How Is the Rise in National Defense Spending Affecting the Tenth District Economy?

By Wilkerson, Chad R.; Williams, Megan D. | Economic Review (Kansas City, MO), Spring 2008 | Go to article overview
Save to active project

How Is the Rise in National Defense Spending Affecting the Tenth District Economy?


Wilkerson, Chad R., Williams, Megan D., Economic Review (Kansas City, MO)


In 2007, the United States spent more than $650 billion on national defense. Even after adjusting for inflation, this was the largest annual amount since 1945, surpassing previous post-World War II peaks reached during the Korean, Vietnam, and Cold Wars. Defense spending has risen rapidly this decade, today accounting for nearly 5 percent of overall gross domestic product--about the same share as residential construction.

National defense represents an even larger share of economic activity in the Tenth Federal Reserve District. The region is home to some of the country's largest military installations, a number of private defense contractors, and a disproportionately large number of reservists and National Guardsmen.

Is the buildup in national defense stimulating the economies of the states in the Tenth District? This article finds that, relative to the nation, increased defense spending is likely to help the region more in the long run than the short run. Since 2001, defense spending has risen more moderately in the district than the nation, due primarily to slower growth in the types of defense activities concentrated in the region. Still, the region is poised for an expansion of defense spending in the future. And the region benefits from a less cyclical defense sector than that of the nation.

The article's first section looks at the evolution of defense spending in the United States and reviews research on the effects of defense spending on economic growth. The second section discusses the size and location of defense activities in the Tenth District and then explains how defense spending can benefit state and regional economies. The third section explores how and why the defense buildup has been smaller in the district and how the current buildup compares to past episodes. The fourth section examines why projected defense spending increases may influence the district and national economies differently.

I. NATIONAL DEFENSE IN THE U.S. ECONOMY

Ever since the United States entered World War II, defense spending has played an important role in the nation's economy. This section looks at the size of the defense sector in the U.S. economy and how it helps shape national economic growth.

How sizable is U.S. defense spending?

The scale of military expenditures in the United States has fluctuated considerably over time. In the decade prior to World War II, defense spending accounted for less than 2 percent of GDP (Chart 1). During the war, defense accounted for more than a third of the nation's economic activity--a boost many economists have claimed effectively ended the Great Depression (Tobin). By 1947, military spending had dropped again to about 7 percent of GDP and remained there for several years. Then, the Korean War, the Cold War, and later, the Vietnam War pushed defense's share of national output into or near double digits throughout most of the 1950s and 1960s.

By 1979, military spending had declined again to less than 6 percent of GDP. The Cold War buildup of the Reagan Administration lifted defense spending back above the 7 percent threshold for several years, but by 1986 it began to slow again and by 2000 dipped to a postwar low of 3.8 percent. Since 2001, defense spending has been rising rapidly, last year accounting for 4.8 percent of GDP. Spending on the nation's defense is generally expected to climb further in the near term.

[GRAPHIC 1 OMITTED]

Does defense spending boost economic growth?

A good deal of economic research has been conducted on the effects of defense spending on national economic growth. Results of these "guns versus butter" studies have been somewhat mixed since the first empirical analyses were conducted in the early 1970s. (1) Indeed, a detailed survey of the literature published in 1995 concluded there was no consistent evidence for either overall positive or negative effects of defense spending on national economic growth (Ram).

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

How Is the Rise in National Defense Spending Affecting the Tenth District Economy?
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?