Two months ago, Cato published a study by economist Benjamin Zycher, a senior fellow at the Pacific Research Institute, that showed that military spending contributes very little to GDP growth, and concludes that cuts would have very little long-term impact on GDP. On the contrary, Zycher estimates that cuts on the order of $100 billion a year would reduce costs in the wider economy by $135 billion per year. I wrote about that study when it was published here.
These findings conflict directly with two studies prepared for the Aerospace Industries Association (AIA) by George Mason University Professor Stephen Fuller. In October 2011, Fuller argued that a reduction of $45 billion in DoD procurement spending would result in a decline of about $86.5 billion in GDP in 2013, and the loss of 1,006,315 full-time, year-round equivalent jobs. Earlier this year, in July, Fuller expanded his research to include the effects of sequestration on both defense and non-defense spending. He concluded that such cuts will reduce the nation’s GDP by $215 billion, and cost 2.14 million jobs. Interestingly, Fuller’s second study concludes that cuts to non-defense spending will have a greater impact on economic activity than defense spending cuts.
As defense spending advocates continue to make the case against sequestration (or, to be more precise, that portion of sequestration that applies to the Pentagon) they have relied heavily on Fuller’s research to buttress their arguments. In his acceptance speech before the Republican National Convention Mitt Romney asserted that the president’s “trillion dollar cuts to our military will eliminate hundreds of thousands of jobs.” The GOP platform claims “Sequestration [would accelerate] the decline of our nation’s defense industrial base,…resulting in the layoff of more than 1 million skilled workers,” and later contends “If [Obama] allows an additional half trillion dollars to be cut from the defense budget,” that would harm “our national security and a struggling economy that can ill afford to lose 1.5 million defense-related jobs.”