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Can Pentagon spending save the economy?


President Obama and Congress are enduring their lowest-ever approval ratings on their handling of the American economy, and as such this fall's leitmotif in Washington will be jobs, jobs, jobs! But even though voters and political candidates love to believe that policymakers could just open the spigot on the Strategic Employment Reserve -- if they only cared about working families! -- manipulating the American economy is more akin to one of those claw crane machines in a bowling alley: It costs you money each time you try anything, you can't see everything that's out there, your inputs are limited and controls are numb, and the whole thing is rigged anyway.

For example: We all know the billions of dollars DoD spends each year are a tremendous boon to the economies of the places they reach. We all know members of Congress fight like scorpions to keep or expand the defense industrial presence in their districts, whether it's a base or a factory or a shipyard or anything else. Tens of thousands of Americans owe their jobs directly to the defense industry, and hundreds of thousands owe their jobs to it indirectly.

But it frustrates commentator Loren Thompson that neither the Pentagon specifically nor Washington generally will acknowledge that defense spending is a major portion of the American economy and try deliberately to exploit its benefits. If the government could only make this recognition and try to maximize the economic benefits of money it's already spending, it could go a long way toward protecting American jobs, he argues. Writes Thompson:

The Pentagon awards $400 billion in contracts for goods and services each year, an amount equal to roughly one-quarter of manufacturing’s share in the GDP, so it’s a safe bet that defense expenditures have a sizable impact on the economy. But nobody in the government thinks about that impact systematically, and politicians often describe military outlays as if they are a drag on the economy rather than a stimulus. Conservatives view any form of government spending as a market distortion, and liberals view defense spending in particular as a drain on more productive investments. Thus, a prominent progressive expert on military spending is quoted in the current issue of Business Week saying that “The salience of defense has declined politically” as voters have become less worried about terrorists and more worried about jobs, as if Pentagon expenditures have nothing to do with creating jobs. This odd way of looking at the world appears commonplace in both parties: Secretary of Defense Dick Cheney killed a hundred weapons programs in the midst of a recession, and the Obama Administration did much the same thing at the height of the more recent downturn.
The full piece is worth reading, and it goes into detail about specific ways the Pentagon has mismanaged its affairs in ways that not only hurt the U.S. economically (or denied it some benefit) but also may have hurt American security. They include:
The department barely noticed when the world’s largest rare-earth mine closed in California and the military became dependent on Chinese sources for vital materials used in radars, missiles, and a host of other combat systems. The revelation in 2007 that there was no domestically-owned source of the high-strength steel used in armored vehicles and submarines also brought no policy changes. Whether the technology is flat-panel displays or semiconductors or software, somehow the Pentagon never seems to view the loss of domestic technology industries as dangerous. The official attitude was reflected in a 2008 report of the prestigious Defense Science Board, which stated, “foreign dependency need not mean vulnerability.” Right.

[Another] weakness is that the Defense Department’s acquisition system burdens military suppliers with thousands of rules and regulations imposing requirements on every facet of the manufacturing process. Sometimes these rules are necessary to generate products suitable for the rigors of combat, but much of the time they exist to achieve political objectives such as ethical negotiating behavior or workforce diversity. Collectively, they render defense contractors incapable of applying the same industrial facilities to both military and commercial markets, because the cost of operating military lines is so high.

The defense acquisition system thus diminishes economies of scale and isolates military products from the mainstream of industrial innovation, largely precluding cross-fertilization between the defense and commercial sectors. It is no coincidence that the world’s most accomplished builders of warships are located in the United States, but those same yards produce no oceangoing commercial vessels for use in international trade.

To be sure, nobody is ignoring the big economic impact of defense spending, and Thompson's shipyard example is a good place to start. Navy and defense officials have basically acknowledged that keeping open shipyards ("protecting the industrial base") is as much a motive for their shipbuilding plans as are actual military goals. In fact, the Navy is building three Zumwalt-class destroyers, which it says can't hunt submarines as well as their predecessors and can't use surface-to-air missiles, apparently just to make work for shipbuilders.

The problem is that American politics, which is what ultimately drives everything Washington does, is illogical when it isn't silly. Of course politicians love the local benefits of defense spending, and accept contributions from the companies that receive it. But when Sen. John Cornyn asks incoming DepSecDef Ash Carter to do a better job defending the F-35, which is assembled in Cornyn's home state, the senator can't say openly he is looking out for Lockheed and Texas workers. He has to say the F-35 will afford revolutionary, next-generation combat capability to America's warfighters, and then he looks like a patriot, not like a guy trying to protect his own neck.

Why does he have to do that? Because Americans don't want to take nothin' off nobody, especially not Big Gubbment -- why, that's socialism! So what if it's already in effect across the country, and so what if federal spending also is a huge factor in the economy outside the defense sector? We have to pretend the benefits of the defense budget are an unintended side effect, something officials don't even contemplate, because if policymakers acknowledged they were a key factor, that would make them Soviets, right? Pretty soon the Pentagon might be forced to buy C-17 cargo planes it didn't want, just to make work for Boeing, or continue buying Humvees that it didn't want, or -- oh wait. That already happens.

What Thompson seems to want is a European-style industrial strategy in which Washington could openly affirm: Look, we want to protect American companies and employ American workers, but let's be smart about it. So no foreign-owned bidders, the benefits from this work have to stay inside the U.S., and here's how we're going to accomplish that. It might necessitate that the Pentagon treat its "industrial base" like a utility, as CSBA's Todd Harrison has argued, rather than trying to rely on the miracle of "competition," which can become illusory when dealing with corporate titans. As we see over and over, there's no way to eliminate waste in defense spending, but at least under a socialized planned defense spending policy, the waste would benefit Americans.

Could it be done? Should it be done? Could it help put Americans back to work? What do you think?

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