always at full employment. Sometimes, there are a significant number of people who are "involuntarily unemployed" - they would like to work for the prevailing wage but cannot find a job.
2. When this situation occurs, it is not automatically self-correcting, over a time horizon that most people are willing to tolerate. The economy can remain at much less than full employment for years.
3. There's something that the government can and should do to address this situation: engage in deficit spending to boost aggregate demand and put people back to work.
There are three important things to remember about this story:
1. It's a story that only makes sense when the economy is not at full employment. When the economy is at full employment, there is no general argument for government spending to increase overall employment. Of course, even when the economy is at full employment, we still want the government to do things. But spending money with the goal of increasing overall employment is not one of them.
Suppose there are a bunch of unemployed people, and a bridge collapses. Now, you have two arguments for repairing the bridge. One is, the bridge needs to be repaired so people can use the bridge. And another is, we have all these people unemployed and the government can put some of them to work. But suppose, on the other hand, that the economy is at full employment when the bridge collapses. Now, you still have the argument that the bridge needs to be repaired so people can use it. But you no longer have an argument that we can put unemployed people to work. Everyone who's going to repair the bridge is already doing something else. They're going to have to stop doing something else to repair the bridge. The government, in repairing the bridge, is not boosting employment. This isn't an argument against repairing the bridge. It's an argument against claiming that boosting employment is a benefit of repairing the bridge, if the economy is already at full employment.
2. The second key thing about this story is that when the economy is at less than full employment, and the government spends money with the goal of boosting employment (in addition to whatever other goals the spending might be intended to achieve), it's key that this be deficit spending. In this first-order Keynesian story, the idea is for the government to add money to the economy in order to boost demand. If the government builds a bridge, and then immediately raises taxes in order to pay for the bridge, it hasn't done anything to boost employment, because it withdrew exactly as much money from the economy as it added. The money that the government spent on the bridge supported employment, but the money that the government withdrew from the economy in the form of taxes also supported employment. In order to boost employment by building the bridge, the government must not currently raise taxes to pay for it - it must borrow the money instead, and pay it back over time, as the economy improves. In order to increase employment, the government deficit must (temporarily) increase.
3. The third key thing about this basic first-order Keynesian story is that it does not matter how the government increases its deficit in order to boost employment. There are important second-order stories that you can tell about how some things the government can do to increase its deficit are better at boosting the economy than others, a matter to which we return below. But the basic story is that the government must increase its deficit, whether by increasing spending without raising taxes, or by cutting taxes without reducing spending, or both.
Now, it's certainly true that if the government is currently employing people making bombs to drop on other people's countries, and the government now decides it doesn't want to purchase as many bombs to drop on other people's countries, that's going to reduce the number of people employed by the government in making bombs to drop on other people's countries.
But just as the government cannot increase employment by building a bridge when the economy is at full employment, the government cannot increase employment by building bombs when the economy is at full employment. Likewise, if the economy is at full employment, then the government cannot decrease employment by building fewer bombs. If the economy is at full employment, the people who were making bombs will go do something else (build bridges, perhaps.) There is no long-term argument for government spending to boost aggregate employment, valid for all seasons of the business cycle. There is only a short-term argument for government deficit spending to boost employment when the economy is in an employment recession. Moreover, in the basic, first-order story, all government deficit spending is equal in terms of its impact on employment, so while, if the economy is in recession, in the short run having people make fewer bombs can reduce employment, there is no reason to expect cutting military spending to have any greater effect in reducing employment than any other measure which has the effect of reducing the government deficit, such as cutting domestic spending or raising taxes.
Therefore, in the first order story, an argument against cutting military spending on the grounds that it will reduce employment in the short run if the economy is in recession is equally an argument against any form of deficit reduction at all, including by raising taxes or cutting domestic spending - dollar for dollar, in the first order story, cutting domestic spending or raising taxes will reduce employment just as much in the short run, and in the long run, there is no employment story at all, because the government-spending-to-increase-employment story is a short-run story, not a long run story, relevant to the situation when the economy is at less than full employment, not relevant otherwise.
Therefore, if the context of debate is a decision to reduce government deficit spending by a fixed amount over ten years (which is what the Super Congress is supposed to do), then the jobs argument against military cuts is total nonsense, because 1) the jobs argument is a short-run story, not a long-run story, and 2) over the short run, in the first order story, every other means of reducing the deficit, including raising taxes and cutting domestic spending, will reduce employment as much as cutting military spending.
So, an honest person who wants to argue in the current political context that cutting military spending is a bad idea because it will reduce employment in the short run must argue a second-order effect: they must claim that government deficit spending on the military is more efficient than other forms of government deficit spending being considered in boosting employment.
I doubt we will find anyone trying to argue this, because the data points the other way: compared to other forms of government deficit spending, government deficit spending on the military is less efficient at boosting employment.
In a 2007 paper ("The U.S. Employment Effects of Military and Domestic Spending Priorities "), Robert Pollin and Heidi Garrett-Peltier examined this issue. They compared the estimated effects of a $1 billion increase in spending across several sectors and established the following ranking of efficiency in terms of job creation per dollar: mass transit, education, health care, construction, tax cuts for personal consumption, military. Military spending came in last.
This shouldn't be surprising. One obvious reason why military spending is an inefficient means of job creation is "leakage" from the U.S. economy. Much of military spending takes place outside of the United States, so it's not boosting U.S. employment. Occupying Afghanistan and Iraq and bombing Pakistan and Libya don't do as much to boost U.S. employment as keeping our people employed at home. Keeping troops in Germany and Japan doesn't do as much to boost employment as keeping people employed at home. The military is consuming a lot of goods and services not produced in the U.S.
So, the jobs argument against military cuts is nonsense because:
1. any jobs argument only makes sense over the short-term, when the economy is in employment recession, not over the long term
2. in the first order story, cutting military spending has the same effect on employment as any other means of deficit reduction, including raising taxes or cutting domestic spending
3. when you compare different means of government deficit spending to boost employment, military spending is the among the least efficient in terms of boosting employment , and that means that when you compare the employment costs of different means of reducing the deficit, cutting military spending is among the least costly in terms of employment.
A final note: it has long been true in an economic sense that military spending was less efficient than other forms of government spending in terms of boosting employment. But in the United States, ever since the Second World War, there has been an important political caveat to this economic fact. A political-economic culture was created sometimes called "Military Keynesianism" in which government spending to boost domestic production and consumption was often tarred as "liberal," even "socialist," whereas government spending to boost military production was labeled "national security" so that was beyond question. Thus, as a practical political matter, there wasn't a one-to-one choice between military spending and domestic spending, because military spending was politically favored by elites and domestic spending for human needs was politically opposed by elites.
Most of us have lived within this ideological system our whole lives, so it's kind of hard for us to imagine anything different. Within this ideological system, military spending to boost employment made a kind of sense, even though it was inefficient, because other kinds of spending weren't allowed. People became habituated to the idea that there was no point to try to cut military spending, because we wouldn't be allowed to use the savings for domestic spending on stuff we want anyway.
But the dynamics of the debt debate in Washington have created a fundamentally different ball game than the one we have known for the last 50 years. Now, the choices are: cut military spending or cut Social Security benefits and raise the Medicare retirement age. Now it is one for one: guns or butter. There is a fixed target for deficit reduction. Every dollar that is not taken out of the military budget will be taken out of the economy in some other way, and many of the alternatives on the table - such as cutting Social Security benefits or raising the Medicare retirement age - are things that most Americans are going to vigorously oppose. Robert Naiman is Policy Director at Just Foreign Policy.