The Agenda

Krugman on Defense Spending in 2002

Paul Krugman writes:

One of the responses I’m getting to my “Europe isn’t an economic hellhole”column is the claim, from conservatives, of course, that Europe is only able to prosper because we Americans are bearing the whole burden of defending freedom.

I tempted to react to this in two ways:

1. Hey, you’re changing your story line: first Europe’s failure proved your point of view, now — when it turns out that your facts were wrong — European performance proves nothing; or

2. Well, in that case, you must agree with people on the left who claim that military spending is a terrible drain on the US economy. Right?

Who is changing the story line? Krugman shifts from one argument to another, supposedly knocking them down without ever naming names or acknowledging his own errors. I’d say there is a pretty consistent story line:

(a) there is something called conditional convergence (Krugman has heard of it, I’m guessing) and after years of relative peace and prosperity, the EU-15 haven’t caught up to the U.S. This is a failure that merits explanation, not least because, as Monica Prasad has noted, most of the EU-15 states had more growth-friendly regimes that relied more heavily on consumption taxes than income taxes and, for a time, faced less rent-seeking (using Mancur Olson’s framework) due to the destruction of the interwar political-institutional order. 

(b) defense spending is a mixed bag — as Cohen and DeLong note, there were considerable spin-offs from the creations of the defense industrial base; later we saw more “spin-ons,” i.e., military use of commercially available electronics, which were often produced at lower cost in East Asia. And so the maintenance of a defense industrial base in the U.S. became a matter of relatively inefficient enterprises through a version of “infant industry protection.”

(c) defense spending is a form of government spending that, like all government spending, has to be paid for through taxes. That is, it constitutes a burden, on balance, for the private sector. It is clearly worthwhile to have a strong military in a dangerous world — but the burden-sharing across the non-communist world was never even during the Cold War.

Krugman continues:

ut the real story is, look at the numbers.

A convenient chart from the Congressional Research Service — yes, a bit out of date, but not much will have changed: Yes, we spend more on defense than the major European countries. But it’s on the order of 1 or 2 percentage points of GDP. That’s not nearly enough to explain why they can afford such big welfare states.

This is one of the most impressively dunderheaded things I’ve seen in some time. Growth is a cumulative process. Given that we’re debating the postwar trajectory of the U.S. and Europe, perhaps it is relevant that during the cold war the U.S. spent far more than the states of the EU-15. (France spent more than average, but still far less than the U.S..)  The following is from a Heritage Foundation scholar, Ted Bromund, who is making the case for higher defense spending.

The 4 percent of GDP that the United States spent on defense in 2007 pales in comparison to the 6.3 percent it averaged, according to NATO, from 1985-1989, or the 6.5 percent from 1970-1974. The increases since the nadir of 1999 have not come close to putting the United States back to where it was in 1991, let alone back to any point from 1950 to the end of the Cold War.

The peace divided was an essential reason that President Clinton and the Republican Congress were able to successfully balance the budget in the 1990s.* Some maintain, not unpersuasively, that these cuts proved excessive. Regardless, pointing to the defense budget in 2002 as evidence that the relative U.S. defense burden during the postwar period was insignificant is flatly absurd. 

Paul Krugman needs to stop blogging for his own sake. He has produced a tremendous amount of careful scholarly work that merits our attention and respect. Why get in the fray? 

P.S. It was foolish of me to not also credit the Democratic Congress that approved spending cuts and tax increases in 1993-4. During the 1990s, we cut spending and raised taxes equally, and the cuts in non-defense spending were deep and significant. Even without cuts in defense spending, non-defense cuts and tax increases would have yielded a surplus. Funnily enough, I made a misleading oversimplification in a post criticizing Paul Krugman for making misleading oversimplifications. I can’t promise that it won’t happen again, but I can promise to correct myself promptly and enthusiastically. Thanks to Barton for a well-timed email. 

Reihan Salam is president of the Manhattan Institute and a contributing editor of National Review.

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