Wednesday, December 24, 2008

Feldstein Advocates Surge in Defense Spending

Martin Feldstein says Defense Spending Would Be Great Stimulus:

As President-elect Barack Obama and his economic advisers recognize, countering a deep economic recession requires an increase in government spending to offset the sharp decline in consumer outlays and business investment that is now under way. Without that rise in government spending, the economic downturn would be deeper and longer. Although tax cuts for individuals and businesses can help, government spending will have to do the heavy lifting. That's why the Obama team will propose a package of about $300 billion a year in additional federal government outlays and grants to states and local governments ... A temporary rise in DOD spending on supplies, equipment and manpower should be a significant part of that increase in overall government outlays. The same applies to the Department of Homeland Security, to the FBI, and to other parts of the national intelligence community. The increase in government spending needs to be a short-term surge with greater outlays in 2009 and 2010 but then tailing off sharply in 2011 when the economy should be almost back to its prerecession level of activity. Buying military supplies and equipment, including a variety of off-the-shelf dual use items, can easily fit this surge pattern.

Feldstein’s call for some surge in government purchases with a scaling back when we reach full employment strikes me as good macroeconomics. However, we can do the same thing with public schools, bridges, and roads. Of course, I had a similar reaction to something Bill Kristol wrote.


Anonymous said...

What the hell are the trillions we are spending in Iraq? Chopped liver?

Eleanor said...

There were articles written in the 1960s about the permanent war economy and military Keynsism (Keynsianism? whatever that word should be). Anyway, the idea was the US government was propping up the economy by military spending, which had the advantage of being never ending. You never finish the job of arming, especially in an arms race.

Without this spending, the theory was, the economy would revert to stagnation and depression.

The spending has continued. The War Resisters League says military spending is 50% of the federal budget, if properly counted. But it is no longer supporting the economy adequately, as we can see.

It also sucks resources away from civil society in a big way. We could have spent the money used to destroy Iraq in many good and humane ways in the US.

Jack said...

Interesting how the geniuses that our elected officials are in the habit of listening to always seem to think that the best thing for the country has to do with propping up one form form of corporate entity or another. As pgl say's, why not on projects that have some social good and that might foster better citizen development or enhance the quality of life for the population in general? Feldstein sounds like the broken record of international corporatism. Maybe that's the political party he supports. Mr. Obama may turn out to be just that kind of a president, unfortunately.
Where's the emphasis on social improvement? Any schmuck can buy weapons. It takes real courage to do good for the majority of the nation. That might cost corporate America, if that term even makes sense any more, some of its wealth.

lineup32 said...

The Democrats have made it clear they prefer Afgan as a major battlefield and will fund military spending at levels to accomplish the task. The Democrats under estimate the impact of the current recession and will pay for it at the polls but they will use the same political tactic's as Bush that we are at War blah blah blah fire up Homeland Security warning etc. The younger generation that voted in Obama will get a good lesson in how our two party system works.

Shag from Brookline said...

Who remebers Ike's 1960 farewell speech cautions about the military industrial complex?

Ken Houghton said...

Quibble: 1961. Apparently, more than 200,000 people now remember it. Several of you weren't born then; several of us were not old enough to understand it live.

The maximum multiplier for military spending, as I groused at AB, is 1.0.* There just isn't much of a secondary market for used bullet casings.

Investments in Public Goods, otoh, make it easier for businesses to work. (New road, new delivery option.) And it's not as if anyone else is actually spending private monies to build roads; no crowding-out, limited opportunity costs.

Feldstein does his reputation even more damage, arguing for low-yielding fruit. Left implicit by his editorial, of course: does this mean he believes the Bush Administration pledges ca. 2000 to "reform and revitalise" the military were lies?

*Yes, the money gets re-spent, but that happens in all cases and is therefore not a result of the spending itself.