The Secret to Absorbing Defense Cuts: Economic Growth

Article excerpt

BRAVO for Congress. Last month's strong vote in the House to approve the military base closing proposal is a sound display of political will and a correct stand against those who would maintain military spending for alleged economic reasons. A strong United States military is necessary for world peace, but retaining unneeded defense capacity as a jobs program is bad economic policy. Those who would do so underestimate the flexibility of the US economy and ignore the economic benefits that will result from investing the resources no longer needed for defense in new productive capital.

As a trustee of the Committee for Economic Development (CED), I recently chaired a study group which wrote "The Economy and National Defense: Adjusting to Military Cutbacks in the Post-Cold-War Era." The statement was unanimously approved by this group of top business leaders, many of whose firms will be adversely affected by defense reductions. These business leaders concluded that cuts in defense spending do not threaten economic prosperity and that reallocation of resources from defense to more productive uses need not be feared. Indeed, it presents an opportunity that should not be wasted. The only yardstick for defense should be national security, not jobs.

Our economic system is threatened, however, by our low rate of national saving, largely caused by federal deficits. The adverse effects of these mammoth deficits are so well-documented they scarcely need to be repeated: Sluggish growth in productive investment, high percentage rates for the dollar, and increased reliance on foreign capital undermine US long-term economic growth and competitiveness. In order to build the capital for future economic strength, the saving resulting from cutbacks in defense spending should be devoted to federal deficit reduction.

The 1990 budget agreement takes this approach. It requires that savings from defense cuts be devoted to deficit reduction through fiscal year 1993 by placing separate caps on discretionary spending for defense, international affairs, and domestic programs. From an economic perspective, this is the correct procedure. The budget agreement generally is an excellent first step toward fiscal discipline, and I urge Congress to stay the course until the deficit problem is completely under control. …


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