Yesterday, Cato released a new video pointing out that the military spending cuts specified under the Budget Control Act’s sequestration provision are not large relative to total spending, and would still have the U.S. government spending nearly $5.2 trillion on the Pentagon’s base budget over the next ten years. Under sequestration, the average annual total, $472 billion in constant, 2012 dollars, is well above the level spent during the 1990s (average $422 billion), and comparable even to what we spent during much of the Cold War. The video (building on my and Ben Friedman’s earlier writing, especially here) spells out the strategic rationale for even deeper cuts.
In a new paper released today, economist Benjamin Zycher outlines some of the economic rationales for such cuts. He shows that cuts on the order of $100 billion per year over ten years can be reasonably expected to reduce economic costs by $135 billion — provided that the funds are redirected to the private sector and not simply plowed into other government spending. Zycher concedes that the demand for U.S. military spending has declined, and its value (measured in what we actually spend) should also decline. At a minimum, he concludes, “These potential savings in real resources are sufficiently large to justify a detailed analysis of U.S. national security needs and the outlays required to defend them.”
Zycher’s findings should help to set the record straight on some of the more outrageous statements pertaining to sequestration, particularly the claims of massive job losses and economic devastation. The study that has attracted the most attention, by George Mason University Professor Stephen Fuller, alleged that a reduction of just $45 billion in procurement spending would result in a decline of about $86.5 billion in GDP in 2013, and the loss of over one million full-time equivalent jobs (1,006,315, to be precise). Fuller updated his findings last month and now concludes that the automatic cuts under sequestration, both defense and non-defense, will reduce the nation’s GDP by $215 billion, and cost 2.14 million jobs.
There are at least two major problems with Fuller’s research (and others like it), one methodological, the other conceptual. Zycher scrutinizes them both.