Thursday, April 15, 2010

Following Up: Captain America and Unemployment

Captain America #603 by Ed Brubaker and Luke Ross, Marvel Comics (2010)

Two weeks ago, we did a post concerning Bad Cap's views on Keynesian economics. Recall that Bad Cap thinks that infrastructure and military spending during World War II helped to bring new industry to America, provide people with jobs, and eventually all but extinguish the unemployment rate in America. Our discussion mostly focused on the inconsistencies between these beliefs and those that Bad Cap now possesses. We detailed a few arguments on whether fiscal policy during World War II actually helped to put an end to the Great Depression, or whether it was really other factors (monetary policy, for instance).

But let's go back to Bad Cap's actual question. He asks himself why the United States' current conflicts abroad seemingly have no effect on unemployment today, whereas World War II helped drastically reduce unemployment in the 1940s.

Well, first of all, the U.S. was already involved in the Iraq War and Afghanistan before the Great Recession actually hit. The 1920s was a relatively quiet decade for America with respect to international conflicts. Remember Harding, Coolidge and Hoover? Isolationist foreign policy? Post-WWI "Return to normalcy?" When World War II hit, America had significantly increased its spending to prepare our troops for war.

Second, there is the issue of the draft. There are certainly debates regarding the extent of the impact of conscription on unemployment, but there was indeed an impact. American citizens went to war who would have otherwise been unemployed. There is no draft today, so this effect is smaller.

Third, today's warfare is less labor intensive and the same level of military activity requires fewer personnel.

To see this, let's look at the spending. Indeed, the second world war was expensive--economist Joseph Stiglitz estimated the cost to be approximately $5 trillion in 2007 dollars (adjusted for inflation). Current military operations are expensive too. As Stiglitz writes:

The cost of direct US military operations - not even including long-term costs such as taking care of wounded veterans - already exceeds the cost of the 12-year war in Vietnam and is more than double the cost of the Korean War.

And, even in the best case scenario, these costs are projected to be almost ten times the cost of the first Gulf War, almost a third more than the cost of the Vietnam War, and twice that of the First World War.

However, as he put it, WWII saw 16.3 million U.S. troops in a campaign for four years. It required the total mobilization and virtually all of the country's resources fully committed to fighting. Total cost of the war was less than $100,000 per troop in 2007 dollars. The Iraq war, according to his estimates in 2008, have cost around $400,00 per troop.

Where is all of this going? Tough to say. In fact, the defense spending budget in recent years has been pretty confusing. In 2008, for instance, President Bush requested from the Department of Defense $481.4 billion for discretionary military spending, which goes to "ensure a high state of military readiness and ground force strength; to enhance the combat capabilities of the United States Armed Forces; to continue the development of capabilities that will maintain traditional U.S. superiority against potential threats; and to continue the Department’s strong support for service members and their families." However, the actual spending for the wars in Iraq and Afghanistan apparently come through "emergency supplemental requests"--the request being about $193 billion in 2008. And there is more. Nuclear weapons research, intelligence gathering, State Department operations in war zones, and allocations towards the "Global War on Terror" technically do not fall in the DoD budget.

And then, of course, there is Stiglitz's famous three trillion dollar total cost estimate. All this is to say that we are spending a considerable amount of money on defense and military of some sort (if you total all the various sources of expenditures), but we are not seeing the same sort of total mobilization we saw in World War II. As mentioned above, much spending today goes towards development of sophisticated technology, nuclear research, etc. These are sorts of things that aren't likely to reduce unemployment in the same way as it may have during a war of full commitment such as World War II.

I'd be interested (as I'm sure Bad Cap would) if anyone could find a more specific breakdown of current military costs.

20 comments:

OldAndConfused said...

Check the Center for Arms Control and Non-Proliferation for a breakdown of direct military spending: http://www.armscontrolcenter.org/policy/securityspending/articles/fy_2011_briefing_book/

A rule of thumb is to take total defense spending and double it to get real spending. See:
http://www.csmonitor.com/2004/0223/p17s01-coop.html

algeya said...

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On Smash said...

Don't forget that our manufacturing base is mostly in Asia & Mexico. The People's Republic of China will be flushed with cash and an 11 year old in Indonesia will get an extra nickle a month from the sweat-shop. Of course I'm exaggerating...a bit.

Greg Sanders said...

I actually do some of this for a living, but am a bit too busy today to really ponder the best breakdown. All that said, if the discussion above doesn't get you the detail you want, let me know how you'd like to see it broken down and if it's easily available I should be able to get it for you.

Generally speaking, the main complicating factor is the bloody supplemental spending bills, now known as the overseas contingency operation bills. They substantially complicate figuring out the top-line.

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