Op-Ed: The economic costs of the U.S. permanent war economy

Posted Nov 9, 2012 by Ken Hanly
Cuts to defense spending are often criticized as leading to lost jobs and less security. However, little attention is paid to the economic costs of what has now become a permanent war economy in the U.S.
Dwight D. Eisenhower, 34th President of the United States.
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The military-industrial complex has well-funded lobbyists who are quite adept at defending military expenditures even in the face of the need to reduce the U.S. deficit. The defense industry has suppliers in virtually every state and many areas may suffer some loss of jobs if expenditures are cut. When unemployment is high, the prospect of job loss is a powerful argument for avoiding cuts.
The National Association of Manufacturers cites a study that the new planned Pentagon spending cuts would cause a million jobs to be lost next year. They claim that the cuts would increase unemployment by 0.7% and decrease the GDP by about 1%. Critics claim that the figures are somewhat inflated by projecting the effects the cuts would have on areas such as grocery sales and fast food jobs in the areas where there are cuts. However counting in these multiplier effects is a common enough practice and legitimate in determining total effects. The larger question concerns the role of military spending and the opportunity costs involved.
Military expenditures are supposedly designed to provide security for the nation. However, U.S. military spending has become instead a means of job creation as well as a means of extending U.S. power throughout the globe. The U.S. taxpayer pays for 900-plus military bases in 130-plus countries around the world.. Micah Zenko wrote in Foreign Affairs about the manner in which the public is continually warned about increasing dangers to U.S. security:“Warnings about a dangerous world also benefit powerful bureaucratic interests. The specter of looming dangers sustains and justifies the massive budgets of the military and the intelligence agencies, along with the national security infrastructure that exists outside government — defense contractors, lobbying groups, think tanks, and academic departments.”
The dangers of the new permanent economy are discussed in a new paper by Thomas Duncan and Christopher Coyne, both economists at George Mason University. Starting with World War II, the U.S. started upon a path to a permanent war economy. The trend was marked in the famous warning in President Eisenhower's farewell address about the military industrial complex: “In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.”
According to the two economists, the permanent war economy continually draws resources into the military sector at the expense of the private sector even in times of peace. The process also undermines the market process. It is a bit odd to contrast the war economy with the private economy. It is large privately owned corporations that profit from the war economy and the effects trickle down to sub-contractors and even all sorts of retail outlets who serve military personnel.This is a private economy promoted by government spending. The contrast should be with government expenditures on non-military goods such as health or education rather than private versus non-private spending.
The authors argue that rising military budgets become self-perpetuating. However, as the authors themselves point out the budgets are supported because they create jobs and economic activity in the areas where military facilities and suppliers exist. They also are justified in terms of protecting against harms, as absolutely crucial for security. The situation, seems to me, not at all as it is pictured by the authors: “As the military-industrial complex lacks a mechanism for meaningful economic feedback and correction.. once the economic activity has been set in motion, there is no true method of correction. This leads to the second implication, which is that the permanent war economy is self-extending.”
While it is true that the military-industrial-complex does not face the same market discipline as private corporations in other areas, it does face the fact that governments must ultimately decide on how to apportion budgets to different sectors, health, education, highways, etc. It is only because the U.S. taxpayer has been convinced that the military expenditures must take priority in government spending that the permanent war economy continues to grow. It is not self-extending even though it may not be subject to market forces that may impact on other areas.
This explains why the complex has a huge army of lobbyists trying to continue the expansion of the complex. It is why military and intelligence officials must constantly impress upon the public the crucial importance military spending to protect American and keep it strong and dominant in world affairs. At the same time there will be arguments designed to show that social spending and entitlements are not sustainable and must be scaled back. The public must reduce its expectations of what the government can afford to provide. These two lines of argument provide the framework for the expansion of the military-industrial complex. There is nothing self-sustaining about it.