War and Economic Growth

GEORGE Mason University Economics Professor Tyler Cowen has a rather interesting piece in the New York Time titled The Lack of Major Wars May Be Hurting Economic Growth.  Upon a cursory look, one might find Cowen’s article repugnant by assuming that he is suggesting we should engage in war to boost economic growth.  However, moving past that initial look at this article and drilling down in the article reveals two key points he makes.

First, defense spending has led to several innovations:

It may seem repugnant to find a positive side to war in this regard, but a look at American history suggests we cannot dismiss the idea so easily. Fundamental innovations such as nuclear power, the computer and the modern aircraft were all pushed along by an American government eager to defeat the Axis powers or, later, to win the Cold War. The Internet was initially designed to help this country withstand a nuclear exchange, and Silicon Valley had its origins with military contracting, not today’s entrepreneurial social media start-ups. The Soviet launch of the Sputnik satellite spurred American interest in science and technology, to the benefit of later economic growth.

Second, and somewhat surprising given his libertarian leanings, he appears to argue that the inefficiencies of many government programs are not inherent to government, but rather that when dealing with infrastructure and the like, governments do not act forcefully enough:

War brings an urgency that governments otherwise fail to summon. For instance, the Manhattan Project took six years to produce a working atomic bomb, starting from virtually nothing, and at its peak consumed 0.4 percentof American economic output. It is hard to imagine a comparably speedy and decisive achievement these days.

As a teenager in the 1970s, I heard talk about the desirability of rebuilding the Tappan Zee Bridge. Now, a replacement is scheduled to open no earlier than 2017, at least — provided that concerns about an endangered sturgeon can be addressed. Kennedy Airport remains dysfunctional, and La Guardia is hardly cutting edge, hobbling air transit in and out of New York. The $800 billion stimulus bill, in response to the recession, has not changed this basic situation.

Cowen is not rehashing the Military Keynesian approach to boosting economic growth, but highlighting the fact that the notion government is inherently inferior to the market may be overstated–at least in some instances.

Moreover, the article brings us to another salient issue that is not often enough discussed; research and development spending in the federal budget:

But here is the catch: Whatever the economic benefits of potential conflict might have been, the calculus is different today. Technologies have become much more destructive, and so a large-scale war would be a bigger disaster than before. That makes many wars less likely, which is a good thing, but it also makes economic stagnation easier to countenance.

The issue I want to point out is not that the reduction in wars will lead to economic stagnation (it might), but rather the not often enough discussed issue that the majority of U.S. federal R&D spending is tied to defense spending.   As Cowen noted in his piece, many innovations used and enjoyed by private businesses and people were developed for military purposes.  The reason for that, as Ezra Klein noted in a 2012 Washington Post piece:

The chain of reasoning goes something like this: We funnel huge amounts of money to the military; some of that money goes to R&D; some of that R&D unexpectedly pays off for consumers; and so cutting the military budget could ultimately hurt consumers.

A few thoughts:

— The correct question here is not, “Does the military innovate?” It’s “Is continuing to increase the military’s budget the best way for the federal government to fund innovation?”

— As Appelbaum notes, military R&D accounts for 55 percent of the federal government’s R&D spending. This is likely because it is very difficult to cut the military’s budget and very easy to cut so-called “non-defense discretionary spending,” the part of the budget where most of the rest of the R&D spending sits.

— The proposed cuts to the military are cuts to the military’s expected rate of growth — and this is after a decade in which the military budget ballooned. In real terms, the proposed budget envisions military spending increasing, not decreasing, over the next decade.

— R&D accounts for 12 percent of military spending. The administration’s proposed cuts would shave 8 percent off the military budget over the next decade. Depending on how the military chooses to use its resources, R&D may or may not be harmed. Indeed, if the military moves from focusing on conventional warfare to emphasizing next-gen warfare, R&D could even increase.

— Overspending on the military in the hopes that some of the money will run into R&D is a very inefficient way to support R&D. If we want spending on military R&D to remain constant or even increase, we can direct the military to protect that category of spending.

— By the same token, funding military R&D is probably an inefficient way to fund nonmilitary innovations. If what we want is R&D focused on innovations with broad applications, we should fund that R&D directly rather than hoping that some of the military’s innovations turn out to also be of use to consumers.

— Perhaps the best argument for funding military R&D is that it’s economically inefficient but politically efficient. It would be better to fund R&D directly, but the only politically sustainable form of innovation funding is military spending. That is depressing, but it might be true.

So, where does this leave the U.S. vis-a-vis R&D spending?  It would appear that leaving R&D spending tied to the overall defense budget is the only politically feasible way to ensure R&D spending won’t be cut.  However, as Ezra and others note, keeping R&D spending tied to the defense budget is highly inefficient.  It would the appear that the political entities in this country need to acknowledge the potential economic stimulus from R&D spending and find a way to increase its efficiency and step away from the dogma of ‘the private sector can always do it better’.

John Haskell

About John Haskell

John graduated from the University of Southern Maine with a degree in Political Science, and from the University of Maine School of Law. He has worked in both the public and private sectors, and currently, works with a small business services company in the Mid-Coast area.