Economic Conversion bc/big dipper studio Churning Guns Into Butter by Lloyd J. Dumas According to President Carter's budget for fiscal 1980, the Department of Defense will get appropriations totaling some $138 billion next year, up from $128 billion during the current fiscal year. Thal increase—coming at a time o f "austerity" and cutbacks in nondefense programs—represents a hike o f 3 percent over and above the projected rate o f inflation. I f the budget is passed intact, defense spending will consume about one-third o f the federal budget. That amounts to about $680for every man, woman and child in the United States. Does military spending need to be so high? Hawks and doves argue endlessly about how much national security a $138 billion defense budget actually buys. But there is one point on which both sides agree. Much of the support for high military spending stems not from a concern for national security but from a concern for jobs. in the debate a year or two ago over the B-l bomber, for example, the number o f jobs due to be lost i f the B l was cancelled was much more important politically than the bomber's potential strategic value. And virtually every newspaper account o f a military base closing or a canceled defense contract begins with an estimate o f how many people will be thrown out o f work. If jobs were somehow not at issue, those who advocate arms control and reduced military spending would gain an edge in their continuing battle with the advocates of "preparedness.” The debate on weapons systems and defense budgets could then focus not on the need to maintain employment but on America’s legitimate military requirements. Advocating the B-l, the MX, the cruise missile, and other expensive weapons systems on the grounds of their contribution to national security might not be so easy. Doubtless the military knows this: that's why jobs figure so prominently in Defense Department arguments for continued high spending. If the link between jobs and defense expenditures is to be broken, people must be convinced that they would be better off economically if the government spent its money on other things. A practical mechanism must also be created for planning the conversion of defense-related industries and facilities to nonmilitary operation. It is not surprising, of course, that Americans associate high defense budgets with a healthy economy. It was World War II that finally pulled the country out o f the Depression, and in the two decades o f growth that fo llowed the war, the federal government spent a large chunk o f its budget on defense. Military spending since World War II has varied from its current high to a low of $20.3 billion (1972 dollars) in 1948. But it has never dropped below 30 percent of total federal spending. Now, there is no doubt that government spending of any kind creates jobs; if Washington paid people to dig ditches and fill them up again (the classic example), that, too, would put a lot of people to work. The trouble is that jobs by themselves don't necessarily contribute to people’s material well-being. Military goods and services, unlike consumer goods, are not something that people can use and enjoy; they are not part of the "standard of living.” Nor do they contribute to the economy’s capacity to produce —as do roads, bridges, and other public works. In this sense, they are economically unproductive.* They consume, however, enormous amounts of land, labor, and equipment, which otherwise could be u^ted for consumer goods or capital investment. In the short term, military spending (or any other government spending) reduces unemployment, adds to purchasing power, and creates the illusion of prosperity. In the long term, resources used unproductively will be a drain on the economy. Other things that need doing will not be done, and the society as a whole will suffer. It is possible, in fact, to trace a number o f our current economic ills to the extraordinary diversion o f productive resources to military uses in the decades since the end o f World War II. The unprecedented combination o f high inflation and high unemployment in the 1970s is the predictable result o f a cumulative, long-term process o f economic deterioration that resource diversion on such a large scale is bound to produce. Because the flow of money to military firms is not “balanced,” in the economist’s scheme of things, by a corresponding production of goods and services that the firms’ employees can buy, defense spending creates the classic inflationary situation of too much money chasing too few goods. Theoretically, this part of the problem could be corrected by increasing taxes, thus drawing the “excess” money out of the economy. But increasing taxes to cover increases in military spending is generally considered politically unworkable, and so has not been done. The internal operation or the weapons procurement system aggravates the inflationary impact of the defense budget. Virtually all military contracts include incentives for producers to hold down costs. But the incentives are poorly designed and enforced; in practice, military contracts turn out to be cost-plus. No firm that knows its customer will cover ail of its costs— including guaranteed profits—will hold back on spending. The inevitable freewheeling attitude bids up the prices of the productive resources the various firms buy—resources also needed by civilian firms. In this way the defense budget fuels “cost push” inflation. Internationally, the outflow of dollars resulting from U.S. military spending abroad has played a major role in undermining the value of the dollar. Over the 20-year period from the mid-1950s to the mid-1970s, the total net inflow of foreign currencies to the United States on trade (exports and imports) was nearly $49 billion. During the same period, according to Commerce Department figures, more than $54 billion flowed out of the United States for military purposes alone. Military spending thus turned a positive trade situation into a negative overall flow, and caused dollars to pile up overseas. As with any other commodity, the “price” of a dollar (measured in other currencies) drops when the supply increases. That, in turn, makes every good imported into the United States more expensive: the price of a Toyota, for example, has risen several hundred dollars in the past year simply because more dollars are needed to equal a given number of yen. Since America imports large quantities of consumer goods—cars, television sets, shoes, and so on—the dollar’s decline contributes directly to the rate of inflation. Since we also import a wide variety of producer goods (oil and steel, for example), a rise in the price of imports will be felt indirectly as well. Government officials and commentators alike frequently tell us that the troubles of the dollar are attributable largely to the OPEC-induced oil price hike. Anyone inclined to believe this should consider the fact that the dollar was first devalued in 1971—more than two years before the embargo and price hikes of 1973. The most inflationary effect o f the high U.S. defense budget is indirect: it lies in the technological deterioration o f U.S. industry brought on by the arms race. Each year since the 1950s, the military budget has exceeded the after-tax profits o f all U.S. corporations combined. It has, thus, in effect, preempted a huge amount o f the capital that could have been used for productivity-increasing investments in new technology, equipment, and facilities. The military sector has also claimed the considerable talents o f between 30 and 50 percent o f all U.S. engineers and scientists. That alone would be enough to throw civilian 10
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