One aspect of the United States which dominates discussion of economic policymaking is the impact of US defense spending on the US military. Since World War II, many have hailed the use of US dollars going into defense spending to boost the economy and boost US GDP. This notion is given credence based on the sheer amount the US spends on defense.
Recently, an article in the New York Times, written by Michael Scheer and Jennifer Steinhauer, describes President Trump’s proposal to increase military spending by $54 billion by taking out an equitable amount of spending from other programs. While the phenomena that came to pass during World War II is convincing enough for some to believe it is a viable option for improving the US economy, its persistence now may serve to negatively impact the economy and here are a few reasons that may be the case:
- Multiplier Effect Less than One
In an article provided by the Mercatus Center and written by Robert Barro and Veronique de Rugy, deficit financed defense spending will cause one dollar of spending to translate to less than a dollar increase in GDP. While the multiplier remains positive, the less than one multiplier effect indicates that defense spending isn’t helpful and sustains the possibility of a crowding out effect which eliminates private investment from US GDP. In fact, then article indicates that the vast majority of US defense spending is ineffective as it is less than one.
- Percent of US GDP
Another major argument that portrays the ineffectiveness of US defense spending is its percentage within US GDP.
The United States already spends an enormous amount on defense spending as evidence by the graph above. However, the percentage of the budget spent on defense doesn’t translate to an equitable percentage in US GDP.
In this set of data from the FRED, government spending on defense in 2015 amounts to around 4% of US GDP, while government expenditures as a percentage of the budget is 16%. While defense spending does contribute to GDP in some way, it is not a fair trade-off.
- Bureaucratic Mismanagement
One final argument that disproves the effectiveness of defense spending is the bureaucratic aspects of the defense industry. In an article from the Huffington Post by Lee Hamilton, the amount of spending that goes into the defense industry is wasted by the existence of multiple military branches, which causes duplications in research, infrastructure, and weapon systems. In economics, the common term or such a phenomenon is diseconomies of scale. The point at which the governing body and acquisition system of the Department of Defense causes repetition in work and production as decreasing marginal returns indicates that the desirability of spending dollars on defense should be low.
Ultimately, the idea that defense spending can improve the economy or increase GDP isn’t necessarily true. Given the recent development that President Trump wants to increase defense spending at the expense of other government programs is both social appalling as well as economically ineffective. The current existence of bureaucratic mismanagement means that increases in expenditures equates to wasting taxpayer dollars. The minimal impact it has as a percentage of US GDP means that replacing other forms of spending for defense stifles the possibility of growth for national defense. If anything, the less than one multiplier effect serves as a reason why defense spending simply crowds out private investment which can generate economic wealth and GDP growth. The economic boost of defense from World War II was substantial, but it is not something that is or can be replicated as macro-economic policy. While protecting the homeland is a strong perceptional reason in politics for such spending, there is no economic reason why an increase in spending should take place.