Increased Defence Spending: Helpful Or Detrimental To The US Economy?

Wednesday, May 10th, 2017

Article By: David McDonald

Military spending is one area where there is no private solution to replace the public purse. No single corporation or group of citizens is sufficiently motivated (or trustworthy) enough to take financial responsibility for the cost of having a military.

Adam Smith, one of the fathers of free market economics, identified the defense of society as one of the primary functions of government and justification for reasonable taxation. Basically, the government is acting on behalf of the public to ensure that the military is sufficiently well resourced to defend the nation.

In practice, however, defending the nation expands to defending a nation’s strategic interests, *cough* *cough* (draining the Middle Eastern region of all it’s oil at the expense of US taxpayers) and the whole concept of “sufficient” is up for debate as other nations also bulk up their military.

What does all this money buy?

It buys a lot of things, but we have to ask if it buys us more security. And we also have to ask how all this spending on defence affects the economy as a whole, because any reasonable standard of national security has to include an economy that provides a decent standard of living and a measure of economic security for all citizens.

Even though the defence budget has doubled in size during the years of the Reagan administration, and even though the US has just witnessed the largest build-up of their forces in peacetime history, defence spending remains an inadequate percentage of their economy.

Currently, the U.S. spends between 6 and 7% of its Gross National Product on defence, which means 93 or 94% of their economy is dedicated to other things. Supporters of increased defence spending are quick to point out that 7% of GNP for defence is lower than in other periods of peace, such as the 1950s, also a period of economic growth; and these people say there is no reason a $4 trillion economy cannot sustain this level.

This is true in the abstract. The U.S. should be able to support a defence spending level of 7% of GNP, all other things being equal. But I want to briefly point out three specific features of their contemporary situation that make the defence budget an extraordinary burden on their economy.

First is the character of defence research, development and production. In the United States, approximately 40% of all scientists, engineers and technical professionals work in the defence sector. This is a colossal diversion of talent and intellectual resources to what is essentially a non-productive enterprise.

Let me give some examples from the field of computer science. Computers are often viewed as a key technology for future productivity, so it is important to make wise decisions about how we develop this field. Our estimates, which have been confirmed by other reports, indicate that about two-thirds of all computer science research in the United States is funded by the Department of Defence. At some of the more prestigious university departments – such as Stanford, MIT, and Carnegie-Mellon University – up to 90% of the departmental budget can come from the Pentagon. – Context Institute

The character of the research is also changing. Funding for computer science in the U.S. is moving away from basic research, which has many commercial applications, and toward applied research, which is more related to specific military requirements.

In fact, the more developed military systems become, the less applicability they have to the commercial sector. In the meantime, the field of computer science in Japan and Western Europe is almost entirely free of military influence, and research in those countries is explicitly and effectively related to the international marketplace. The U.S. is running the risk of spending itself into oblivion by funding the wrong kind of research and development.

2. My second point is that the U.S. finds itself in the relatively unique historical position of having a military alliance with economic competitors, and a military confrontation with an economic inferior, one so far behind that there is almost no profile for comparison. In modern times this situation is unique – in all the other modern confrontations that produced war, the belligerents were both military and economic competitors.

We have a rather serious dilemma in our current situation. If we were in an arms race with an economic rival, US economic spending would tend to equalize and our economies would likewise adjust to each other. Our percentages of spending on guns and butter would tend to rise and fall together.

But in the present circumstances, the US economy is in competition with those of countries we are sworn to defend. Their spending on guns goes up while their spending on butter goes up. If they shift their standard of living to provide more weapons, they can shift their standard of living to provide for more long-term capital investments in basic industries.

You can’t buy a tank or an MX missile made in Japan, and you can’t buy a VCR made in the United States. America’s basic industries are getting eaten alive by foreign competition, their scientists and researchers are preoccupied with Star Wars and other weapons systems, and they may slowly fall into second class status and a lower standard of living.

3. My last point is that in opening this discussion, I suggested that the US populace is paying for the arms race on a daily basis, but this is really misleading. At the moment no one is paying for the arms race. It is being financed.

For the last eight years the US populace has been spending up to the limit on a $2.6 trillion credit card. The combination of tax cuts, increased defence spending, and providing the barest level of social services that they can humanely tolerate has led to an accumulated debt that has turned the U.S. from the world’s largest creditor nation to the world’s largest debtor in less than eight years.

This is historically unprecedented, a world record-breaker. The bottom line in this disaster is that we are leaving to our children two burdens for which they will find it hard to forgive us: we are leaving them a world armed to the teeth, and all the bills that made that possible.

Someone else summed up my feelings on this whole issue rather well, about 23 years ago. Former General and President Dwight D. Eisenhower said, “We need an adequate defense, but every arms dollar we spend above adequacy has a long-term weakening effect upon the nation and its security.” This is a much broader and more reasonable view of national security than the one currently in vogue in Washington.

We need to think in terms of sensible investment, because even high school students know that you cannot have both all the guns and all the butter money can buy. Even the youngest consumer knows the difference between running a deficit to buy something that will pay off handsomely in the future, and running a deficit to buy things that will be used up and thrown in the trash. Our leaders need to relearn these early lessons.