The case for a defense stimulus

Tom Donnelly:

The politics of the current economic crisis are fluid -- the Bush administration's original diktats for bailing out the troubled financial sector and the auto industry have generated growing resistance -- but it's likely that Barack Obama will be able to produce a stimulus package quickly after his inauguration. Even House Republican leader Rep. John Boehner "believe[s] Washington has to act." Indeed, the stimulus debate that remains was succinctly framed by his counterpart in the upper house, Sen. Mitch McConnell: "The question is: How big and in what form?"

A key part of the answer on the spending side of the equation is increased defense spending, by at least $20 billion per year, particularly on procurement and personnel. These kinds of expenditures not only make economic good sense, but would help close the large and long-standing gap between U.S. strategy and military resources. If bridges need fixing, so too do the tools with which our military fights. A critical element in any recovery will be strengthening the foundations of the globalized economy, built upon U.S. worldwide security guarantees.

There is a strong historic correlation between defense spending and past recoveries. Increasing defense spending now would also satisfy the stimulus principles advanced by President-elect Obama: Military service and employment in the defense industry are jobs "that pay well and can't be outsourced."

Defense investments also meet the definition of a sensible stimulus according to mainstream economists: Government should spend where private resources are slack; though the defense industry was trimmed down in the 1990s,
there is tremendous excess capacity in major sectors like aircraft and shipbuilding. Defense spending would also meet other critical benchmarks:

Domestic content: Direct employment in the U.S. aerospace industry - an imperfect but indicative measure of defense employment - stands at more than 650,000 jobs, a number that grew by 10,000 in 2008. All major weapons systems are made in the U.S. and have a huge secondary effect. The F-18 fighter, for example, relies on 445 suppliers and has as total economic effect of an estimated $4.6 billion per year.

Nationwide effect: Major programs depend upon a nationwide manufacturing base. Lockheed Martin is the prime contractor on the F-22 fighter, but the program is the effort of 1,000 suppliers who employ 95,000 people -- including an efficient, unionized manufacturing workforce -- in 44 states.

Bring forward or extend previously funded projects. There is ample opportunity to preserve "hot" production lines that face termination -- such as the F-22 -- or to extend "warm" lines. Boeing is on the verge of issuing a "stop work" order to its suppliers for the C-17 cargo aircraft (a workhorse in Iraq, Afghanistan and around the world) and we are only using half of the country's shipbuilding infrastructure to build one Virginia class (SSN-744) submarine a year, while defense requirements make it clear that we will need more submarines, not less, in the years ahead.

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There is more.

I have argued before that defense spending has been a key ingredient in pulling us out of recessions since the Great Depression. In fact it has been the only constant when other measures are also taken. It has worked best when tied to a tax cut across the board.

I think the defense stimulus should be larger than the one Donnally has suggested. In the long run it will pay for itself in increased prosperity and national security.