More on Defense Spending

In my last post on the 08Q3 GDP release, I noted the remarkable contribution of defense spending. Here is a little more detail on the growth rates of defense spending on goods and services on a NIPA basis.


defense1.gif

Figure 1: Defense spending (blue), defense consumption spending (red) and defense investment spending (green), in billions of Ch.00$, SAAR. NBER defined recession dates shaded gray. Source: BEA, GDP advance release of 30 October 2008, and NBER.

defense2.gif

Figure 2: Four quarter growth rates in defense spending (blue), defense consumption spending (red) and defense investment spending (green), in billions of Ch.00$, SAAR, calculated as four quarter log differences. NBER defined recession dates shaded gray. Source: BEA, GDP advance release of 30 October 2008, and NBER.

This last graph indicates that as of 2008Q3, total defense spending is rising (in real terms, on an annualized basis) by 7.5%; defense consumption spending is rising by 6.3% (this category includes wages for military and civilian personnel, intermediate goods including ammunition, fuel, supplies, etc.); and defense investment (including structures, aircraft, vehicles, ships, other equipment and software) by 15.5%. The 2008Q3 observation is 1.67 standard deviations above the mean y/y growth rate over the 1990-08 period.


Military Keynesianism? I’ll let others speculate; I just think it’s interesting.

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28 thoughts on “More on Defense Spending

  1. MattYoung

    I used to be in the business. A very short range cruise missile costs about $150,000. A large model airplane with GPS and a stick of dynamite is $2000.
    The hobby bombers are going to win.

  2. Hal

    All or almost all simply wasted, down the drain. If the US’s foreign policy was not hostage to our alliance with Israel we would not be at war with Islam and would not need these outlandish expenditures on war, etc. This is purely elective warmongering by a nation that is in deep financial trouble. The stupidity of a policy of guns instead of butter. Or just bread.

  3. Daniel

    I’m waiting for someone to argue that the hole in tax revenues, at the start of the Depression, was helped a great deal by the legalization and taxing of liquor–and that we need to legalize marijuana. Of course potheads don’t read history books so I may be waiting a while…

  4. Andres

    Was not military spending how the “National Socialists” kept their economy growing from ’33 -’39?
    Military spending is never ever mentioned by US politicos except to increase or to argue for such.
    What have the Military’s spies got on them?

  5. robertdfeinman

    Just a remark on the implicit framing that we have all adopted that slants views of an issue unconsciously.

    The figures above are not for “defense” spending they are for military spending. In an earlier age the government was less taken with using newspeak or euphemisms and the DoD was called the War Department.

    Notice that when a need was perceived that we needed actual defense the admin had to create a new department to provide this function: Homeland Security.

    A more clear-eyed view of the spending can be seen in this pie chart

    Our military has been engaged in offense in one form or other since the Spanish-American War and calling this “Defense” changes perceptions so that people’s fears are stoked and the don’t examine where the money is going closely.

    If you want to discuss military spending than don’t fall into the framing trap of those with an interest in keeping such spending high.

  6. K Ackermann

    In the Mid East, they have a cruise missile that travels nearly on the ground at 6kph, can perform autonomous target aquisition, can turn literally on a dime, can open doors, can get on an elevator, and can flirt with a secretary before detonating.
    The US military has nothing serious to counter this weapon. The more it tries, the more it seems to make.
    It is said that it can’t be reasoned with, but this is unconfirmed since no attempt has ever been tried.

  7. Hal

    When the USSR imploded we thought we could drastically lower our military expenditures. But very rapidly the military spending beneficiaries allied themselves to the Neocons and invented the war on “terror” (actually a war to stop Islamic nationalist movements) to keep the money flowing. So now we are locked into a war vs Islamic nationalism (we don’t fight any other ‘terrorists’) that suits Israel perfectly. Whether an Obama administration can begin to extricate us from all this remains to be seen. It is up against the fact that the Israel Lobby is the most powerful lobby in Washington.

  8. flow5

    (1) Military expenditures are the most dangerous expenditures of all. They simultaneously increase both the Federal Deficit & the Balance of Payments Deficit.
    (2) And enormous inflationary presures are generated in the economy as the production of deadweight military hardware is not offered in the competitive marketplace.
    (3) The Pentagon’s deficit (maintenance of our overseas military bases, Korean & Vietnam 10-year wars et. al) was SOLEY (by itself) responsible for eliminating our gold bullion standard. The private sector ran surpluses all during this entire period.
    (4) Since actions sufficient to eliminate the trade deficit are highly improbable, the dollar will eventually decline to a level which will eliminate them. At that level our standard of living, for this and other reasons including financing the Federal debt, will be much lower than at present, and the capacity of the Pentagon to project conventional military power abroad will be severely circumscribed.

  9. Demand Side

    This is the political business cycle, promulgated by Richard Nixon in 1972 and run by every incumbent since then, except Carter in 1980.
    It happens every time, in one way or another.

  10. Menzie Chinn

    Demand Side: While the political business cycle is well-established in the theoretical and empirical literature, I don’t find any evidence that defense spending has behaved in a way consistent with this view, over the post-1967 period, using regression analysis.

    Kenneth Mayer has some research arguing that defense spending behaves like other spending.

  11. Michael Turner

    “In the Mid East, they have a cruise missile that travels nearly on the ground at 6kph, can perform autonomous target aquisition, can turn literally on a dime, can open doors, can get on an elevator, and can flirt with a secretary before detonating.”
    Yes, but except insofar as this weapon removes competitors for jobs from the local labor force, how does it improve the local employment picture? ;-)
    Military Keynesianism only works when (or for as long as) it’s not sabotaging the economy, which is why you want those cruise missiles being fired (if at all) on somebody else’s country, and not for very long. Note that the human “cruise missile” of the suicidal terror bomber is, if anything, providing something like the opposite of Military Keynesianism. Economic sabotage is part of how a tactic like suicide bomber terrorism works: it makes public market places scary, it erodes public security to the extent that it targets police stations and police recruitment, it makes life generally depressing — and that cripples the economy in which its perpetrated. This can work for or against the political agenda of the bombers — for, if it leads to the downfall of the targeted weak polity, against if it leads to a backlash in the civilian population that strengthens a weak polity.
    A job opening for soldering electronics into a cruise missile in a relatively safe country can help buffer that country’s economy from oil price increases related to the conflict in which the cruise missile might be used. Using the resulting cruise missile in an attempt to decapitate the leadership of an insurgency employing terroristic means against civilians can cut both ways (negatively, if innocent civilians die in the missile attack, positively otherwise). It’s obvious which is preferable, and it’s obvious which one helps keep the conflict shorter.
    What I’m saying is: just because a cruise missile is orders of magnitude more expensive than a stick of dynamite triggered with a garage-door opener doesn’t mean that the cheaper way wins. It depends on how well or poorly the combatants on both sides of the tactical asymmetry play their hands — politically, tactically, strategically, diplomatically.

  12. jg

    Yep, the good news about this now underway economic and financial implosion is that we will be FORCED to finally pull our troops from Germany, Japan, South Korea, and the Middle East. What a waste of money it has been.
    Yep, we will be forced to adopt a strictly defensive posture, protecting the homeland, because we will not be able to afford anything else.
    Okay with me (ex-Navy).
    The more I read about the Swiss milita model, the more I like it.

  13. baba

    Whatever defense or not,
    the thing is that the US economy gonna be really bad over the next quarters.
    It’s just the inevitability of the business cycle.

  14. Eric H

    promulgated by Richard Nixon in 1972 and run by every incumbent since then, except Carter in 1980
    I guess I missed the amendment that handed control of the budget over to the executive branch?
    And, I second rdf’s comments regarding military vs. defense and the DHS. But I wonder whether flow5′s comments (military expenses being dangerous) would have made any sense 100 or even 50 years ago, when such expenses accounted for a larger portion of the budget, yet no such problems existed. It’s disingenuous to portray “mandatory spending” as such since the choices as to how much and when are anything but mandatory.

  15. GNP

    Daniel wrote: I’m waiting for someone to argue that the hole in tax revenues, at the start of the Depression, was helped a great deal by the legalization and taxing of liquor–and that we need to legalize marijuana. Of course potheads don’t read history books so I may be waiting a while…

    I dunno. The pot heads doing game theoretic analysis for the Pentagon and State Dept. probably read history books….

    Military Keynesianism? How about Military neo-marxism a la Baran and Sweezy. Capitalism is constantly facing a crisis of over production. Military expenditures and unproductive and expeditiously soak up the excess wealth err production.

    Then aggressive colonialism could be ‘rule of thumb’ behaviour that dates from another period when violent western colonialism actually made social sense (from the perspective of the colonialists of course).

    Here’s a tricky question that tests fundamental economic concepts and theory: Who is the biggest economic loser in the Israeli-Palestinian conflict over territory seized in 1967? Go ahead and try it on your students. (Hints: opportunity cost, human capital, social capital, security, per capita GDP/wealth)

  16. GNP

    Oops. That last post should read: Military expenditures ARE unproductive and expeditiously soak up the excess capitalist wealth err production. (According to my recollection of Baran and Sweezy.)

  17. 2300mAh

    Andres, during the Clinton years all the talk was about the peace dividend after the Cold War. As the charts show those years did indeed lead to a considerable decrease in defense spending. Bush/Cheney began a moderate increase after he came to power, but it took 9/11 for war spending to explode. And the DOD doesn’t need to bribe anybody when they have an armchair general like Cheney running the show. The man seems obsessed with military toys and special forces. No doubt he expects to get a carrier named after him.
    If you want to see somebody who cut really deeply you would have to go all the way back to Truman who cut spending right after WW2 down to the equivalent of ca 100 billion dollars in Y2K PPP spending. The Korean War showed the folly of that but it has to be remembered that for Truman normal military spending was the levels in the 1930s. Even Eisenhower was thinking along those lines when he warned of the military industrial complex. It took a while for American politicians to start taking the need for a big military for granted.

  18. mittz

    The funny thing here is simple. People listen and listen GOOD….
    More people DIE from a Peanut Allergy then terrorists……think about it PEOPLE,,, if just IF, they spent that much money on things HUMANS need like cures, advanced medical care..think of where we would be today…..
    JUST THiNK OF that…..

  19. GNP

    2300mAh wrote: …. It took a while for American politicians to start taking the need for a big military for granted. ….

    How true. The Cold War drove military expenditures to historic stable highs unparalleled in history.

    I would add that the USA had to cut military expenditures after WW II and the end of the Cold War because to not cut would have lent considerable support to the notion that MILEX had more to with political rent seeking and less to do with ‘National Security’.

    Is the current approach of large scale mobilization, aerial-bombing campaigns, invasion and occupation the cost-effective way to deal with low-buget terrorism or secure oil supplies? I think not. Once again colonial entitlement and past colonial successes seem to be driving today’s colossal wealth-destroying failures.

  20. Carl M

    Defense spending and the “war on terror” is most like a bizarre ‘Mobius strip’.
    We give Israel billions in aid for the most advanced weapon technology because they complain of being surrounded and threatened by their “enemies” — yet thy are the second largest weapons supplier to China (against US wishes), who in turn sells this technology to IRAN of all places.
    http://www.converge.org.nz/pma/cra0467.htm

  21. farang

    After working in a defense industry factory for 10 years, and actually building personnel carriers (some think they are tanks, they just look like them) on the assembly line, I can state it was quite enlightening to watch an “Iraqi” vehicle come down the line, followed by an “Iranian” vehicle (we had templates for damn near every country, we aim to please), during the Iraq/Iran 10 year war.
    Kinda neat, eh?
    That is your tax dollars we blew up invading Iraq and destroying their military weapons, hahahaha. And your tax dollars we waste rebuilding them. As well as the ones used up by our troops,a “WIN/WIN” for fascists, yes?
    Never mind that other nations, not wasting their future on weaponry, rather innovation and technology, are leaving the US in the dust, NEVER MIND. Move along, nothing to see here….
    So, keep funding the fascists, if you have a job in the industry….and if not, too bad, you didn’t listen to what Eisenhower warned against, a very grave mistake.
    Which led to the creation of “A-rab Islamofascists” (gotta love those propaganda folks at the Pentagon and Langley, and their labels, yes?) to take the place of the “Commie” threat that never materialized.
    Odd, ain’t it, how those “terrorists” could penetrate and avoid NORAD and our military bases the “hijacked” planes flew over, felled three large skyscrapers in NYC and the HQ of the most powerful military on Earth, yet can’t seem to light a firecracker and blow up a wet paper bag, now. Very “strange”, that. You would think, with our troops in their backyards and innocent civilians dieng by the tens of thousands, just ONE of those terrorists would try something else to avenge the invasion/occupation, but NO.
    Think about that.
    BTW, it was reported in “Star & Stripes”, April 1999, that is was the SOUTH KOREANS that sent troops into North Korea FIRST. Starting the conflict.
    So much for the commenter criticizing Truman for not being prepared. How could he “prepare” for another country invading a third????
    $500 billion a year, and Bush’s military wasn’t “prepared” on 9/11/01, or were they????

  22. Cadavre

    It has been reported that it takes about 400,000 bullets to kill one Iraqi, a little over 300,000 to kill an Afghani. Now what little country you suppose is making all them bullets being paid for by US citizens?
    Could it be the same little country that was reimbursed for the 1.6 Billion in cluster bombs dropped on Lebanon two summers back?
    It’s all about profits for the War and Oil Exchange folks. We’ve been in an oil glut for decades, yet recently, when a refinery breaks down, crude is bid up by the richest oil companies in the world – WHO HAVE NO OIL – make all on their bucks visa vi an Enron Daisy Chain of Trades. Ever wonder how an incident, like a refinery shutting down for maintenance, thus reducing the demand for crude, causes the price of crude to go up? Demand goes down – price goes up.
    Ever wonder what the world would have been like had the theater of 911 never happened?
    Do ever wonder why you still believe anything you’ve been told is the truth for the last 10 years? …. you’re feeling sleepy .. let yourself fall into a deep . deeeeeep … deeeep … trance.. when you here my voice you will recognize it as a voice from the sky … deeper … deeper … love is hate … truth is lie …. 2 + 2 = 3 … when I snap my finger you will awake reborn knowing the truth and spend the rest of your days quibbling with Wal Mart Clerks and watching either American Idol or Ghost Catchers …. 3 .. 2 .. 1 .. snap.
    Feeling better?

  23. Dmitri

    (1) Military expenditures are the most dangerous expenditures of all. They simultaneously increase both the Federal Deficit & the Balance of Payments Deficit.
    (2) And enormous inflationary presures are generated in the economy as the production of deadweight military hardware is not offered in the competitive marketplace.
    (3) The Pentagon’s deficit (maintenance of our overseas military bases, Korean & Vietnam 10-year wars et. al) was SOLEY (by itself) responsible for eliminating our gold bullion standard. The private sector ran surpluses all during this entire period.
    (4) Since actions sufficient to eliminate the trade deficit are highly improbable, the dollar will eventually decline to a level which will eliminate them. At that level our standard of living, for this and other reasons including financing the Federal debt, will be much lower than at present, and the capacity of the Pentagon to project conventional military power abroad will be severely circumscribed.
    Posted by: flow5 at November 1, 2008 09:32 AM
    I tend to disagree with you. First of all, military expenditures along with most of non-interest government spending is projected to grow in line with GDP (according to the CBO). The worry is health care spending, especially Medicare. Now that’s dangerous spending.
    I’m not sure about the inflationary point you make, but also wanted to say that the dollar will in effect be the winner of today’s crisis because the U.S. is still essentially a risk-free investment. The capital in-flight to safe assets should indeed help the USD gain.

  24. Vadim Rapp

    I think it’s not that important in the end whether it’s military spending or road construction spending. Both activities do stimulate the economy, but only when they are genuine, i.e. when the purpose of the military spending is to improve the weapons, and the purpose of the road construction is to improve the road so it stays smooth for years. When the stated purposes are in fact nothing but made-up veil for grabbing government money mixed with drive to political correctness in all areas of life, then any activity turns into travesty, and that’s where you need 400 bullets to kill one enemy, and that’s where your just-repaired road gets covered with potholes after the first winter, so you have every reason to start over with the help of that “minority” contractor with their privileged status.
    Very large portion of the economy in this country has turned into nothing but corrupted travesty. Production and customer service have been exported into other countries; and what’s important is not even that they were exported per se, but that everybody is fully aware that people and infrastructure in those countries can’t provide level of production of support adequate for civilized world – and still this is going on. The result is not only in the stores filled with junk and any support call being nothing but exercise in scripted corporate humiliation, but also in the general decline of the quality of the people, who begin accepting all this bull as the norm. Add to this importing into the country, legally or not, the most illiterate people who will be happy to buy the junk; add to this increasing amount of litigative thinking in all areas (just scroll through the lawyers’ pages in your local yellow pages – enough to see the big picture); add to this acceptance of lying as the moral norm in advertising, so you can watch an infomercial on TV, then google for ” scam”, and you are guaranteed immediate results; – and you get what you have, and counting.

  25. Ray

    We do not create a better world by destroying the only world we have. If we instead spent 1 millionth of the time and money we spend on military and instead destroyed the merchants of death, there would never be another war. We can control population through other means.
    They exploit your fear and fearful people react from their brain stems. A thoughtful person has a hippocampus with which to consider what is happening and why and how to resolve the injustice that leads to war or the false flag attack and who carried it out.
    What if aspartame, MSG, mercury, fluoride, DEA, prions, etc. destroyed the hippocampus region of your brain and made you a fight or flight REACTOR instead of an ACTOR? The fact is these chemicals do just this and until we get the mind control chemicals out of our food and drink we are never going to resolve anything since it all requires thought and masses people working together.
    forexample. ever wonder why they use mercury in your vaccinations as an infant? Observe a child with ADD or autism and how they wave their fingers in front of a computer screen. The mercury makes you attracted to bright moving light so you can be programmed by a TV and mass media controlled by 7 zionist. Of course the jewish child received the mercury free kosher version of the vaccine. People need to wake up to this mind control and genocide and act with integrity.
    In order to have Rothchilds banking system in your country you have to give him control of the media and remove “the noun” from that medium. So don’t expect the conversation to happen there.
    Great comments and I commend you all on your intelligent and thoughtful discourse.

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