Marginal increments of military spending track gdp better than well-being or actual economic performance

Perhaps you have seen reports such as this:

The report showed gross domestic product grew at an annual rate of 2.5 percent during the first three months of the year — significantly slower than most economists had expected. The culprit? A surprising 11.5 percent annualized drop-off in military spending.

In other words, much of the “missing” gdp — whatever its long-term geopolitical value for foreigners — was not creating actual, consumer-relevant value for the United States.  Putting back that military spending would pump the gdp number back up, but that is distinct from the economy improving.  Fetishizing gdp makes the least sense when it comes to military spending, and it is remarkable how few media accounts recognize this point in even a partial fashion.


That's a good point.

If you are an employee of a military contractor who is supplying less, your loss of income is not harming the economy, but improving the economy?

If the economy isn't at full employment, then it's hurting the economy. But, depending on how you count these things there are two good things that come out of government spending (the goods you buy, the income to the people you buy them from) and one or two bad things (debt and taxes). The art of politics is figuring out when the good outweighs the bad.

What I thought was a good point was that superfluous weaponry doesn't make people especially happy, even if it's counted in GDP.

Interesting that while I don't really like GDP as a measure of progress or our high level of military spending, I don't really fault the GDP-counters. That said, sure shift the money to a place with higher domestic ROI and win both ways.

GDP is just GDP is the point. What matters is how today's GDP improves tomorrow's and this is us figuring out that it didn't.

I read a neat little book about the nature of numbers, the usefulness of having "one number" and the tendency of humans to demand "one number" even when it isn't really capturing everything. Temperature would be an example of a natural "one number." GDP would be an example of an artificially forced "one number," IQ being another.

Of course if you really reject GDP, do you go to something like Total National Happiness? I mean, if we are talking the national condition, that's where we go. We've got to leave national wealth, as a proxy for prosperity in all senses, behind.

Ooops, I throw around "national wealth" there, when GDP is not that either.

Tomas Oatley is researching this. He had a blogpost up at his place today :
There is a broader point. In the US, the logic of national security overrides the logic of rational macroeconomic management. Variation in US military spending has been driven by the perceived need to respond urgently to foreign challenges regardless of prevailing economic conditions. Because military spending constitutes so large a share of national income, the resulting variation in military spending has substantial macroeconomic consequences. We recognize these consequences at the extremes (e.g., WWII and the end of the Great Depression) and we recognize them when military spending falls. We don't seem to recognize this "military Keynesianism" as a more general phenomenon. We ought to, for national security has been the primary driver of US fiscal policy--and thus a major policy driver of US macroeconomic performance--since 1965. I am puzzled why this is not more broadly recognized.

It's true.
Of course, Yglesias is all over this. His topics on the insane waste in the US military are must-read for so-called fiscal conservatives looking to trim the fat.

Since 1965??

Where did that year get picked from??

You are arguing that the US effectively entering WWII with lend-lease executive expansive interpretation had no impact on the economy, that the cold war that began in earnest in Truman's second term and escalated under Eisenhower had no impact on the economy, that the government buying jet planes, buying space rockets, the government buying radar and radios, the government buying nuclear subs, the government buying nuclear everything (Eisenhowers nuclear plowshares). 1965 marked the point when military spending cuts to make way for civilian spending really got started.

Reagan as governor in a State heavily dependent on military spending took up the cause of maintaining high levels of military spending to generate GDP - his 1980 campaign was for tax cuts and increased military spending, which had to get a new name because he wasn't going to be known as a Keynesian.

Reagan's challenge was increasing military spending above the "need" without any security threat to justify it. By the 80s, no one really feared the commies - main street and liberals figured they would collapse simply from the rot of rock and roll and blue jeans, or else disco, or rap, or punk. I grew up with duck and cover, with Uncle Ike exhorting us to learn science and engineering and to be fit and build your fallout shelter for the looming WWIII. Sputnik, Castro, were deeply threatening, even with Ike's smile and optimism. But JFK marked a new era for those born in the 30s ad after. JFK was really part of the establishment, but he symbolized a change that led to everything being questioned.

And war as the driver of the economy was to be questioned, and 1965 was when civilian needs were seen as a better driver of the economy than the military. Republicans have been pushing for more military to drive their States' economies. A big winner is clearly Virginia, except the kind of employees funded have a lieral bias.

the logic of rational macroeconomic management.

I laughed out loud.

Rooftop-worthy, as they say.

On a semi-related note, the idea that Republicans have "scored a victory" for their philosophy by giving back the money for air traffic control (because it has immediate, easily understandable and attributable consequences, while not restoring the NIH budget because the consequences of missing science are diffuse, long-term and hard to pin down) is profoundly depressing. Perhaps this too is Straussian satire.

LOL, why are the Republican's particularly at fault for current NIH budgets? The last time I checked both parties agreed to the budget deal. You could just as well blame Democrat's for not being willing to cut Electric car subsidies to replace the NIH budget cuts?

The depressing thing is that the FAA blackmailed themselves back to the full budget by blatantly mismanaging their workload. For that matter, its depressing that they are public employees at all.

Regarding the earlier post about whether public employees are paid more, let's see what the air traffic controllers union would have to say about privatizing their function to the airlines.

GDP is an important indicator of economic activity. Period. No it is not perfect, but neither are you statements about military spending ... no link to domestic consumption? Try again just because you don't believe in multipliers doesn't mean that military-related workers don't cash their paychecks. I see reporters doing their job with such pieces, but I would not fetishize GDP (or demonize it) particularly at the quarterly frequency.

What is odd about GDP growth in this 'recovery' is the failure to accelerate. (Along with a much lower unemployment rate.) We were supposed to have 4 percent growth by now. This quarter the hit was military spending, last quarter it was inventories, earlier it was an earthquake in Japan, weather stuff, and the Eurozone has taken a whack a few times. You can tell a story discounting each one, but the string is harder to ignore. The problem is not our measures of economic activity or our inability to report on them to your liking ... the problem is our underused productive capacity and our deeper pessimism.

I am no expert but I wonder how accurately GDP counts military spending's impact on the domestic economy, given how much of it has been disbursed overseas directly. One would also want to think about the impact of military overseas purchases on net exports. Third, don't exaggerate the argument; Prof Cowen isn't arguing "no link to consumption". Rather "no value to consumers". Waste is no better than digging ditches and filling them up again. Last, the question is not whether military spending has a link to domestic consumption but whether there are better uses of the same money that have more economic impact.

Curious: Is infrastruture "consumer-relevant value" creation?

So you are literally asking if building and blowing up bridges are equivalent.

Where it's needed, such as in water treatment and delivery, or the electric grid, yes. A bridge to nowhere, no.

Before you single out the DoD, remember other problems


Oh, this is great to know. I'll let my friends who work for the DoD know their furlough days are the result of "fetishizing GDP", and they weren't really adding any real consumer value to society anyways. That'll make up for it.

If only they'd had the prescience granted to Libertarians and certain members of the Atreides family, to be born in the 1970s, or become petroleum geologists, they could have avoided the fate of being Zero Marginal Product workers. Or whatever silly buzz-words you want to use to describe them.

They are only ZMPs on the days furloughed so it's not really as bad as all that.

Is this an instance of "GDP is subject to the broken-windows fallacy"?

government spending shouldn't be in gdp figures. the incentive to game gdp numbers is too damn high

But if spending wasn't in GDP figures, wouldn't there be an identical incentive to game GDP numbers by cutting socially useful, welfare-improving spending?

The newspaper article is a travesty of economic thinking: A drop in military spending at this time is a very good thing, not a bad thing.

Yes, because the private sector is voraciously sucking up and employing any and all available capital made available by the recent spending cuts, as reflected by today's sky-high interest rates. As a result, the people being fired or furloughed by military contractors are being gainfully employed in the currently booming labor market, which quickly and effectively employs the new labor resources that are made available by government spending cuts, as reflected in today's rapidly rising wages and low unemployment rate.

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Is any agency or research group offering some well-rationalized "GDP excluding military" data series?

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Clearly a productive comment that would increase consumer surplus. Pfft, "military defense". Who needs that when we have "best rate loan" giving us the facts.

After all, "best rate loan" works for a private enterprise, and private enterprises always contribute to economic progress.

re: "Fetishizing gdp makes the least sense when it comes to military spending, and it is remarkable how few media accounts recognize this point in even a partial fashion."

It is not clear why that would surprise anyone since the press obviously buys into naive Keynesianism, including military Keynesianism. They act as if the money appears out of nowhere. They ignore the concept that if military spending hadn't dropped the deficit would be higher and there would be more government borrowing crowding out private borrowing (in this time of a "flight to safety" many will invest in government if possible, but if they can't then invest privately in the US (rather than outside the US or stuffing the money in a mattress).

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GDP does not even attempt to capture consumer surplus.

GDP is also vulnerable to pricing problems. If the United States pays a doctor $250,000 per year and France pays a doctor $150,000 per year for the same services and outcomes is the American doctor really creating an extra $100,000 per year in GDP?

And if everyone who works for the government were to get a 10% raise plus inflation protection every year, GDP would always look pretty good.

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Fetishizing gdp makes the least sense

Yes I think that we should be concerned about:
1. Employment.
2. Consumption.

GDP is far less important that those.

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