Daily Local News (West Chester, PA)
Proposed $54B jump in defense budget won’t help economy much
OMAHA, NEB. >> Investing another $54 billion in the U.S. military won’t do much for the overall economy.
President Donald Trump last week proposed a 10 percent increase in defense spending. The extra money will certainly be felt in the communities surrounding shipyards like the one in Virginia Trump visited to tout his military buildup. But it only equates to 0.2 percent of gross domestic product.
And significant cuts in other programs, including foreign aid and diplomacy, may be required to pay for the defense increase.
“If it’s at the cost of preventative measures, that’s not going to help our economy or our security,” said Constance Hunter, chief economist at accounting firm KPMG.
Granted, Trump proposed the increase more as a way to strengthen America’s military than to create jobs.
Unclear impact
The impact on the economy will depend on how Trump spends the $54 billion, experts say. The president has yet to offer specifics. During the campaign, Trump often said the military is too small to accomplish its missions, and he pledged to increase the Navy’s active fleet to 350 ships. Current plans call for expanding the Navy to 308 ships from the current 272.
The impact of recruiting more soldiers and paying for their training and wages would be different than the impact of ordering more naval ships or F-35 fighter jets. Investing more in producing ships and jets would likely produce fewer jobs.
And a large portion of this increase could be spent internally at the defense department.
“I would expect that much of the increase of the defense budget we’re talking about would be consumed internally by the Defense Department,” said Todd Harrison, who analyzes defense spending for the Center for Strategic & International Studies.
With so much of the U.S. economy dependent on consumer spending, defense spending doesn’t make a significant impact, said Fordham University economist Giacomo Santangelo.
“If his intention is economic growth, he shouldn’t be talking about defense spending. If he wants to talk about defense, he should talk about our defense needs,” Santangelo said.
Tough tradeoffs
To pay for the increase in defense spending, Trump has proposed $54 billion in cuts to foreign aid and domestic agencies such as the Environmental Protection Agency.
Those cuts are likely to draw strong opposition from Democrats in Congress, and the plan has been criticized by some Republicans who question Trump’s decision to exempt Social Security and Medicare from cuts.
“This is really a nonstarter,” said Richard Immerman, a Temple University professor who worked for the Office of the Director of National Intelligence from 2007 to 2009 under former President George W. Bush.
Reagan plan?
Trump’s proposals to boost military spending and cut taxes may remind some of former President Ronald Reagan’s approach, but this proposed spending would still be well below the relative level Reagan spend during the arms race with the Soviet Union.
If approved, the $54 billion increase in spending would mean the country was spending 3.4 percent of its Gross Domestic Product on defense. That would be up from 3.2 percent of GDP last year.
During the 1980s, Reagan’s defense spending reached 6 percent of GDP and accounted for as much as 28 percent of the federal budget. Reagan’s Cold War military buildup and tax cuts bolstered employment among defense contractors.
“In a lot of ways, I think Trump is following the Reagan model,” said Howard Stoffer, a professor at the University of New Haven who worked at the State Department for 25 years. “But Congress is going to be unlikely to give him a $54 billion increase.”
Investing battle
While military communities and economists wait to see how the spending drama plays out, Wall Street is already picking winners.
Since Trump was elected the S&P defense and aerospace sector has gained 17.4 percent, which is well above the overall 11.6 percent gains the S&P 500 recorded during the same time.
Whether the improved fortunes of the sector translate into new jobs is unclear. The companies that make military equipment use advanced manufacturing techniques, so there are fewer jobs involved in making the planes and ships then there were in the past.