Buy These Instead

The troubling state of the U.S. economy is the topic of nearly every conversation that lasts longer than, “How’s it go’in?” Equally hot on people’s minds is the subject of taxes. We are bombarded with political notions: raising taxes for some but not others, lowering taxes for all, keeping the Bush tax cuts, eliminating the Bush tax cuts — the combinations are endless. Clearly, taxes and the economy have pushed national security from the top of the list of U.S. citizens’ immediate concerns.

But there’s one undeniable fact: one of the most sure ways to stimulate the economy — and to save or create jobs — is to buy the aircraft, ships and other systems that our armed forces need to protect the nation.

The Obama administration now says it wants to cut defense spending by ten percent or more. And there may be ways to do that without damaging our security or harming the economy. But the flip side is being ignored: defense spending helps stimulate the economy while most other things the government buys don’t.

The big budgets that the Defense Department has required to keep us safe from terrorists and those rogue countries that sponsor terrorists is about to come under intense pressure. And don’t look for a coherent rationale from those in Congress and the new administration with the budget axes. Domestic agendas have an emotional element that transcends reason.

But there is one aspect of the U.S. economic condition about which there is modest agreement. The economy will recover. Many economists believe the economy will recover in better shape than before it took the recent tumble. Warren Buffet, well known “maven of money matters,” in a New York Times column pointed out, “But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.”

Meanwhile, the economy, taxes, and defense spending should not be looked at as distinct and separate issues. They intersect at a place very important to our domestic and national security agenda. This nexus is a four-letter word — jobs.

About a year and a half ago in October 2007, researchers Heidi Garrett-Peltier and Robert Pollin of the University of Massachusetts at Amherst, published a research paper on “The U.S. Employment Effects of Military and Domestic Spending Priorities.” In fairness to the researchers, the premise of Pollin’s and Garrett-Peltier’s work was not to extol the value of defense spending in creating jobs, but rather to describe a social spending agenda positing that dollars spent in areas other than defense create more jobs than spending on defense. But what they found should be considered in the stimulus debate.

From 2005 Departments of Labor and Commerce data, Garrett-Peltier and Pollin found that $1 billion invested in defense “creates” 8,555 jobs. Though the number of defense jobs created was the lowest among the job categories assessed in the research, the jobs created are in the areas of the government, manufacturing, professional and business services. Those jobs, the study found, are “well-paying, professionally challenging” and demand high technical-level skills, training, and education.

Interestingly, the study also found that tax cuts for personal consumption generate 10,779 jobs. Although lowering taxes for the purpose of personal consumption results in about 26 percent more jobs than a billion dollars spent for defense, the “average wages and benefits ($65,986 annually) from defense spending are higher than all the alternative uses other than education.”

When I was serving the Bush Administration as the Defense Department Deputy Comptroller, we had submitted a request for the Global War on Terror Supplemental $102 billion funding for the fiscal year 2008 shortly after the Department provided Congress the President’s base budget for 2008 in February of 2007. Using the Garrett-Peltier and Pollin formula, about 90 percent of the $102 billion would actually go into the U.S. economy, and it represented 877,000 jobs.

A look at the $819 billion American Recovery and Investment Act of 2009 passed by the U.S. House of Representatives provides for interesting comparisons. Caution is necessary in any comparison such as these, but I couldn’t help noticing what some of the money was earmarked for and what that same amount might mean in terms of jobs if spent for a defense programs.

$15.6 billion planned for college Pell grants could pay for the U.S. Navy’s entire ship building program for fiscal year 2009 with about a billion dollars left over and could sustain over 123,000 American jobs. If the $15.6 billion were targeted at tuition assistance for science and engineering undergraduate and graduate students, there might be a case for the funding.

The $1 billion the House wants to use to help fund taking the decennial U.S. Census could buy four C-17 cargo aircraft and employ 8,555 American workers. To provide insurance coverage for the honeybee industry, the House would spend $150 million. However, if that same amount were spent for national defense, it could buy nine Army utility helicopters and provide jobs for over 1,200 skilled employees.

Martin Feldstein, in his op-ed piece in the January 29 Washington Post titled “An $800 Billion Mistake,” makes the point that spending on defense has an immediate impact on stimulating the economy. Feldstein suggests, “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. Yet the proposed spending plan includes less than $5 billion for defense, only about one-half of 1 percent of the total package.

Infrastructure spending on domestic military bases can also proceed more rapidly than infrastructure spending in the civilian economy. And military procurement overwhelmingly involves American-made products. Since much of this military spending will have to be done eventually, it makes sense to do it now, when there is substantial excess capacity in the manufacturing sector.”

What does this all mean for Congress and the Department of Defense? It means that when the debate in the United States turns to guns or butter, when the economic and domestic agenda puts greater pressure on defense to make do with less (and it will), the leadership in the administration and Congress need to remember that it’s about the highly paid, highly skilled jobs that make us safe. It’s about jobs that make it possible to invest in other areas of the economy that produce, well, jobs. "Jobs” are most certainly where defense spending, the economy, and taxes intersect.