Hawkish Fiscal Policy

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Martin Feldstein argues that military spending should be part of the stimulus package:

Defense Spending Would Be Great Stimulus, by Martin Feldstein, Commentary, NY Times: The Department of Defense is preparing budget cuts in response to the decline in national income. The … budgeteers … apparently reason that a smaller GDP requires belt-tightening by everyone.

That logic is exactly backwards. As President-elect Barack Obama and his economic advisers recognize, countering a deep economic recession requires an increase in government spending to offset the sharp decline in consumer outlays and business investment… Although tax cuts for individuals and businesses can help, government spending will have to do the heavy lifting. …

A temporary rise in DOD spending … should be a significant part of that increase in overall government outlays. … The increase in government spending needs to be a short-term surge … but then tail … off sharply in 2011 when the economy should be almost back to its prerecession level of activity. Buying military supplies and equipment, including a variety of off-the-shelf dual use items, can easily fit this surge pattern. …

An important challenge for those who are designing the overall stimulus package is to avoid wasteful spending. One way to achieve that is to do things during the period of the spending surge that must eventually be done anyway. It is better to do them now when there is excess capacity…

Replacing the supplies that have been depleted by the military activity in Iraq and Afghanistan is a good example of something that might be postponed but that should instead be done quickly. …

Industry experts and DOD officials confirm that military suppliers have substantial unused capacity… With industrial production in the economy as a whole down sharply, there is no shortage of potential employees who can produce supplies and equipment. …

Now is also a good time for the military to increase recruiting and training. … As a minimum this would provide education in a variety of technical skills — electronics, equipment maintenance, computer programming, nuclear facility operations, etc. — that would lead to better civilian careers for this group. It would also provide a larger reserve force…

The current two-year stimulus period provides an opportunity for additional temporary spending increases with high payoffs. Investments in port security would reduce a major homeland vulnerability. Expanding the government’s language training programs … would provide more translators… Additional infrastructure for the FBI would remove an important constraint on the number of new FBI agents. …

A substantial short-term rise in spending on defense and intelligence would both stimulate our economy and strengthen our nation’s security.


Originally published at the Economist’s View reproduced here with the author’s permission.