WASHINGTON — Short-term deficit reduction is not a good reason to cut federal military spending, and defense spending cuts under sequestration likely hurt the US economic recovery, former Federal Reserve chairman Ben Bernanke said Monday during a discussion of the defense economy.
Speaking at an event hosted by the Brookings Institute, where he is a distinguished fellow in residence, Bernanke said that it was important to keep US defense spending in context and avoid over-simplified comparisons to other militaries.
On a dollar-to-dollar comparison, it may be true that the US spends more than its potential adversaries combined, he said. But that doesn't mean the US enjoys an automatic military superiority to other nations.
Purchasing power parity is a method of comparison favored by many economists, he said.
For example, the US spends $110,000 a year for each member of the military (on pay and benefits, not including training and equipment), he said. Given that an urban worker in China earns about $9,000 a year, it is safe to conclude that China spends significantly less per member of the military, Bernanke said.
Using a purchasing power parity method, US military spending is about 33 percent of worldwide military spending, he said. Using a dollar-to-dollar comparison, US military spending accounts for 45 percent of the worldwide total.
Moderator Michael O'Hanlon, co-director of Brookings' Center for 21st Century Security and Intelligence, noted that at around $600 billion each year, US military spending represents about 3.5 percent of US gross domestic product (GDP). At the end of the George W. Bush administration, it was closer to 4.5 percent of GDP, compared with 3 percent during the Clinton years and 6 percent during Reagan's presidency.
"By historical standards, this is a modest burden on the US economy," O'Hanlon said.
The ratio of debt held by the American public to GDP exploded during the last recession, rising from 35 percent to 75 percent, Bernanke noted. The Congressional Budget Office projects this to rise to about 77.5 percent over the next decade, then grow more significantly after that. With relatively flat deficits in the near term, short-term deficit reduction should not dictate policy on defense spending, he said.
"There's nothing in our deficit prospect that should make us distort our defense planning in the near term. We should be making our decisions based on immediate term considerations, based on what makes the most sense in terms of efficiency for achieving our objectives. There's no reason to be taking draconian steps right now that will have long-run, costly implications for our defense posture just for deficit reasons."
The deficit is a long run issue, and we should be thinking about it in a longer run context, he said. The short-term cuts made to defense spending under sequestration probably created long-term costs in terms of preparedness and cancelling systems that were midway in development, he said. This had a negative effect on the overall economy, which at the time was struggling to recover after the recession.
"In the end, in thinking about the size of the military and our resource expenditures, we need to think about our foreign policy goals, the threats we might faces, the capacities we need to develop, and ultimately, of course, the long-term budget constraints that we do face," Bernanke said. "Generally speaking, I think it's best to keep the military preparedness goals as separate from short-term political considerations."
Mark Muro, a senior fellow at Brookings who specializes in advanced industries and regional innovation systems, said defense expenditures have served as a "stealth industrial policy" for the US economy.
"For better or for worse," but on balance helpful, "the defense budget has turned out to be the only place that one could argue for and deliver certain kind of useful kinds of useful economic and industry innovation," Muro said. "In that sense, since World War II, this has arguably been the nation's steadiest and most creative supporter of technological progress."