Tuesday, December 12, 2017

Does Spending on War Increase Employment?

Donald Trump's cryptic comment about "the calm before the storm" while in the presence of top-ranking military officials and his ongoing Twitter feed reminding North Korea and Iran of their place in the global village have made a paper by economist Heidi Garrett-Peltier more pertinent, given the importance of military spending to the U.S. economy.  

Let's start by looking at a summary of U.S. military spending by year (in billions of dollars) since fiscal 2003:


Here is a graph showing U.S. annual military spending as a percentage of GDP going back to 1960:


With that background, let's look at Dr.. Garrett-Peltier's paper entitled "Job Opportunity Cost of War".    She opens by observing that the recent request by the Trump Administration to increase military spending by 10 percent must come at the cost to cuts to domestic programs like education and healthcare as well as reduced foreign aid or at the cost of increasing the federal debt which will result in increased interest payments on the debt in the future.  Given that the defense industry in the United States is scattered throughout many states, increased military spending is seen as a way to create jobs.    As such, here are two figures which show the importance of defense spending by state in both billions of dollars and as a percentage of state GDP:


While there is no doubt that some states see great benefit from increased federal military spending, Dr. Garrett-Peltier's analysis questions whether the spending of trillions of dollars on wars in Afghanistan, Iraq, Pakistan, Libya and Syria have actually meant the loss of opportunity to create even more jobs in the domestic economy by improving health, education, infrastructure and environmental outcomes (i.e. does spending in areas other than the military actually result in the creation of even more jobs?)

First, the author estimates the employment multipliers for defense spending as well as other types of federal spending to provide an accurate comparison; this provides us with an assessment of the direct, indirect and total jobs created by spending on defense in comparison to other non-defense alternatives.  Here is a graphic showing the employment multipliers expressed as jobs created per $1 million in spending in several key economic sectors:

Each million dollars in spending creates the following direct and indirect jobs:

1.) Defense - 6.9 jobs

2.) Clean Energy - 9.8 jobs

3.) Elementary and Secondary Education - 19.2 jobs

4.) Higher Education - 11.2 jobs

5.) Infrastructure - 9.8 jobs

6.) Healthcare - 14.3 jobs

As you can see, federal spending on defense actually creates fewer direct and indirect jobs than any of the other 9 subsectors measured in the study.

Based on an estimated cost of the War on Terror over the period from 2001 to 2016 of $3.69 trillion, the average cost per year for strictly war-related spending (above the Pentagon's peace-time base budget) works out to $230 billion per year.  This annual spending supported about 1.552 million defence-related jobs.  According to the author's calculations, this level of spending would have supported an additional:

1.) 2.829 million jobs in elementary and secondary education

2.) 1.702 million jobs in healthcare

3.)  989,000 jobs in higher education

4.) 667,000 jobs in infrastructure

5. ) 661,250 in clean energy

...above and beyond the 1.5 million jobs that would have been created by the defense spending. 

Here is a table showing total job creation in just four sectors of the economy from $230 billion spending per year:


The analysis by Dr. Garrett-Peltier shows that the cost of war to the U.S. economy is substantial.  The spending of nearly $3.7 trillion on war has meant that the United States has lost the opportunity to create millions of jobs in sectors that are critical to American voters, particularly in health care, education, America's aging and decaying infrastructure and clean energy.  Apparently, outside of men and women willing to serve in the U.S. military, Washington should not be counting on war to create jobs for Americans.