Defense Spending and the Civilian Economy

This Note describes the circumstances in which defense spending might generate economic gains or losses that are not reflected in defense budgets. The author generates a kind of checklist for analysts trying to assess the nonmilitary consequences of defense spending — a list of generic situations in which the social costs and benefits of defense spending may be larger or smaller than the defense budget suggests. The Note presents a general framework for thinking about how defense spending may affect the civilian economy; describes some specific circumstances in which defense spending may have beneficial consequences for the civilian economy; details some frequently alleged benefits of defense spending that are difficult to credit; and considers circumstances in which defense spending may harm the civilian economy, circumstances in which the social costs of defense spending are likely to exceed the budgetary costs. Finally, it considers how defense spending may or may not be different from other types of government spending in its effects on the civilian economy and identifies circumstances in which defense spending may generate benefits for the civilian economy.