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The Defense Stimulus

A key to American recovery and reinvestment.

3:36 PM, Jan 13, 2009 • By THOMAS DONNELLY
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The politics of the current economic crisis are fluid -- the Bush administration's original diktats for bailing out the troubled financial sector and the auto industry have generated growing resistance -- but it's likely that Barack Obama will be able to produce a stimulus package quickly after his inauguration. Even House Republican leader Rep. John Boehner "believe[s] Washington has to act." Indeed, the stimulus debate that remains was succinctly framed by his counterpart in the upper house, Sen. Mitch McConnell: "The question is: How big and in what form?"

A key part of the answer on the spending side of the equation is increased defense spending, by at least $20 billion per year, particularly on procurement and personnel. These kinds of expenditures not only make economic good sense, but would help close the large and long-standing gap between U.S. strategy and military resources. If bridges need fixing, so too do the tools with which our military fights. A critical element in any recovery will be strengthening the foundations of the globalized economy, built upon U.S. worldwide security guarantees.

There is a strong historic correlation between defense spending and past recoveries. Increasing defense spending now would also satisfy the stimulus principles advanced by President-elect Obama: Military service and employment in the defense industry are jobs "that pay well and can't be outsourced."

Defense investments also meet the definition of a sensible stimulus according to mainstream economists: Government should spend where private resources are slack; though the defense industry was trimmed down in the 1990s, there is tremendous excess capacity in major sectors like aircraft and shipbuilding. Defense spending would also meet other critical benchmarks:

Domestic content: Direct employment in the U.S. aerospace industry - an imperfect but indicative measure of defense employment - stands at more than 650,000 jobs, a number that grew by 10,000 in 2008. All major weapons systems are made in the U.S. and have a huge secondary effect. The F-18 fighter, for example, relies on 445 suppliers and has as total economic effect of an estimated $4.6 billion per year.

Nationwide effect: Major programs depend upon a nationwide manufacturing base. Lockheed Martin is the prime contractor on the F-22 fighter, but the program is the effort of 1,000 suppliers who employ 95,000 people -- including an efficient, unionized manufacturing workforce -- in 44 states.

Bring forward or extend previously funded projects. There is ample opportunity to preserve "hot" production lines that face termination -- such as the F-22 -- or to extend "warm" lines. Boeing is on the verge of issuing a "stop work" order to its suppliers for the C-17 cargo aircraft (a workhorse in Iraq, Afghanistan and around the world) and we are only using half of the country's shipbuilding infrastructure to build one Virginia class (SSN-744) submarine a year, while defense requirements make it clear that we will need more submarines, not less, in the years ahead.

Timely spending. As former director of the National Economic Council Lawrence Lindsey has written, defense programs more than meet the "shovel ready" threshold set for infrastructure projects in the stimulus package. Defense procurements have very high "spend rates," and almost all personnel spending occurs in the year of appropriation. These are quick-return investments.

Strength for the future. Defense manufacturing is among the most competitive elements in the U.S. manufacturing sector. Foreign military sales in 2008 were $32 billion, up from $24 billion in 2007 -- more than twice the level of Russian defense exports and five times that of Great Britain or France. The defense sector is also the source of much technological innovation -- the Internet is the product of defense research and development -- and the home of a highly-educated, American workforce, led by engineers.

Inherent value. Economist Martin Feldstein has argued that the stimulus spending needs to be directed toward projects "that should be done anyway." The gap in military spending of the past 15 years -- more than $150 billion in deferred projects in the 1990s alone -- has created a "defense deficit" that has resulted in a wholesale obsolescence in front-line systems: U.S. troops are still fighting with planes, ships and land combat vehicles designed in the late 1970s and purchased during the Reagan buildup.