News Could Significantly Upping Defense Spending Help the Economy Recover?

[heusdens]

The typical problem with military spending is that is a waste of resources and talents, since the military production is only usuable as a destructive force, so in fact it is double inproductive.

Yet, in a capitalist society, private enterprises can still make profits out of this, not only in producing those goods, but also in contracts for "building up" the things that were with military force shot down.

We could do that in a much simpler fashion, without causing any person to be injured, I guess. Give someone a hammer and pay him for demolishing every glass window he sees. It will create many jobs, cause all those windows must be restored.

But is it usefull?

I have some other suggestions:

Built on a global scale large solar plants (Concentrated Solar Power) in areas that are threatened to become or are already desertified, that creates thousands or millions of jobs, creates cheap sources of renewable electric power that with DC lines can be economically transported thousands of miles, and can also help improving the soil beneath those plants (which get more shadow = less evaporation) and the plants themselves can use the accesss heat for desalinating salt water into drinking water for (drip) irrigation, so you can turn the soil into agricultural land in the course of time.

More land to feed the hungry, many jobs for poor nations that need economic development, and plenty of renewable electric energy at affordable prices (which can be used also to electrify car transporation and help us get off oil).

Why not?

See also (Google on those keywords)
- Plans of Desertec EU-MENA to install CSP plants in North african desert and the Middle east
- Plans of sub-saharan africa to create a green zone to fight desertification extending from Senegal in the west to Ethiopia in the east.

 

[AlexES16]

The idea is to create jobs on a large scale, I don't think that would quite do it.



How will spending money on waste-handling or recycling stimulate the economy?



The technology doesn't exist yet.



It's to be temporary spending, healthcare is permanent spending. Also, healthcare spending isn't going to create jobs as I see it. Finally, people could afford to buy their own healthcare fine if government would apply some of the means to fix the private-sector healthcare system I'd think.



How is providing for the national defense not useful?

Tipic Capitalist thinking

 

[hagopbul]

as long as there is a privet arms companies the economy want be healed

 

[Char. Limit]

as long as there is a privet arms companies the economy want be healed

The economy does not want to be healed. Economies are not sentient, and therefore do not want.

 

[brainstorm]

To me the point of economics isn't to keep people busy, but consumption-driven job-creation economics seems to be about little more than that. Military activity has throughout history provided people (usually men) with organized labor, discipline, and conflict to keep them busy (or reduce their numbers - either as "collateral damage" or probably intentionally at times). It also has the function of promoting freedom by repressing the abuse of freedom. In other words, if people are unemployed or underemployed, they're less likely to misbehave (engage in criminal or terrorist activities, for example) if there is a military or police threat of retaliation.

Repressing freedom through military and police actions probably has positive as well as negative effects but the issue is how this method of regulating freedom compares with job-creation and consumption-driven economic discipline. Is it better to keep people occupied in consumption-driven servitude so they won't misbehave or allow them more freedom but police them militarily against abusing it?

 

[CRGreathouse]

You're right it's not obvious. That's why the world isn't screaming for the debt to be paid down. The government is just another borrower, it has no special status in that realm.

It has a very special status: it can print its own money.

 

[mugaliens]

It has a very special status: it can print its own money.

Not without diluting it's value...

 

[talk2glenn]

It has a very special status: it can print its own money.

This is a pervasive myth.

The government cannot "print" money - it can confiscate it (taxation), or borrow it (bonds).

If governments cannot find willing lenders to purchase its bonds, it can combine the two schools, forcing anyone who holds its currency to lend it cash. This is what we are talking about when we refer to "printing money" - if the government expands the money supply by 10%, it has effectively borrowed 10 cents out of every dollar previously in circulation.

Governments do this when they lack the resources or authority to effectively collect the 10 cents through direct taxation (transitory and/or weak governments, predominantly).

The only difference between issuing new currency and issuing bonds is consent.

 

[mheslep]

This is a pervasive myth.

The government cannot "print" money - it can confiscate it (taxation), or borrow it (bonds).

If governments cannot find willing lenders to purchase its bonds, it can combine the two schools, forcing anyone who holds its currency to lend it cash. This is what we are talking about when we refer to "printing money" - if the government expands the money supply by 10%, it has effectively borrowed 10 cents out of every dollar previously in circulation.

Not necessarily. The value of the dollar is set on a world market, based on several factors including the US GDP, balance of trade, and the outstanding debt of the government. If the US economy grows (GDP grows) by X without an corresponding increase in debt, then the government can simultaneously circulate more dollars without decreasing the value of the dollars held be the public.

 

[talk2glenn]

Not necessarily. The value of the dollar is set on a world market, based on several factors including the US GDP, balance of trade, and the outstanding debt of the government. If the US economy grows (GDP grows) by X without an corresponding increase in debt, then the government can simultaneously circulate more dollars without decreasing the value of the dollars held be the public.

You're on the right track, but you're missing a key point.

If gdp grows by x without any corresponding change in # of $s, then fewer dollars are chasing more production. This is what we call inflation.

If government expands the money supply at a rate equal to the rate of change in gdp, it returns the currency to its prior value, effectively borrowing the difference.

Sorry I am typing this on a mobile phone.

 

[mheslep]

If gdp grows by x without any corresponding change in # of $s, then fewer dollars are chasing more production. This is what we call inflation.

No! More dollars chasing the same production causes inflation. Fewer dollars with stagnant production causes deflation as in the Great Depression, when the Fed collapsed the money supply and dragged production down with it.

 

[CRGreathouse]

The government cannot "print" money - it can confiscate it (taxation), or borrow it (bonds).

Obviously this is false! The BEP can (and does) literally print money.

But speaking realistically, the Fed can purchase bonds, as many as desired (well, up to the $13 trillion outstanding), thus increasing the money supply.

And now that Bernanke is talking about the possibility of using "unconventional measures", there are other things that might be done...


I'm not sure what your statement is trying to get at, since on the face it's clearly wrong. Perhaps you were speaking to the separation of fiscal and monetary policy?

 

[mugaliens]

This is interesting! (eats more popcorn)

 

[talk2glenn]

No! More dollars chasing the same production causes inflation. Fewer dollars with stagnant production causes deflation as in the Great Depression, when the Fed collapsed the money supply and dragged production down with it.

You are correct! I should have written "deflation" not "inflation". My fault for hammering these things out in a rush from my cell phone.

Obviously this is false! The BEP can (and does) literally print money.

Obviously you are still incorrect in this point CR! Repeating it does not change the fact. Money has no "instrinsic" value - it is just paper with numbers and pretty pictures.

The value comes from its legal use as a placeholder of production value in an economy, principally, and from its scarcity in the currency markets, marginally.

Printing new currency does not create any new value - it borrows existing value from the money already in circulation. Hence the point that government, like any other entity, can acquire capital in only two ways: confiscation and borrowing.

 

[CRGreathouse]

Obviously you are still incorrect in this point CR! Repeating it does not change the fact. Money has no "instrinsic" value - it is just paper with numbers and pretty pictures.

You're the one talking about value, I was talking about money.

Printing new currency does not create any new value - it borrows existing value from the money already in circulation.

Yeah, that strawman sure was wrong.

 

[WhoWee]

While it's important to keep people from falling into poverty (extension of unemployment benefits comes to mind), it is far more important to provide enough stimulus to create jobs. That's why I would like to see lots of large highway infrastructure projects financed. Not only do people get jobs and paychecks, when they spend that money, other people get jobs, more hours at their own jobs, and more pay. Finance a multi-year project to replace a crumbling bridge and you not only employ all the people responsible for planning, engineering, and building the bridge, but the money they and their families spend employs pizza-makers, hairdressers, filling-station operators, salespeople... it goes on and on. The fact that such projects can happen all over the country make them a nice option, as opposed to highly-concentrated defense spending. Maine has Bath Iron Works (shipyard) and some facilities that make gas turbines for the military, but our state's economy would be far better-served by upgrading roads and bridges all over the state.

We have lost sawmills and paper mills in the economic downturn, and the tourism sector is suffering badly, as is commercial fishing. An infusion of construction jobs would not only help stimulate our local economies; the improved infrastructure would position our industries well for a (hoped-for) coming bounce.

I think too much emphasis is being placed upon the infrastructure vs defense debate. If you step back and look at the parts of the economy that are suffering (as Turbo pointed out) it's small businesses.

I think an effective "stimulus" plan (at this point) would be to redirect all of the unspent "stimulus funds" over to the Small Business Administration - and let them fund/re-finance small businesses. An expansion of small business will create direct jobs, create construction and supply jobs - and create tax revenues.

 

[lisab]

I think too much emphasis is being placed upon the infrastructure vs defense debate. If you step back and look at the parts of the economy that are suffering (as Turbo pointed out) it's small businesses.

I think an effective "stimulus" plan (at this point) would be to redirect all of the unspent "stimulus funds" over to the Small Business Administration - and let them fund/re-finance small businesses. An expansion of small business will create direct jobs, create construction and supply jobs - and create tax revenues.

That would be helpful. I'd especially like to see the SBA focus on manufacturing, but I'm not sure they can do that legally.

 

[Galteeth]

People get so disconnected from the basic economic realities.

Example: I recall reading a post somewhere complaining about illegal immigrants. It said something like "They do the work for less money, and the money they make, they're not spending it here. It's getting sent back to Mexico. That doesn't help the US economy at all."

That situation, if you think about it for about two seconds, is an enormous benefit to the US economy. Someone is doing labor (which there is obviously some demand for) and getting very little in return. If you think about in terms of what the individual inputs to the US economy versus what he extracts, it's clear the value he's adding to the US economy is MORE then that of a US citizen.

It is the keynesian notion that economies are driven by demand that leads to this muddled thinking.

Plenty of people in plenty of countries want plenty of things (like say, food or medicine) but the "greater demand" doesn't mean those economies are in better shape.

Ok, now, military spending can provide benefits to a country in a few ways. There is obviously the defense benefit, and also the resource acquisition leverage. But just building bombs and tanks and blowing them up isn't any more economically beneficial then digging a hole in the ground and re-filling it (in fact, from an energy and material point of view, both are wasteful).
Yes, some people might acquire skills that later prove to be useful. And some machinery or technology may be developed that will also have unforseen beneficial uses. But this is just about as likely to happen with any sort of large scale government industrialization project.
People look at WW2 as an example of how military spending benefited the country; I would argue that it did, but because of the position that the USA found itself in with regards to the rest of the world (essentially the last industrial nation standing and the holder of the reserve currency through bretton-woods).

Just producing more "things" does not mean an economy is "better."

 

[SixNein]

So I've been thinking, many on the left say we need massive economic fiscal stimulus to recover the economy. They say the reason fiscal stimulus hasn't worked in the past is not enough money spent.

However, they say WWII represents a time when the nation finally did spend the massive amount needed. Also the Reagan recovery. I know Republicans point to things like Reagan's tax cuts and deregulation, but Reagan also upped defense spending significantly. So could Reagan inadverdently have given a Keynesian-style economic push to the U.S. economy as well?

One thing I have been reading on military forums (I do not have any official source on this however) is that a major problem with the U.S. military's vehicles, such as Humvees for example, is that:

1) They were never meant to be driven the distances they have been used in Iraq and Afghanistan

2) They were never meant to be fitted with all that armor they have tacked onto them, which strains the engines and transmissions and causes blown transmissions, parts wear out far faster, etc...basically a lot of the military's equipment, or at least the Army and the Marine Corps's, is getting very worn out far faster than was ever intended.

Now Paul Krugman wrote an article in the New York Times (http://www.nytimes.com/glogin?URI=http://www.nytimes.com/2010/06/28/opinion/28krugman.html&OQ=_rQ3D1&OP=298494f8Q2FQ5D3vwQ5DFQ3EQ60LGQ3EQ3EHWQ5DW)Q24)Q5D)Q2AQ5DWQ5EQ5DQ3EXdKdQ3EKQ5DWQ5E5GAEkCK@Q23Hko - you'll need an account there to read it though), discussing how he thinks we are on the verge of another depression, and that the worst thing to do now is cut spending, and he laments that is what Europe wants and what seems will start happening in America.

He says that yes, Greece is a major example of what happens with long-term deficits and debts, but in times of economic crisis, short-term deficit spending is good.

So my question is, would not upping defense spending a good deal be perfect for this scenario? Think about it:

1) It seems to have really worked at creating jobs in the past (WWII, Ronald Reagan)

2) Assuming the military's vehicles are worn out, the military, in particular the Army and Marine Corps, could really use it to a degree (new vehicles, like Humvees).

3) It would be short-term. Unlike stimulus spending that goes into bloated state bureaucracies or feeding demands of public employees unions or entitlement programs certain people in government want to create (which are impossible to end once began), you spend a bunch of money to replace worn out military hardware with brand-new military hardware, and then once done, you have no problem drawing down spending.

I am sure you'd have to fight to even sustain it for the length one might feel is needed. You just make sure the new vehicles will not require any substantially higher defense budget once replaced (if anything, if they have new parts that are easier to maintain, the budget might be able to be a bit less).

But for example if building the Air Force all the F-22s it wants would mean a substantially higher budget for the Air Force to maintain the F-22s, then one would probably need to be careful there I'd think (I have no clue if the F-22 is cheaper or more expensive to maintain then the F-16s and F-15s).

So such deficit spending on defense would be a short-term form of deficit spending, just as the Keynesians want, according to them it has worked in the past (WWII) (I can't imagine how it would not create lots of real jobs), and the military likely needs it right now (correct me if wrong).

What say you people?

1-2-3) The United States gained economic advantage after world war two because the rest of the world's industry was in rubble. The defense spending in and of itself had nothing to do with the economic boom enjoyed by the United States after world war two. The economic impacts we have enjoyed directly from defense spending came mostly from the redirection of the monies being put into funding scientific research and development. So why not just cut out the middle man and fund scientific research and development directly?

To be honest, I'm not sure there is any easy ways out of the present situation. I think the United States is in a great deal of long term trouble, and I do not have any quick fix suggestions. The only thing I am certain about is that Americans are going to be changing their lifestyles.

The problem as I see it has to do with globalization and production. When I look at the balance sheets of companies, most of them seem to be doing very well. But when I look at the general population, I see a completely different trend. So I think we may be seeing a new type of over-production that has been fueled by credit. Companies are currently producing more than people can afford, but it has been hidden by credit. Instead of the over-production effect being seen at the production level, it has been shifted to finance balance sheets and housing markets. Now that the credit has been completely consumed, governments are trying to step in and continue buying the overproduction.

And the end of the day, I think the effect has been mostly caused by globalization. America has lost a large portion of its industry through outsourcing, and the jobs that have not been outsourced have been reduced due to efficiencies created through technologies such as the computer and internet. Many people have lost their jobs or took pay cuts, and they have continued their lifestyle through credit. So where we go from here seems to be an open question.

Personally, I don't think the market can adjust until we go through a cycle of deflation.

 

[SixNein]

Well sure plenty have been saying that, but people have been claiming this for years. I am no expert, but the subject of peak oil is a complex one that involves many variables. For example, I think scientists right now say there are about three trillion recoverable barrels of petroleum out there, and so far we've taken around one trillion. Some believe there could be as much as ten trillion out there.

But even if there's about three trillion, there's issues like technology, economic growth, etc...that come into play.

Then there's natural gas, there's shale oil and tar sands (which are expensive and difficult to get to, but I am sure in time the technology, especially if necessary, would make it easier and more profitable, and if petroleum ever does start coming in shorter supply, it's increasing price will make shale and tar sands profitable).

There's also coal. The United States alone is a Saudi Arabia of coal, and you can convert coal into oil.

So I highly doubt fossil fuels will run out soon, although finding a replacement to significantly reduce our usage of them is something we very much want to do. But the fact is that solar and wind power just are not going to do it right now.

When scientists talk about peak oil, they are not talking about the amount of oil in the ground; instead, they are talking about oil that can be easily accessed. Traditional oil wells have been such that people can simple drill down and pump it out. Peak oil is referring to those easy to access oil wells. After those as gone, oil becomes a great deal more challenging and expensive to extract. An example would be extracting oil mixed with sand. Another example would be extracting oil that is in puddles under the ground spread out over a large area at variable depths.

Even if there is still plenty of oil in the ground, can the oil be extracted at a rate necessary for keeping the production levels anywhere near current level? Personally, I don't think it is realistic to assume that it can be done.

 

[jduster]

Deficit spending on anything, in a Keynesian view, would stimulate the economy.

Whether it is for defense spending, education, science, or to build a 6,000 ft. pyramid.

I agree this nation needs a strong national defense and is better off with a few defense spending increases, but the defense budget is already rife with waste and does not need a "significant" upping.

 

[mheslep]

People get so disconnected from the basic economic realities.

Example: I recall reading a post somewhere complaining about illegal immigrants. It said something like "They do the work for less money, and the money they make, they're not spending it here. It's getting sent back to Mexico. That doesn't help the US economy at all."

That situation, if you think about it for about two seconds, is an enormous benefit to the US economy. Someone is doing labor (which there is obviously some demand for) and getting very little in return. If you think about in terms of what the individual inputs to the US economy versus what he extracts, it's clear the value he's adding to the US economy is MORE then that of a US citizen.

Do you have any sources totaling up the costs of illegal immigration?

Just producing more "things" does not mean an economy is "better."

How do you define better then? I'd argue that in a true free market, yes producing more things is on the whole to the good as only things that people need or want get produced.

 

[Galteeth]

Do you have any sources totaling up the costs of illegal immigration?

How do you define better then? I'd argue that in a true free market, yes producing more things is on the whole to the good as only things that people need or want get produced.

I was given a specific example in reference to one quote on a particular pattern of behavior. Under the parameters defined (where the immigrant is working at a lower wage then americans and is sending most of their money back to relatives in Mexico, an important caveat is that this money is then being used to buy mexican made goods, not importing american goods) then clearly this immigrant is a "benefit" to the US economy. The situation changes if the immigrant is actually receiving other benefits from the American economy (like health care, or education or what not). The point was not to argue about immigration, but to illustrate how some odd assumptions that are common in economic thinking can lead to absurd conclusions.

I would say that the relative health of an economy has to do with the standard of living of its members. Accepting your point about a free market, we then have to ask if increasing military spending (which would obviously not be a free market action) would then lead to more production on the free market (which you think it would.) The other outcome would be that such investment would instead be a drain on the free market (i.e., resources that could have gone into free market production are being used in military production).

My point was to try and express my frustration with what I was calling the Keynesian economic thought process. Let me give you a different example to make the point.

Suppose we have a society of about 100 people. About ten of these people have some useful school (farmers, doctors, what not.) The rest do not, and are being supported by the other ten. Nobody's crazy about this situation. So someone decides on a stimulus plan. The 90 people are going to be employed digging holes and then filling up. Well, now these people are "earning" their keep. Perhaps the labor will condition their bodies to be better at farm work. And perhaps some tools have to be produced to get the digging done, which later on (once the hole digging stops) have practical use in agriculture or something.

But at least in the short term, these 90 hole diggers might be a greater drain on the ten producers then otherwise. With greater work, they might have a higher caloric intake required then before, requiring the farmers to produce food. Also, their might be more injuries in the hole digging process, requiring more medical work. Assuming these things are true the society was better off from a standard of living pov, before the stimulus was enacted. This is especially true if say, it turns out that some land that might have been suitable farm land has to be used for hole digging.

To make it a little less silly, let's say that the holes are being dug to get at some useless rocks (Usocks). So even if the society is producing more usocks, if nobody has any use for the usocks, the society is poorer, and I would argue, the economy is worse. Even if they passed a law that say, people had to eat the usocks, still same situation.

 

[mugaliens]

When scientists talk about peak oil, they are not talking about the amount of oil in the ground; instead, they are talking about oil that can be easily accessed. Traditional oil wells have been such that people can simple drill down and pump it out. Peak oil is referring to those easy to access oil wells. After those as gone, oil becomes a great deal more challenging and expensive to extract. An example would be extracting oil mixed with sand. Another example would be extracting oil that is in puddles under the ground spread out over a large area at variable depths.

Even if there is still plenty of oil in the ground, can the oil be extracted at a rate necessary for keeping the production levels anywhere near current level? Personally, I don't think it is realistic to assume that it can be done.

You've nailed it - this is what peak oil means, that beyond a certain point, there may yet way more in the ground than we've yet taken out, but it's in forms which are not easily extracted, not only with current technology, but also with foreseeable future technologies as well.

Peak oil is where production simply cannot keep up with demand. Nothing more, nothing less. Beyond peak oil, production declines while demand skyrockets.

They key to getting beyond peak oil is to ensure our suite of energy production technologies no longer requires oil, and well before we get anywhere close to peak oil in 2017.

Like around 1997. That would have been a good target date. :(

 

[WhoWee]

Maybe we should have the military take over building of the fence on the Mexican border and equip it with the latest Solar and Wind technologies - coupled with guard towers and soldier barracks, helicopter pads, and Drone facilities.

The Government could discount energy prices and still realize a (GASP!) Return On Investment.

 

[talk2glenn]

My point was to try and express my frustration with what I was calling the Keynesian economic thought process. Let me give you a different example to make the point.

That example was not Keynesian.

Keynesian stimulus theory calls for government receipts to increase at the same rate as an increase in private savings during recessionary periods. That is, if consumers reduce their personal consumption by 10%, government should increase its consumption by 10%, so that the net effect on GDP is zero (GDP being defined as private consumption + government consumption + exports - imports).

It does not advocate that the government buy useless rocks; it says that the government continues to buy things it already values, just more of them.

In your usock example, you are proposing a national production plan as a form of economic stimulus. This is not a Keynesian perspective. There are no economists who would suggest that the government directly increase production of some arbitrary goods as a form of economic stimulus. As you rightly point out, production is only useful to the extent that someone voluntarily consumes final products at reasonable prices, and if the government has to subsidize production, it is because (by definition) there is insufficient demand for the good at the amounts produced after intervention at market prices, and the market is operating at a loss (inputs > outputs). Further, recession is caused by insufficient demand for final goods, never insufficient production - there would be no conceivable benefit to the state stepping in and further increasing output through national industries during such periods, and this is why command economies tend to respond poorly to the market cycle relative to market economies.

Keynesian theory calls for consumption stimulus, never production stimulus.

 

[mheslep]

That example was not Keynesian.

It does not advocate that the government buy useless rocks; it says that the government continues to buy things it already values, just more of them.

Could you provide a source for this?

If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.

http://books.google.com/books?id=dQ...d up to the surface with town rubbish&f=false

 

[CRGreathouse]

I feel the need, right about now, to mention the broken window fallacy.

 

[mheslep]

I feel the need, right about now, to mention the broken window fallacy.

Yes that is the suggested flaw in the Keynesian theory, and I don't give Keynesian stimulus much credence now, but I thought it should be at least be stated as originally given.

 

[rootX]

Yes that is the suggested flaw in the Keynesian theory

Keynesian does not work always as it should because government fail to respond within appropriate time sometimes not because it always crowds out the private investment.