Increased US Military Spending Slows Economy -- comments
Source Jim Devine
Date 07/05/06/20:53

On 5/1/07, Liz Chimienti wrote:
>"It is often believed that wars and military spending increases are
good for the economy," said Baker. "In fact, most economic models show
that military spending diverts resources from productive uses, such as
consumption and investment, and ultimately slows economic growth and
reduces employment."

Yes, wars & military spending are good for the economy _in the short
run_, in a Keynesian (demand-promoting) way. But in the long run, if
the economy gets to something close to normally-defined full
employment, it hurts growth, because the supply side is hurt.

one problem with this notion is the idea of technical spin-offs from
the military. However, these are much more expensive to produce than
those arising from investment in civilian sectors. The military sector
is much more wasteful.

As for the reduction of employment, it's much less clear. If the
economy gets close to normally-defined full employment, then there's
no change in employment. That's because such full employment is
defined in terms of the supply of labor-power, not the demand.

If military spending hurts technical change, as I think it does, that
would hurt labor productivity growth. Ironically, that helps
employment, all else constant: the same amount of demand for goods and
services implies more employment than with high labor productivity.

Dean Baker used a specific model of the US economy. I don't know that
model and I cannot judge its validity.

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