The Rise Of The Defense Keynesians

Brian Beutler has an amusing article about Republican members of Congress who’ve found their inner J.M. Keynes when it comes to the potential macroeconomic impact of cutbacks in defense spending. Read it and have a good laugh at the hypocrisy.

I do have to say, though, that I don’t think the Defense Keynesians are mistaken. You hear a lot about “multipliers,” but I think the more relevant issue for fiscal policy may be resource substitutability. The problem of demobilizing defense production workers is basically the same as the problem of demobilizing teachers. In a healthy economy, the problem you have is that all your resources are employed but people want more stuff. In Brazil, for example, there’s very little unemployment, but people are still poor. In an economy like that, it’s really bad to be deploying your resources inefficiently. Wasting medium-skilled workers in “defense” production when they could be making business inputs and household consumption goods is a huge problem. But America isn’t butting up against objective production constraints. So the risk is very present that instead of going from building armored personnel carriers to building hybrid SUVs, you go from building armored personnel carriers to reading help wanted ads. Then the waitress at the diner down the street ends up losing shifts.

People should try to be consistent about this. Even conservatives who want to see a long-term shift out of state and local government production ought to be willing to concede that right now is not the best time to try this. By the same token, I think reducing the “defense” share of the American economy is basically a Now Less Than Ever policy priority. Over the long-term, we’re impoverishing ourselves by investing so many resources in the fundamentally non-productive enterprise of building things that explode but this is not our present problem.