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The Business Desk with Paul Solman

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What is the Economic Impact of Military Spending?

Name: Reva Clarke
City & State: Eagle, ID

Question/Comment: I would like to know the impact of military spending on our economy. It seems like it's a pretty hefty percentage of the annual budget, almost equal to that spent on Social Security; more than is spent on Medicare. (And it's more, actually, if you include money spent annually on veterans benefits.) My rudimentary source is "The World Almanac Book and Book of Facts" for 2009 p. 96-7. I also note that many of the defense contractors (p. 173) are companies listed that affect the daily stock market figures. Though defense spending is projected to go up again in 2009, I'm wondering why? Does Iraqi reconstruction get bundled into defense spending or become part of another budget line item? If overseas forces were reduced substantially, how would that affect unemployment?

Paul Solman: Military spending is huge and wasteful (think of the iconic $600 toilet seats - though why you'd want a toilet seat as an icon is anybody's guess). It's even corrupt. (Read the transcript to our Sept. 21, 2007 military procurement story on body armor, or watch it below.)

Editor's Note: You can find all of Paul's segments on spending priorities for military equipment here.

But military spending is no greater today than spending on social security and it's less than the amount now spent on Medicare and Medicaid. The social welfare programs are sure to increase. If military spending simply held constant, it would fall in percentage terms (as a fraction of all federal expenditures, that is.)

Sure, defense contractors are part of the stock market: the biggest of them are very big companies.

As to why defense spending might be going UP? We've got military commitments all over the world and we're resolved to stay ahead technologically.

Finally, if forces were reduced overall, that WOULD figure to exacerbate unemployment. But deploying them at home as opposed to overseas would not affect unemployment and would actually HELP the U.S. economy, in that their spending would be stateside.

-- Posted January 5, 2009 | Comments (3) | Permalink

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3 Comments

mike said:

Your comment on waste and corruption in military spending is wrong, either because it is not substantially true (not enough to make much of a difference if it was fixed), or because it is not relevant to the context (the question compares military, social security, and gov't provided health care programs, all of which have similar amounts of waste and corruption). Or simply because it is a rather loud statement inserted in your answer with no evidence or explanation.
Curbing waste and/or corruption would not fix the military spending equation, because 'waste' is an inherent byproduct of the manner in which the government develops new equipment. It is also a result of ambitious goals (i.e. protect our troops).
The rest of your answer is great, and more than sufficient. The waste and corruption comment was an unneeded cheap shot that distracts from the facts and insight that you did give.


 
Mark said:

Sir,
I would hope that by now most undergrads in political science would know that the $600 toliet seat of the 80s was a fiction created by cost averaging, in which we also got much more expensive equipment for only $600. I will take Mike's comment (which was dead on) a step further... not only does all government spending have inherent waste, all spending by any large organization has waste... take automakers or investment banks for example.


 
Hugh Ching said:

War is the ultimate struggle in the absence of rational arbitration. When two parties disagree, they can discuss, argue, or, finally when everything fails, engage in a physical struggle, whose ultimate form is war.

Another way to describe war is using the notion of the survival of the fittest. In the old days, fittest means physically strong, but today physical struggle is supplemented by intellectual superiority.

Science, which only a small portion of the population can fully understand, is today believed by most educated people mainly because of its contribution to fighting a war. Without rational arbitration, might makes right. In the past century, science has been proven to be right because it has provided the might for international military competition.

The advancement of knowledge, namely, science has been the most important contribution of war. Here the benefit of war far exceeds its cost, if we consider knowledge more valuable than money. Thus, leaders have the tendency of going to war to better the human condition in terms of the superiority in knowledge. The Iraq war has taught the Arab nations the power of science.

Today, the superiority of a nations is measured more by its wealth than anything else. Thus, war is replaced by mostly economic competition. But, the current financial crisis shows that money is still not more important than knowledge. Science can say nothing about value, which is the foundation of economics. The knowledge of economics belongs to the knowledge of post-science, knowledge beyond science dealing with social and life sciences.

For example, in your thorough description of the cost and the benefit of war (Both of your articles are worth reading for they dig far deeper into the sensitive issues than others), the post-science solution of value is needed to translate them into finally the price or the rate of return. Without the solution of value, there would not be sufficient incentive to make the inputs, which quantify the cost and the benefit, accurate for a useful prediction. Even with accurate inputs, these inputs alone might not be able to make the final decision of going to war. Thus, the correct solution of value should precede the accurate inputs.

In comparison to real estate investment, which I have extensive experience, military expenditure corresponds to the insurance expense, such as for fire, theft, flood, and earthquake. National security and social security are conceptually insurance.

The calculation for military expenditure should be the determination of how much insurance should a nation buy. The insurance should be a part of the expense in calculating the wealth or value of a nation.

One thing which should puzzle most people about military spending is its effect on the economy. How can a non-productive spending help the economy? My view is that our knowledge of economics is at about the zero level and, thus, zero productivity is better than some negative productivity, such as many government projects which interferes with the efficiency of the economy. The rational method of determining spending priority should be based on the rate of return, both monetary and non-monetary (e.g. socially beneficial).

Post-science should be able to provide the solution of rational arbitration, which will replace war. Accordingly, knowledge in the future will be advanced by economic rather military competition. For the sake of promoting post-science, of which I am the founder, I would add that science is destructive in its role in war while post-science is constructive in its contribution to rational arbitration and to the conceptual, as well as physical, understanding of life. ### Hugh Ching, Post-Science Institute 1-8-2009


 

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