The Economics of Military Spending: Is the Military Dollar Really Different

The economic impact of military spending has become a subject of intense debate in the USA with the dramatic increases in US military spending of the 1980s. The Defense Department and industry argue that defence spending creates jobs and promotes economic health. Critics argue that such spending is inflationary, saps productivity and technology, and creates fewer jobs than other federal spending. This chapter reviews these claims and concludes that the economic impact of military spending is only marginally different from that of other forms of federal spending. It is not uniquely inflationary, has an unclear relationship to productivity and technological development, and does not create significantly different numbers of jobs. Military spending does, however, affect regions, sectors of industry and segments of the labour market in different ways from other federal spending. Through these effects, a ‘political economy’ of military spending emerges, where decisions on levels of US military spending and on specific weapons programmes are supported by microeconomic impacts. The economics of military spending involves public policy choices about the directions of national security policy and about national economic development; the macroeconomic issues are, at best, of marginal importance.