The Defense Stimulus
A key to American recovery and reinvestment.
3:36 PM, Jan 13, 2009 • By THOMAS DONNELLY
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.
Larger public good. The value of American global leadership in an era of economic and geopolitical uncertainty cannot be stressed too highly. The security of worldwide commerce depends upon safe, cheap and uninterrupted flows of goods and service through a variety of "commons" -- the seas, air, space and cyberspace -- that are protected every day by U.S. military forces. Their presence helps to preserve the industrial world's access to natural resources and protect the interests of allies and trading partners.
By any measure, defense should comprise a vital component of any stimulus package. This is a matter of economic good sense and, frankly, fairness to the men and women serving our country in a time of war. The Pentagon can intelligently and easily support $20 billion in additional spending per year; critically, this would continue the program to expand the Army, which will remain stretched by deployments to Afghanistan and Iraq, by 30,000 soldiers per year. Such investments would not only create thousands of jobs across the country -- and preserve jobs at risk from premature program terminations -- but promote American exports and create a secure environment for global economic recovery.
As will be the case with all stimulus spending proposals, it will be necessary to integrate defense stimulus plans with the normal Pentagon budget process to minimize programmatic mischief and ensure the best value for the taxpayer. Nonetheless, based upon the Defense Department's current budgets and five-year plan, it is possible to suggest obvious areas where additional spending makes sense; adding $20 billion to the baseline defense budget, approximately $520 billion for 2009, is an increase of less than 4 percent, an easily "digestible" amount. Potential additions include:
The Army's "Grow the Force" initiative. Recruiting and training an additional 20,000 soldiers per year would cost about $3.5 billion. The pace of current operations -- driven by the requirements of Afghanistan and Iraq -- has proved the need for more troops.
Creating and equipping an additional 4 Stryker brigades. This family of wheeled combat vehicles has done yeoman service in Iraq and as the Army expands it should add more Stryker units. An additional 250 per year would cost about $550 million annually.
Maintain F-22 production. The Air Force originally wanted 750 Raptors, but the line will end in 2009 after the purchase of just 183. Close allies like Japan and Australia would like to purchase the fighter. Renewing the final 3-year procurement would secure an additional 20 aircraft per year at $4 billion annually.
Sustain C-17 production. The cargo aircraft has been key to the deployment of U.S. forces around the world. With no new production, "stop work" orders will be issued to suppliers in 2009. Restoring a rate of 12 per year would cost $3 billion annually.
Accelerate attack submarine production. The U.S. fleet of attack submarines will shrink from about 80 boats to approximately 35, too few to counter the rapid increase in Chinese submarine production and meet the Navy's own stated global requirements. Expanding production to three boats per year would not only restore an adequate force, but better utilize excess U.S. submarine-building capacity.
Build more Littoral Combat Ships. The Navy's fleet of surface combatants is also too small, both for traditional missions like antisubmarine warfare and the demands of irregular warfare such as anti-piracy patrols. The LCS is an effective and relatively inexpensive solution to these multiple requirements. Building three per year, to be split competitively between several shipyards, might cost $1 billion per year.
Tom Donnelly is a resident fellow at the American Enterprise Institute.