Defense and the Long-Term Budget Outlook
Paul Krugman writes about the long term deficit:
What I read from this is that between the slightly unsustainable deficit in 2019 and the demography to follow, we’ll eventually have to find 3.5% — call it 4 — in fiscal consolidation even if health reform ends excess cost growth.
That’s a big but not disastrous number. We could raise that much in taxes alone without inflicting huge economic damage. We could make up some of the number if health reform does more than end excess cost growth, and rolls spending as a percent of GDP part way back toward European levels. We could cut Social Security benefits — although if you look at the numbers, it would take draconian cuts to make a major dent that way.
Actually reducing health spending as a percent of GDP strikes me as very unlikely to happen. The politics of just getting cost growth under control are very difficult. But one thing I’m surprised Krugman didn’t mention is the Department of Defense. The Pentagon’s budget has, in percent of GDP terms, varied a lot over the years:
The Heritage Foundation purports to think it’s strange that defense spending is lower (as a percent of GDP) than during its Cold War averages “despite the War on Terror.” One might respond to this by trying to compare the budget of al-Qaeda to the budget of the Soviet Union. For that matter, you could try to compare the budget of al-Qaeda to the budget of Czechoslovakia or East Germany or whatever other random Warsaw Pact member you choose.
Maintaining a level of defense spending well above anything that seems to meet a strict self-defense test has a lot of advantages for the country. But those are advantages that need to be weighed against the costs in terms of higher taxes or lower spending on things like Social Security.
29 Responses to “Defense and the Long-Term Budget Outlook”
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September 29th, 2009 at 11:14 am
I notice that scary things are still happening–half a dozen arrests lately of terrorist operatives who might have killed hundreds.
But fortunately, cross your fingers, so far these operations have been nipped in the bud.
Nipped not by DoD but by the FBI. Not by war measures, but by police measures.
I hope, then, the FBI budget is maintained or increased, and see no reason to raise the defense budget to fight the misnamed war on terror. Turns out dropping bombs and sending troops to foreign lands is not what makes us more secure against terrorist operations, and that deprioritizing these measures turns out to make a lot of sense.
September 29th, 2009 at 11:22 am
[...] September 29, 2009 · Leave a Comment Matt Yglesias drops this graph into a short discussion on a recent Krugman column or post. Note, if you will, [...]
September 29th, 2009 at 11:26 am
I love how he conveniently obscures the magnitude of the problem by calling it the “4 percent problem.” It’s more like the 30% of current spending problem.
September 29th, 2009 at 11:40 am
Fighting a few thousand goat herders armed with $100 assault rifles is a very costly undertaking.
September 29th, 2009 at 11:41 am
Matty writes:
One might respond to this by trying to compare the budget of al-Qaeda to the budget of the Soviet Union.
Well yes and that would really prove what a dick you are.
Somehow Matty I don’t recall you favoring illegal and “preemptive” attacks on China and the Soviet Union or even Nigeria and the Maldives for that matter.
Do ya’ think your criminal wars might have an effect upon Defense spending?
Or like Don Rumsfeld do you think your invasions and occupations should be done on the budgetary cheap?
How has that worked out for you?
September 29th, 2009 at 11:49 am
It would be an interesting thought experiment if we matched our european allies defense spending as a % of GDP and see what effect that had on the budget deficit. Remember the peace dividend. That seems to have gone away. Right now we spend 2x as much as any of our allies and WAY more than any of our potential adversaries…Do we really need large contingents of troops to defend Europe from Russia? Do we really need to be fighting 2 foreign wars? Where could that money be used more productively. Military spending is one of the most inefficient ways of improving the economy through spending. Yet, when cuts to military programs (think F22), repiglicans scream about the loss of jobs. Somehow military spending for job creation is untouchable, despite being much less stimulative to the economy. Maybe someone besides Barny Frank should bring this up in congress next time the budget hawks start squawking…
September 29th, 2009 at 12:10 pm
These people who think we should have ~10% of GDP defense budget… what do they think we should spend over a trillion dollars annually on? 4 simultaneous wars? Transformable robots? A Deathstar?
September 29th, 2009 at 12:12 pm
A Deathstar?
The right has already shown that it’s in favor of destroying the planet, so yes.
September 29th, 2009 at 12:24 pm
Increase the DoE’s alternative-energy research and energy conservation research by taking money away from the DoD.
Same pork, better use. Congress might buy that.
September 29th, 2009 at 12:39 pm
Tens of billions of gallons of various drinks detrimental to human health are consumed every year. Whiskey, beer, wine, soda, fruit drinks containing exactly zero “fruit” juice within them, etc. I like the idea of a scant few pennies tax on these beverages. People are addicted to them and will no doubt guzzle them in virtually the same quantities as pre-tax prices. Earmark the funds to offset the cost of health care reform. The states lapped up the tobacco settlement money, all collected employing similar logic as to the correctness of the levies. What would a penny for every 12 ounces of all this stuff amount to? Billions and billions $$$?
September 29th, 2009 at 12:53 pm
Defense spending has its share of waste. However, those calling for it to be cut had better look at the line items that are cut. A lot of basic research is being funded in the name of defense, which is good and necessary investment in the economy. We are communicating in this manner thanks to the brainchild of defense spending. A lot of current Ph.D students in engineering and science currently have fellowships being funded by defense spending. You could shift this sepnding to other departments like the DOE or NSF, but it needs to be spent for global economic competitiveness.
BTW, R. Wang, from a strictly economic point of view why is military spending less efficient as stimulus? For obvious reasons most of it must fund American companies with American employees. Some military bases are in fact the driving economic engine in their areas.
September 29th, 2009 at 1:17 pm
Basic and applied research, combined with component development amount to about 0.5% of the defense budget. People think the amount is higher because it is listed as “Research, Development, Test and Evaluation”, which is about 14% of the DoD budget. That ought to be listed as “Test, Evaluation, Development and … um … oh yeah, Research”
September 29th, 2009 at 1:23 pm
The first level of stimulus is the pay that workers get for the projects the government creates. In good stimulus spending, the end product has further stimulus effects. A new road or rail line increases the efficiency of local business, for example. Military spending as stimulus is bad because the end product is of no value after you hit a saturation point, which we hit long ago. Buying more F-22s is like digging and filling in high-tech ditches.
September 29th, 2009 at 1:57 pm
And some of those costs are insideous. Like possesing a big bad stick, we are tempted to use it. So we create a self-fullfilling need. We build a big club (because we are afraid), and then club a few people with it. Then we discover we have people who hate us enough to wish to do us harm. Then we must fund even bigger badder clubs to protect ourselves from the scary new bad guys……
Of course a big part of the problem, as in healthcare is legislative capture. The big money players have so much clout among the politicians, that they largely get their way.
September 29th, 2009 at 2:02 pm
The cost of an effective defense is not a function of the GDP. It’s an absolute number, and a function of the threat. Since 1962 the GDP has increased several times over. Does that mean the threat has increased many times over? Of course not. Calculating annual defense spending as a percentage of the GDP is like calculating Bill Gates’ annual housing costs as a percentage of his net worth.
September 29th, 2009 at 2:04 pm
What is the source of the 0.5% number? Flip through any scientific journal and see how many papers from American companies or universities at the end have an acknowledgment that this (unclassified, basic) research was funded by this or that defense department. BTW the US is losing ground in percentage of published peer-reviewed papers.
Buying expensive, useless weapon systems that don’t work is obviously a waste. Developing the internet, adaptive optics, telemedicine, etc. isn’t. The multiplier effect is also a part of stimulus. If Wright-Patterson or Warner Robins Air Force Bases were to be summarily closed tomorrow, the economies of the surrounding areas would be devastated. Defense employees by cars and houses, go to restaurants, etc. Conservatives are hypocritical when they insist they government spending be cut and then ferociously protect defense spending on the basis of jobs. By the same token liberals don’t seem to mind it when defense jobs that can’t be outsourced disappear thanks to spending cuts.
I’m not saying that the defense budget can’t be cut. You just have to be careful how it is done. I’m not optimistic that politically-connected makers of useless weapons systems will be the first to see their funding disappear.
September 29th, 2009 at 2:19 pm
Maintaining a level of defense spending well above anything that seems to meet a strict self-defense test has a lot of advantages for the country.
Either my English comprehension skills are seriously atrophying, or this may well be the single craziest thing Yglesias have ever written. And I think I’m sufficiently familiar with his writing style by now to discount the possibility of intentional irony.
I love how he conveniently obscures the magnitude of the problem by calling it the “4 percent problem.” It’s more like the 30% of current spending problem.
Syncophant of the right: There’s nothing “convenient” in Krugman’s analysis. It was spot on, save (as Matt notes) his failure to note the possibilities of decreasing the Pentagon’s take of GDP. Revenues have crashed in the wake of George W. Bush’s economic policies, and also the federal government has temporarily had to take on massive extra spending. Both of these unfortunate situations should ease with the return of normal economic growth. A lot can happen between now and 2019, but to my eyes the notion that a combination of spending cuts and tax increases equal to 4% of GDP will put the country on a sustainable fiscal path looks reasonable.
The cost of an effective defense is not a function of the GDP. It’s an absolute number, and a function of the threat.
Amen.
September 29th, 2009 at 2:30 pm
Looks to me like we could shave a percent off there. At 3.7% we’d still be spending more than we did in 2000.
September 29th, 2009 at 3:18 pm
The WP has an article about the defense bill today.
Some highlights:
1) I believe that we can all agree that $4.2 billion worth of planes and boats that the military did not ask for is wasteful pork.
2) However, the WP seems to look askance at some earmarks like:
a) $10.8 million for polymer research at Southern Miss
b) $24 million for Hawaiian health-care network
c) $20 million for Boeing’s operation of the Maui Space Surveillance System. One of its missions is to look for earth-crossing asteroids.
Are those necessarily bad and insidious projects? Polymers aren’t exactly restricted to military use. Granted, those projects make up a small percentage compared to the pork in the article, but those types of projects add up. You have to be careful about reflexively labelling all defense spending as a waste.
September 29th, 2009 at 5:27 pm
Ummmm…I’ve heard numbers that place at an all time high since 1946.
I’d double check any numbers from Heritage.
Depending on what is counted as defence, the numbers can get very different.
September 29th, 2009 at 5:49 pm
Basic and applied research, combined with component development amount to about 0.5% of the defense budget.
This number must be woefully underestimated. The DOD SBIR (Small Business Innovative Research Program) has funding of over $1 billion by itself. That puts it at about 0.25% of the DoD budget alone. All of that funding is legitimately classified as R&D. If 0.5% were correct, that would leave a total of about $1.5 billion for legitimate R&D by non-small businesses, non-profit reserach centers, and universities.
According to the NSF (as of 2003), “the DoD funded 42 percent of all engineering research at universities in the 1990s. With that figure,the DoD was, and still remains, the single largest supporter of research in engineering.” MIT alone was receiving $400 million in military funding in the 80’s. I can’t find a current figure.
In summary, no way.
September 29th, 2009 at 8:17 pm
Sorry, it’s 2%, not half a percent … suffering from vertical dyslexia today.
From DoD budget (2009):
$1.7B for basic research
$4.2B for applied research
$5.5B for advanced technology development
The point stands, you can cut a huge amount from the defense budget without cutting into research. The other $68 billion in the RDT&E budget is not research.
September 29th, 2009 at 8:25 pm
You can do a billion dollars worth of research for a billion dollars, or you can ask for a pointless weapon system that will cost $100 billion to develop and produce and require a billion dollars worth of research.
That’s “bad stimulus”. Anything that isn’t more effective than just handing out money is bad stimulus. If you just hand out money, people will use it to buy “cars and houses, go to restaurants, etc.” Good stimulus needs to do more.
September 29th, 2009 at 11:59 pm
I don’t believe that number either. Is it your position that no research that can benefit the economy occurs in component development ($15 billion) and systems development ($19 billion)? I’m guessing that you aren’t an engineer. Since MIT’s defense funding just with inflation should be around $800 million now, either one university gets around 7% of all “research funding” from the DoD (politically unlikely), or a lot of what they do doesn’t fit into those three categories.
Those three categories basically involve proof of concept, design, and simulation of solutions. The development part is a big challenge in the R&D process. A whole new set of problems crop up when you actually try to prototype the design, build it, and operate it outside of the lab, and this work benefits American industry. A technology isn’t of much use to the economy unless it is reliable in real-world settings and cheap to manufacture.
Sure, you can. I never said you couldn’t. But will that happen? Look at the change in funding from FY08 to FY09 in those three (incomplete) categories you listed (+4%, -16%, and -7.6%). That’s my point.
September 30th, 2009 at 10:19 am
The defense department should not be used as a jobs program.
September 30th, 2009 at 12:24 pm
@24: So divert some of the money saved by the cuts to NSF, NIH, NASA, etc. Doing research is good, but doing it specifically under the Defense Department is only good for people who want to see a larger Defense Department.
September 30th, 2009 at 12:50 pm
This stage of development is for making things suitable for military use. While a small portion of that is applicable to industry in general, it is almost certainly made up for by the fact that far less than 100% of the other catagories I mentioned is ever applicable for non-miitary uses.
September 30th, 2009 at 2:46 pm
The SBIR program is generally listed under Systems Development, for instance. Part of the proposal process is to demonstrate commercial market for the technology developed under the program. Generating new commercial tech companies is a goal of the program. Projects include technology with wide application like better UV light sources and semiconductor lasers. Claiming that only 10% of the RDT%E budget has investment value in the economy is an understatement. But my point was that the baby is liable to be thrown out with the bath water, not that it is impossible to greatly reduce waste in the DOD budget without cutting valuable investment.
Fine. But if it is the same work at the same cost, what difference does it make which department writes the check? That doesn’t help the deficit. People who hate the defense budget get to feel better that the number next to it is smaller? You may not realize it, but a lot of the work done on university campuses funded by the NSF and DOD are indistinguishable. I was a grad student in engineering once upon a time. My guess is that growing deficits may force blanket cuts (/slower growth rates) in all departments.
September 30th, 2009 at 5:47 pm
Bullshit. Name one.