“Foreign” Aid

by on March 24, 2012 at 10:51 am in Economics, Political Science | Permalink

Astute piece in the NYTimes by Steven Lee Myers on military aid to Egypt Florida.

An intense debate within the Obama administration over resuming military assistance to Egypt, which in the end was approved Friday by Secretary of State Hillary Rodham Clinton, turned in part on a question that had nothing to do with democratic progress in Egypt but rather with American jobs at home.

…“In large part, there are U.S. jobs that are reliant on the U.S.-Egypt strong military-to-military relationship,” a senior State Department official said, speaking on condition of anonymity under rules set by the department.

…“Lockheed Martin values the relationship established between our company and the Egyptian customer since the first F-16s were delivered in the early 1980s,” said Laura F. Siebert, a spokeswoman for the company, which is based in Fort Worth.

…The M1A1 components are built in factories in Alabama, Florida, Michigan, Ohio and Pennsylvania, several of them battleground states in an election that has largely focused on jobs. Because the United States Army plans to stop buying new tanks by 2014, continued production relies on foreign contracts, often paid for by American taxpayers as military assistance.

anon March 24, 2012 at 11:13 am

Wow. The state and its arms makers making money selling arms to other states. THAT’s completely unheard of!

A long line of people have talked about this. Ike comes to mind. As does Ron Paul.

Military–industrial complex from Wikipedia:
“This sector [defence] is intrinsically prone to principal–agent problem, moral hazard, and rent seeking.”

Also from Wikipedia:
http://en.wikipedia.org/wiki/Arms_industry
“It is estimated that yearly, over 1.5 trillion dollars are spent on military expenditures worldwide (2.7% of World GDP).[1] This represents a decline from 1990 when military expenditures made up 4% of world GDP.”

“In the Cold War Era, arms exports were used by both the Soviet Union and the United States to influence their standings in other countries, particularly Third World Countries”

Rahul March 24, 2012 at 12:49 pm

For every dollar the US sends over to Egypt how many come back through these Lockheed orders? That “leverage” is a crucial statistic. Might eliminating the Egyptian middleman be an option?

dirk March 24, 2012 at 1:51 pm

Good point. We should just pay Lockheed fifty cents on the dollar to do nothing. Then let Lockheed make their case to America why they deserve to be welfare queens.

Finch March 25, 2012 at 5:48 pm

I think we usually call this “NASA.”

figleaf March 24, 2012 at 2:25 pm

Any of you old enough to remember the early 1980s may recall that Reagan Administration officials bragged about doing this! They were so (literally, I think, Hell bent) on making defense spending a permanent part of the U.S. economy that they set up special programs to insure that not only were defense-related contracts for major contracts give to private companies in every Congressional district, they went out of their way to try and get at least one contract to a private employer in every municipality over, I think, 500 residents.

Speaking of Lockheed Martin and the F16, on my old (very old, long-since abandoned, Proxmire-Democrat) politics blog I had a clipping from a Lockheed Martin bragging… just outright bragging that parts were being built in 22 states, which, they also bragged, meant that obliged 44 Senators to have their backs. Whether they wanted to or not.

It’s crap like that, incidentally, that makes me vomit any time I hear a Republican claim to be a “fiscal conservative.” Or “concerned about the deficit.” Or whenever I hear a Republican praise Ronald Reagan. Yeah, Democrats don’t have clean hands about this either, but at least they’re honest when they attempt to use Keyensian economics. (There being roughly zero difference beyond multiplier efficiency between building battleships and mothballing them and digging holes and filling them up.)

#%$^!^ malingering war-hippies.

figleaf

The Other Jim March 24, 2012 at 5:03 pm

>Democrats don’t have clean hands about this either

Understate much?

TmC March 24, 2012 at 11:08 pm

In the 70s Vietnam had consumed much of our military goods, and they were not being replentished. In the 80s we needed to produce new military goods, and spreading around that production was also good politics. Today it is was primarily wasted resources, as they are not even going to the US. Very big difference between the two.

As for the Dem/Repub angle – as much Bush (deficit) spent in 8 yrs, Obama has done in 3. If you look at those who actually do the spending – Congress – the difference is much more stark. Dems took over in 2006, at which point Bush’s annual deficit had been brought down to <200 billion – a small fraction of today's.

As someone concerned about the dficit I assume you cast your vote this year for the man who last balanced the budget, but Newt still didn't stand a chance.

Ricardo March 25, 2012 at 12:53 am

“As for the Dem/Repub angle – as much Bush (deficit) spent in 8 yrs, Obama has done in 3.”

This is, of course, highly misleading because deficits are not “spending.” They are the cumulative gap between spending and revenues. Did you take a look at what happened to revenues starting in the fourth quarter of 2008?

The focus on Congress is less misleading but is still not exactly kosher. After all, one of the biggest spending items recently, TARP, was an explicit initiative of the Bush Whitehouse — you cannot claim the Democratic Congress owns that when it was clearly a bipartisan initiative that was crafted partly in Bush’s own Treasury Department.

msgkings March 25, 2012 at 3:08 am

TARP was paid almost entirely back, estimated net cost $19 billion. Irrelevant to Obama deficits.

http://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program

Ricardo March 25, 2012 at 9:07 am

Sorry, but this is incorrect. TARP may be irrelevant to debt held by the public but it certainly is relevant to the recorded deficits of FY2009-11. CBO estimated in early 2010 that TARP cost $152 billion in 2009 — see The Budget and Economic Outlook: Fiscal Years 2010 to 2020, Table 3-3. The Fannie Mae and Freddie Mac bailouts accounted for an additional $91 billion in spending in FY2009 (also a bipartisan initiative undertaken by the Bush Whitehouse). To my knowledge, nobody has gone back and revised the official deficit figure for FY 2009 downward simply because some of these loans were paid back — instead, receipts from these loans will be reflected in later fiscal years.

TmC March 25, 2012 at 11:54 am

Yes Ricardo, actual debt that needs to be repaid is irrelevant, but it’s the accounting numbers that matter. Spoken like a Democrat.

TmC March 25, 2012 at 11:56 am

“To my knowledge, nobody has gone back and revised the official deficit figure for FY 2009 downward simply because some of these loans were paid back — instead, receipts from these loans will be reflected in later fiscal years.” True, which overstates Bush’s deficits and understates Obama’s.

msgkings March 25, 2012 at 2:31 pm

Ricardo, I’m not an Obama hater, I voted for him and will likely do so again. I agree he gets too much blame for the deficits under his presidency, since spending hasn’t increased much due to his own choices, instead it’s primarily increased spending on recession triggered benefits like unemployment and food stamps. The bigger driver of the deficits is the massive drop in receipts due to the downturn.

My point was that TARP is very misunderstood by the general public and partisans on both sides of the aisle. It was arguably one of the most successful Federal programs in the history of the nation, outright saving the banking system of the entire world at very little net cost to the tax payer. Moral hazard was certainly enhanced by it, but anyone who preferred to have everything go down Lehman-style is a fool.

dearieme March 24, 2012 at 2:46 pm

So the US supplies both sides of the Arab-Israeli divide? That would make sense if you were turning a profit.

TmC March 24, 2012 at 10:55 pm

We make it up in volume, dearieme.

Careless March 26, 2012 at 12:11 am

for some value of “you”, “you” is making a profit.

BD March 26, 2012 at 3:33 pm

One thing to add is that there is at least a perception that there is a strategic advantage to maintaining open assemly lines and production facilities. A feared loss of ‘restart’ capacity once production is ended, and a potential delay or inability to restart should a major war break out, is thrown around as a justification for our foreign military assistance. So with that reasoning, production becomes a valued good in its own right, basically.

JWatts March 27, 2012 at 12:48 am

What percentage of the DoD budget is military aid? Three, maybe four percent? This is a non-issue.

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