Abstract
The economic impact of military spending has become a subject of intense debate in the USA with the dramatic increases in US military spending of the 1980s. The Defense Department and industry argue that defence spending creates jobs and promotes economic health. Critics argue that such spending is inflationary, saps productivity and technology, and creates fewer jobs than other federal spending. This chapter reviews these claims and concludes that the economic impact of military spending is only marginally different from that of other forms of federal spending. It is not uniquely inflationary, has an unclear relationship to productivity and technological development, and does not create significantly different numbers of jobs. Military spending does, however, affect regions, sectors of industry and segments of the labour market in different ways from other federal spending. Through these effects, a ‘political economy’ of military spending emerges, where decisions on levels of US military spending and on specific weapons programmes are supported by microeconomic impacts. The economics of military spending involves public policy choices about the directions of national security policy and about national economic development; the macroeconomic issues are, at best, of marginal importance.
This study was supported by Grants from the Rockefeller Brothers Fund, the Circle Fund, the Levinson Foundation and general support funding from the Defense Budget Project.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
Similar content being viewed by others
Notes and References
Office of Management and Budget, Mid-session Review of the 1986 Budget (Washington, DC: OMB, 1985) p. 26.
Defense Budget Project, The FY1986 Defense Budget: The Weapons Buildup Continues (Washington, DC: Defense Budget Project, 1985).
Department of Defense, FY 1984 Report of the Secretary of Defense (Washington, DC: Department of Defense, 1983) p. 68.
See, for example, the case of the B-1 bomber campaign conducted by Rockwell International described in Adams, G., The B-1 Bomber: An Analysis of Its Strategic Utility, Cost, Constituency and Economic Impact (New York: Council on Economic Priorities, 1976).
United Nations Centre for Disarmament, Economic and Social Consequences of the Arms Race and of Military Expenditures (New York: United Nations, 1978) p. 41.
Stevens, R. W., Vain Hopes, Grim Realities: The Economic Consequences of the Vietnam War (New York: New Viewpoints, 1976) especially chap. 6.
DeGrasse, R., Jr, Military Expansion Economic Decline (Armonk, New York: Sharpe, 1983) pp. 117–26; Thurow, L., ‘How to Wreck the Economy’, New York Review of Books 14 May, 1981; Gold, D. and DeGrasse, R., Jr, ‘Economic Recovery vs Defense Spending’, New York Times 20 February, 1981.
For a contrary view see Congressional Budget Office, Defense Spending and the Economy (Washington, DC: US Government Printing Office, 1983).
DeGrasse, R., Jr, Military Expansion (see Note 7) chap. II; Vitaliano, D. F., ‘Defense Spending and Inflation: An Empirical Analysis’, Quarterly Review of Economics and Business, vol. 24, no. 1 (1984) pp. 22–32. Starr, Hoole, Hart, and Freeman, using statistical techniques designed to assess whether a relationship between two variables exists, concluded that the tests did not support the existence of a relation between military spending and inflation for the USA and the UK, but did suggest one for France and West Germany. The tests are not able to suggest what that relation might be, however.
See Starr, H., Hoole, F. W., Hart, J. A., and Freeman, J., ‘The Relationship Between Defense Spending and Inflation’, Journal of Conflict Resolution, vol. 28, no. 1 (1984) pp. 103–22. Smith found no statistically significant relation between military spending and inflation.
Smith, R. P., ‘Military Expenditure and Capitalism’, Cambridge Journal of Economics, vol. 1, no. 1 (1977) pp. 61–76.
Melman, S., The Permanent War Economy (New York: Simon & Schuster, 1974);
Melman, S., Profits Without Production (New York: Knopf, 1983);
Dumas, L. J., ‘Military Spending and Economic Decay’, in Dumas (ed.) The Political Economy of Arms Reduction (Boulder, Colorado: Westview Press, 1982).
Adams, G., Controlling Weapons Costs: Can the Pentagon Reforms Work? (New York: Council on Economic Priorities, 1983).
Dumas, (see note 10); Hong, B. Y. Inflation Under Cost Pass-Along Management (New York: Praeger, 1979).
Melman, S., The Permanent War Economy (New York: Simon & Schuster 1974);
Melman, S., Profits Without Production (New York: Knopf, 1983).
Bezdek, R., ‘The 1980 Economic Impact — Regional and Occupational — of Compensated Shifts in Defense Spending’, The Journal of Regional Science, vol. 15, no. 2 (1975); DeGrasse, R., Jr, Military Expansion Economic Decline (New York: Sharpe, 1983);
Leontief, W. and Duchin, F., Military Spending: Facts and Figures (New York: Oxford University Press, 1983).
Kaldor, M., The Baroque Arsenal (New York: Hill and Wang, 1981) pp. 4, 5; Melman, S. (1983) (see note 10);
Noble, D., Forces of Production (New York: Knopf, 1984).
Rosenberg, N., Perspectives on Technology (New York: Cambridge University Press, 1976); Trebilcock, C, ‘Spin-Off in British Economic History: Armaments and Industry, 1760–1914’, Economic History Review, vol. 22, no. 3 (December 1969).
DeGrasse, R., Jr, Military Expansion Economic Decline (1983); Thurow, L., ‘How to Wreck the Economy’, New York Review of Books, 14 May 1981; Gold, D. and DeGrasse, R., Jr, ‘Economic Recovery versus Defense Spending’, New York Times (20 Febuary, 1981).
DeGrasse, R., Jr, (see Note 17) (1983); Szymanski, A., ‘Military Spending and Economic Stagnation’, American Journal of Sociology, Vol. 79, no. 1(1973) pp. 1–14.
Boulding, K., ‘The Impact of the Defense Industry on the Structure of the American Economy’, in Udis, B. (ed.) The Economic Consequences of Reduced Military Spending (Lexington, Massachusetts: Lexington Books, 1973).
Russett, B., ‘Defense Expenditure and National Well-Being’, American Political Science Review, vol. 76, no. 4 (1982) pp. 767–77;
Domke, W. K., Eichenberg, R. C, and Kelleher, C. M., ‘The Illusion of Choice: Defense and Welfare in Advanced Industial Democracies’, American Political Science Review, vol. 77, no. 1 (1983) pp. 19–35.
DeGrasse, R., (See Note 7) (1983); Thurow, L., (see Note 7) (1981); for a contrary view see Congressional Budget Office, Defense Spending and the Economy (Washington, DC: US Government Printing Office, 1983).
De Grasse, R. (see Note 7) (1983); Kaldor (see Note 15) (1981); Borrus, M., Millstein, J. E., and Zysman, J., ‘Trade and Development in the Semiconductor Industry’, in Zysman, J. and Tyson, L. (eds) American Industry in International Competition (Ithaca, New York: Cornell University Press, 1983).
Gansler, J., The Defense Industry (Boston, Massachusetts: MIT Press, 1980).
Kaldor, M., The Baroque Arsenal (1981) pp. 4, 5.
See Gold, D. A., et al., Misguided Expenditure: An Analysis of the Proposed MX Missile System (New York, Council on Economic Priorities, 1981), esp. Table 5, p. 157; Bezdek, R., The Economic Impact — Regional and Occupational — of Compensated Shifts in Defense Spending’, Journal of Regional Science, vol. 15, no. 2 (1975);
Chase Econometric Associates, Economic Impact of the B-1 Program on the US Economy (Bala Cynwyd, Pennsylvania: Chase Econometrics, 1975): Brancato, C. K. and LeGrande, L., ‘Impact on Employment of Defense versus Non-Defense Government Spending’, Congressional Research Service Issue Brief MB82246 (Washington, DC: Library of Congress, 1984).
See also Anderson, M., The Empty Pork Barrel (East Lansing, Michigan: Employment Research Associates, 1982) who states (p. 1) that ‘contrary to long held and popular belief, military spending is not good for the economy. It does not create employment — it generates unemployment…every time the military budget went up $1 billion, 10 000 jobs disappeared in the United States.’
Weinberger, C., Annual Report to the Congress, Fiscal Year 1984 (Washington, DC: Department of Defense, 1983) p. 68.
Congressional Budget Office, Defense Spending and the Economy (Washington DC: CBO, 1983) p. 43. The CBO study makes the reasonable assumption that defence spending includes salaries and benefits for the Defense Department’s military and civilian employees. When CBO focused solely on defence purchases from industry there was some difference with non-defence purchases, the former creating 210 000 jobs per $10 bn spent.
The job loss argument is most clearly stated in the work of M. Anderson, especially The Empty Pork Barrel (see Note 30). For a critique of this argument, see the CBO study; Mosley, H., The Arms Race: Economic and Social Consequences (Lexington, Massachusetts: Lexington Books, 1985); and Riddell, T., ‘The Employment Effects of Military Spending’, paper presented to the Allied Social Science Association Meetings, December, 1984.
Congressional Budget Office, Defense Spending and the Economy (Washington, DC: CBO, 1983) p. 43, note 4. The CBO study makes this point, linking the spending and employment arguments. Some research, CBO notes, assumes ‘that, because a higher share of GNP spent on defense is associated with a lower share spent on other things, higher real defense spending will necessarily lead to lower real spending elsewhere. Such a conclusion follows only if the economy is at full employment, which is hardly an accurate description of today’s US economy.’
Duchin suggests that a breakdown on defence employment among the different types of defence production would probably show variations of labour and capital intensity. See Duchin, F., ‘Economic Consequences of Military Spending’, Journal of Economic Issues, Vol. XVII, No. 2 (June 1983), pp. 543–553. There is also little evidence that defence sector production equipment is more expensive than that used in other sectors of manufacturing. Despite recent Defense Department investments in computer-aided and robotic production equipment, much of the defence sector machinery is quite old, dating, in some cases, from the 1950s.
See Gansler, J., The Defense Industry (Massachusetts: MIT Press, 1980).
Department of Defense, Atlas/State Data Abstract for the United States, Fiscal Year 1984 (Washington, DC: DOD, 1985) p. 117. Over 3.3 million people work directly for the Department of Defense. There is a curious discrepancy in one study between the researcher’s estimate of jobs in the defence sector and data from Defense Department.
In Anderson, M., The Empty Pork Barrel (1982) p. 6, military industry employment is estimated at 790 800 in 1977 and 1978. The Defense Department estimated 1977 defence-related industry employment at 1 710 000, a difference of nearly 1 million jobs, Department of Defense (1985) pp. 118–19 and Mosley, H. (see Note 36) p. 91.
North-east-Mid-west Institute, The Pentagon Tilt: Regional Biases in Defense Spending and Strategy (Washington, DC: Northeast-Midwest Institute, 1984) pp. 1, 24, 26. Other analysts agree. Ann R. Markusen argues that military contracting has stimulated industrial growth, especially in high technology, from Boston to Long Island (but not the rest of New York State), Florida, Texas and California, while the old industrial heartland (Milwaukee, Chicago, Cincinnati, Buffalo, New York City, Philadelphia, Baltimore and presumably Detroit) have not had that stimulation.
See Markusen, A., ‘Defense Spending and the Geography of High Tech Industries’, Working Paper No. 423 (University of California, Berkeley: Institute of Urban and Regional Development, 1984);
Markusen, A., ‘Defense Spending: A Successful Industrial Policy?’, Working Paper No. 424 (University of California, Berkeley: Institute of Urban and Regional Development, 1984). In 1982 the staff of the Joint Economic Committee concluded that the US defence build-up, concentrated in high technology procurement, ‘is likely to exacerbate the regional imbalances in the national economy’, since the mid-west, with idle plant capacity, is not the region where military equipment is purchased. See Joint Economic Committee, Subcommittee on Economic Goals and Intergovernmental Policy, The Defense Buildup and the Economy (Washington, DC: JEC, 1982).
It is also not reasonable to examine the distortions in the American economic geography caused by federal spending by focusing solely on Defense Department spending. See Anderson, J., Bankrupting America: The Tax Burden and Expenditures of the Pentagon by Congressional District (Washington, DC: 1982) which makes the case on the basis of defence spending alone. In order to understand these potential distortions, one must review all federal spending and do so over a considerable period of time. Senator Daniel P. Moynihan reviews all federal taxes and federal spending in his annual report on New York State’s fiscal relationship with the federal government. According to the 1985 report, in 1984 thirty states were in surplus with the federal government, while twenty states were in a deficit.
See Moynihan, Senator D. P., New York State and the Federal Fisc: IX (Washington, DC: Office of Senator Moynihan, 1985) pp. 40–2.
As defence spending rose in the 1980s, for example, domestic spending was also being cut. These latter cuts led to declining membership in unions that organise among public employees and service industries. See Lance Compa, ‘Labor and the Military — A History’ in Gordon, S. and McFadden, D., Economic Conversion: Revitalizing America’s Economy (Cambridge, Massachusetts: Ballinger, 1984) p. 34. See also Bezdek (see Note 8) Gold et al. (see Note 30);
Reppy, J., ‘Long Term Consequences of Military Spending’, paper presented to the International Studies Association meeting (Washington, DC, 8 March, 1985) p. 5;
Congressional Budget Office (1983); and Department of Defense, Symposium on the Impact of Higher Levels of Defense Expenditures on the United States Economy in the 1980s (Washington, DC: DOD, 1980).
See Hartung, W. D., DeGrasse, R., et al., The Strategic Defense Initiative: Costs, Contractors and Consequences (New York: Council on Economic Priorities, 1985) chap. 3; as well as DeGrasse, R., Jr, (see Note 7) (1983); Hartung, W. (see Note 52) (1984);
Anderson, M., The Empty Pork Barrel, (1982).
Anderson, M., Neither Jobs Nor Security (1982) p. 9: argues that ‘over half of the US scientists and engineers have been working on military and space contracts’. Reppy, J. (see Note 49) (1985) estimates that 42 per cent of US scientific manpower is in defence-related work. DeGrasse, R., Jr, (see Note 7) (1983), p. 102, using National Science Foundation data prepared in the late 1970s estimates that 25–35 per cent of US scientists and engineers were working on defence projects.
See Department of Defense, FY 1983 Report of the Secretary of Defense (Washington, DC: DOD, 1982); Department of Defense (see Note 00) (1983);
Holzman, F., ‘Are the Soviets Really Outspending the US on Defense?’, International Security, vol. 4, no. 4 (Spring 1980) pp. 86–104;
Stubbing, R., ‘The Imaginary Defense Gap: We Already Outspend Them’, Washington Post (14 February, 1982), p. C-1; Collins, J., US-Soviet Military Balance: Concepts and Capabilities (New York: McGraw-Hill, 1980); Levin, Senator C., ‘The Other Side of the Story’, monograph, May 1983;
Defense Budget Project, The FY 1986 Defense Budget: The Weapons Buildup Continues (Washington, DC: Defense Budget Project, 1985);
Committee for National Security, Spending for a Sound Defense: Alternative to the Reagan Military Budget (Washington, DC: Committee for National Security, 1985).
See, for example, Peck, M. J., and Scherer F. M., The Weapons Acquisition Process: An Economic Analysis (Boston, Massachusetts: Harvard School of Business Administration, 1962);
Fox, R. J., Arming America: How the US Buys Weapons (Boston: Harvard School of Business Administration, 1974);
Sapolsky, H. M., The Polaris System Development: Bureaucratic and Programmatic Success in Government (Boston: Harvard University Press, 1971);
Fitzgerald, A. E., The High Priest of Waste (New York: Norton, 1972).
See Adams, G., ‘A Bomber for All Seasons’ (New York: Council on Economic Priorities newsletter, 1982).
In 1983, the presidential business commission investigating government waste pointed to roughly $30 bn a year in wasteful Pentagon spending. See President’s Private Sector Survey on Cost Control, Task Force Report on the Office of the Secretary of Defense; Task Force Report on the Department of the Army; Task Force Report on the Department of the Navy; Task Force Report on the Department of the Air Force (Washington, DC: Department of Commerce, 1983).
See Defense Budget Project, Nuts and Bolts at the Pentagon: A Spare Parts Catalog (Washington DC: DBP, 1984);
Adams, G. A., Controlling Weapons Costs: Can the Pentagon’s Reforms Work? (New York: Council on Economic Priorities, 1983); and Peck and Scherer; Fox (see note 56); and Fitzgerald (see note 56).
See Cuff, R. D., The War Industries Board: Business-Government Relations During World War I (Baltimore, Maryland: Johns Hopkins Press, 1973);
Koistinen, P., The Military Industrial Complex: A Historical Perspective (New York: Praeger, 1980);
Adams, G., ‘Defense Policy-Making, Weapons Procurement, and the Reproduction of State-Industry Relations’, paper presented to the American Political Science Association, (Washington, DC: 28 August, 1980).
See Kaufman, R., The War Profiteers (Garden City, New York: Doubleday/Anchor Books, 1972) p. 248;
Fox, J. R.; Peck and Scherer; Melman, S., Pentagon Capitalism (New York: McGraw-Hill, 1970);
and Melman, S., The Permanent War Economy (New York: Simon & Schuster, 1974).
Gansler, J., The Defense Industry (Boston, Massachusetts: MIT Press, 1980.)
Adams, G., The Politics of Defense Contracting: The Iron Triangle (New Brunswick, New Jersey: Transaction Press, 1982).
Adams, G., ‘Disarming the Military Subgovernment’, Harvard Journal on Legislation, vol. 14, no. 3 (April 1977) pp. 459–503;
McConnell, G., Private Power and American Democracy (New York: Knopf, 1967);
Freeman, J. L., The Political Process (Garden City, New York: Doubleday, 1955);
Cater, D., Power in Washington (New York: Random House, 1964);
Hayes, M. T., ‘The Semi-Sovereign Pressure Groups: A Critique of Current Theory and Alternative Typology’, Journal of Politics, vol. 40, no. 1 (1978) pp. 134–61.
Zeigler, H., and Peak, W. G., Interest Groups in American Society (Englewood Cliffs, New Jersey: Prentice Hall, 1972) 2nd edn, p. 180.
See Seidman, H., Politics, Position and Power (New York: Oxford University Press, 1970) p. 18; McConnell (see note 64);
O’Connor, J., The Fiscal Crisis of the State (New York: St Martin’s Press, 1973) p. 66.
See Adams, G. (see Note 63) (1982); Schattschneider, E. E., The Semi-Sovereign People (Hinsdale, Illinois: Dryden Press, 1975) 2nd edn; and Hayes
Neustadt, R., Presidential Power (New York: Wiley, 1976) p. 172.
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Copyright information
© 1987 International Economic Association
About this chapter
Cite this chapter
Adams, G., Gold, D.A. (1987). The Economics of Military Spending: Is the Military Dollar Really Different. In: Schmidt, C., Blackaby, F. (eds) Peace, Defence and Economic Analysis. International Economic Association Series. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-18898-7_13
Download citation
DOI: https://doi.org/10.1007/978-1-349-18898-7_13
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-349-18900-7
Online ISBN: 978-1-349-18898-7
eBook Packages: Palgrave Economics & Finance CollectionEconomics and Finance (R0)