Defense Spending Boosts the Economy? Data Says, Not Usually

As policymakers in Washington desperately search for ways to resuscitate America’s moribund economy a popular meme is taking hold that higher military spending can help boost the economy. Is that true? Theory aside, the historical evidence is not so clear.

Even House Republicans appear to be jumping on the spend defense money bandwagon, apparently eager to show they remain “strong” on defense. The GOP spokesman, Josh Holly, sent out a response to the initial Obama plan to cut 10 percent from the defense budget with this pop quiz:

Pop Quiz: A $55 billion cut in defense spending during a time of war and tough economic times will:

a) Improve America’s ailing economy,

b) Hurt America’s ailing economy even more,

c) Haven’t considered the economic implications or number of jobs that will be lost yet, or

d) Not sure.

While the answer would seem to be obvious from Holly’s very rigged choices, the answer is not so simple. The general idea is that when the government increases military spending through borrowing or printing money, it boosts aggregate demand for goods and services. One of those pushing this line is Martin Feldstein, professor of economics at Harvard, and a former Reagan administration economic advisor, who says a chunk of military spending should go into the stimulus plan being debated by Congress. “If rapid spending on things that need to be done is a criterion of choice, the plan should include higher defense outlays, including replacing and repairing supplies and equipment, needed after five years of fighting. The military can increase its level of procurement very rapidly,” he wrote in a Jan. 29, Washington Post op-ed.