Introduction

Military expenditures have always been highly political and partisan matters, during war and during peace. Defense spending is probably the largest area of direct control that the executive branch of the United States Government has over the economy. Between the President and his appointees, they can lower unemployment, and significantly promote their own reelection chances or increase their approval rating. It has been shown that spending in the defense department is not just for war, but as a way for economic and political gain. Economists and political scientists have extensively studied this phenomenon; they know that defense spending typically follows predictable trends.

Macro Variables Effecting Defense Spending

It would be challenging to argue that defense spending does not increase during times of distress in the world. Defense spending decreased far more dramatically at the end of the cold war. According to Davoodi, defense spending decreased 15.4% from 1972-1984 (312). When you include up to 1989, you will see a steeper net decline of 18.2%. This decline did not just come from anywhere, it came from the increasing peace of the end of the cold war. If you factor in the average curve of the doomsday nuclear war clock, you will see the average risk of nuclear war steeply decreased by over 5% in those 4 years. This was probably the leading factor in cut backs to defense spending. Other factors leading to the decrease in spending where a net decrease in other countries spending, around 0.7%. Changes in fiscal policy of the IMF, giving more amnesty to poor countries, contributed to a 0.1% decrease in defense spending. All numbers were calculated based on the formulas and data provided in Davoodi’s research (310-313). He proposes that defense spending follows a formula similar to this:

log(ratio of GDP spent on defense) = X + X * log(Real GDP) + X * log(Urbanized %) + X * log(Old Age Depency Ratio) + X * Surplus % + X * IMF Adjustment Programs + X * log(Mean Military Spending % of GDP) + Internal Stability + International War, Where X=Internal Political Factors.

This research proves that defense spending has steadily decreased since the early seventies, as the world has become more stable. It also shows that defense spending can rapidly decrease (or increase) as world stability changes. Landau notes the steep increase in defense spending has been correlated to major conflicts, including the Korean, Vietnam and Persian Gulf War (186). Derouen’s formula for defense spending is similar to Davoodi’s research, in a simplified form:

Defense Spending = Approval Rating of President + Unemployement Rate + Major Conflicts + Time in Reelection Cycle + Conservative Military Build Up (Reagan Factor) + Other Factors

O’Halen notes that the "Reagan Factor" may not have an effect in defense spending in the long run, as defense spending typically is lower in areas of procurement of military equipment after such a build up (38). Dayoodi notes that sustained reductions in conflicts, whether international or local, will have many spillover benefits for local and international economies. Extra money will be generated by the reduced expenditures (the peace dividend), which will be used differently in different countries. In general, society will be a more secure place, which will also reduce the need for social welfare (313).

The forces of defense spending can not be fully understood, without considering the positions of people in Congress, the Senate, and the President. Different political parties and people have different ideologies when it comes to defense spending; others like the President have much to gain or lose by manipulating how they spend defense appropriations.

It is well known that peace-loving "doves" and warmongering "hawks" have different agendas when it comes to defense spending. Their debates have taken partisan tones and created divisive coalitions in the national debate. They have stymied the debate on how to deal with such spending.

Dove Perspective on Defense and the Economy

Doves note that defense spending in the United States, makes up for 35% of the world’s total defense spending. This is more then five times the amount that the runner up, Russia spends on defense spending (O’Hanlon 38). They also note that the United States is not in a major conflict today, so much of that spending goes to waste. More then 327.8 billion dollars this year will be spent on bombs, guns, and military training, that could be spent on foreign aid (which could prevent future terrorist breeding grounds) and domestic programs. That figure does not include the cost of increased federal and state security since September 11 (38). When you factor in the cost for increased federal security, called "Homeland Security" by Tom Ridge, defense spending will be over 400 billion dollars. This is a record figure in peacetime and the biggest increase since the height of Vietnam War in 1966. (Shales 17).

Hawk Perspective on Defense and the Economy

Hawks take a radically different view on increased defense spending. Today defense spending is around 3.1% of the United States GDP, the aggregate products of our economy (O’Halen 38). That is the lowest percentage of gross domestic product spent on defense, since the Great Depression. Hawks would like to see defense spending increased to around 3.5% to 4.0% of the GDP, according to O’Halen (38). In an policy analysis, by Lawerence J. Korb, it was suggested that many hawks feel that having the lowest percent of GDP spent on defense since before Pearl Harbor leaves us ill prepared for an attack. A dove would could counter that, nothing that the United States economy has grown at a rapid rate. Deputy Secretary of Defense, Paul Wolfowitz claimed appropriating so little money for defense was "reckless to press our luck or gamble with our children’s future" (qtd. Korb). They feel that such little defense spending means we are unprepared in case of an attack. They also argue that such defense spending will act as a stimulus to an economy by providing jobs and a variety of contracts. James Flanigan in the LA Times went as far as to suggest that defense spending could help failing high-tech companies. He argues that new defense spending will be "concentrate as never before on ‘network-centric’ warfare–using weapons systems that employ sensors, lasers, optical scanners, data networks and other communications tools to identify and attack targets" (Flanigan).

Presidential Perspective on Defense and the Economy

The President has the most discretionary control over defense spending, therefore is probably the most important person to consider when looking at defense spending.

All of the American presidents in recent history lean towards the viewpoint of hawks, to different degrees. Presidents have to worry about their own re-elections, and the elections of their party. An opponent can attack the president’s record by stating he appears soft on defense spending. This is one of the reasons why it has been historically shown that defense spending increases during election years. Tufte’s research showed that disposable income increased around 3% in elections years on average, versus 1.5% on off years. This helped on average the incumbent president around 2.4% (qtd. In Deroen, 4). Derouen notes that such spending does not always correlate to an election year, in many cases defense spending fluctuates based on approval rating. To bring up his approval rating, the President can put an influx of cash in select areas to increase employment and his popularity.

Yet, that is not the only reason. Presidents, as Commander in Chief of the Armed Forces, have a large amount of control in awarding defense contracts to bases and contractors. Prime contract awards (PCA) can be awarded to those states or districts in which another political party is dominant, to ensure winning in a close election (Deroen 2). Deroen refers to studies by Barro, in which defense spending and therefore PCA increase as the economy declines (5). Deroen, however notes that with a correlation coefficient of approval rating of a President versus unemployment, is only —0.55, which is not a strong correlation.

Doves would question such a study, noting the defense contracts typically do not lead to large increases in employment or pay for workers. Instead many of the same contractors simply improve productivity to increase for demand or higher temporary workers.

Defense spending is closely aligned with political gain by manipulating the economy and public opinion. Ideological powers, combined with world tensions and political goals define how much the United States or other countries spend on defense in any one year. Military expenditures have been used to shift economic indicators in a positive direction for political gain, and give jobs to people in critical voting areas.

Works Cited

Davoodi, Hamid, Benedict Clements, Jerald Schiff and Peter Bebaere. "Military Spending, the Peace Dividend and Fiscal Adjustment." IMF Staff Papers 48.2 (2001): 290-313.

Derouen, Karl Jr. "Defense Contracting and Domestic Politics" Political Research Quarterly 53.4 (2000):753-769.

James Flanigan. "Defense to Give New Life to Tech Industry" LA Times 30 Sept. 2001: A9

Landau, Daniel. "Is One of the 'Peace Dividends' Negative? Military Expenditure and Economic Growth in Wealth OECD Countries" The Quarterly Review of Economics and Finance 36.2 (1996):183-195.

O�Hanlon, Michael. "Of Bangs and Bucks" Foreign Policy Jan. 2002: 39.

Shlaes, Amity. "War, Peace and America�s Vanishing Surplus: The threat of terrorism has lost the US its peace divided and will make it harder for the country to grow and innovate." The Finical Times 19 Jan 2002: 17.