National Security at What Price? the Economic Consequences of Military Spending

By Lapidus, Kevin | American Economist, Fall 1993 | Go to article overview

National Security at What Price? the Economic Consequences of Military Spending


Lapidus, Kevin, American Economist


The recent conclusion of the Cold War affords an opportunity to reflect on, and evaluate the consequences of, America's defense policy of the last 45 years. The federal government's post World War II policy created a permanent military spending machine centered around the Department of Defense. Sizable allocations of money, materials, and manpower were committed in order to maintain a large, combat ready military to meet the needs of a variety of political objectives, including the counterbalancing of a perceived Soviet threat. Two contrasting views of the economic ramifications of defense spending are offered by Murray Weidenbaum and Seymour Melman.

Weidenbaum, in his article "Defense Spending and the American Economy: How much Change is in the Offing?(1)" purports to "examine the changing role of defense in the American economy." His analysis leads him to the following conclusions: 1) The opportunity cost of defense resources is consumption, and 2) the United States' military burden has a minimal role in, and impact on, the overall economy. Melman, however, takes an antithetical view of the effects of defense spending. In his article, "The Economic Consequences of the Arms Race: The Second-Rate Economy,(2)" Melman contends that defense spending has "transformed the United States into a second- rate industrial economy." Through the preemption of technical talent, creation of budget deficits, depletion of key industries, and other economic interferences, Melman argues that defense spending has diminished the rate of productivity increase and therefore slowed America's economic growth.

This paper evaluates the methodologies and conclusions of Weidenbaum and Melman in determining the economic effects of defense spending, and in particular, defense spending in the 1980s. The conclusion is that defense spending had deleterious effects on productivity growth and America's global economic position.

I

In his article, Weidenbaum minimizes the significance of defense spending for the economy. He claims, "The massive economy of the United States is neither propelled nor redirected by modest shifts in the relatively small share of GNP devoted to military purposes." To buttress this claim, Weidenbaum relies on the fact that defense spending in 1990 accounted for approximately 6% of GNP, down significantly from the 9% level of the Kennedy administration. He also argues that a relatively small percentage of the labor force, 1.3% in 1989, is used by the military. Weidenbaum concludes by describing the defense program as "a relatively minor player in the American economy." He goes on to emphasize that defense's role has not changed in the 1980's. He states, "Analysis of the economic impact of the military buildup of the early 1980s found no evidence of any major disruptive effect of defense expenditures.(3)" This categorization of defense spending's role, however, is flawed because it underestimates both its size and nature. It must be noted that a mere review of the Department of Defense's budget underestimates the federal monetary commitment to the military- industrial complex. DoD figures leave out numerous military expenditures and transfers, for example:

* foreign military assistance

* military portions of NASA expenditures

* veterans' benefits

* Department of Energy nuclear-weapons expenditures

* non-DoD intelligence gathering

* interest payments on the national debt attributable to previous military expenditures(4)

When these additional military expenses are considered, the size of military commitment increases. Figure 1(5) demonstrates defense outlays as estimated by the Office of Management and Budget and an adjusted estimate that includes veterans' benefits, international security assistance, and part of NASA's expenditures. These adjusted figures demonstrate more accurately the costs associated with defense spending. It is also pertinent to point out that since World War II, defense spending has averaged roughly 38% of total government outlays. …

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