Wednesday, December 24, 2008

Martin Feldstein: Billions for Defense

Marty Feldstein, chairman of the Council of Economic Advisers under President Reagan, professor at Harvard and a member of The Wall Street Journal's board of contributors, is Keynesian to his core.

He needs to get a little more hip. Even his fellow Harvard colleague, Greg Mankiw, has thrown Keynes under the bus.

Feldstein in today's WSJ writes:
A temporary rise in DOD spending on supplies, equipment and manpower should be a significant part of that increase in overall government outlays...The increase in government spending needs to be a short-term surge with greater outlays in 2009 and 2010 but then tailing off sharply in 2011 when the economy should be almost back to its prerecession level of activity. Buying military supplies and equipment, including a variety of off-the-shelf dual use items, can easily fit this surge pattern.

For the military, the increased spending will require an expanded supplemental budget for 2009 and an increased budget for 2010. A 10% increase in defense outlays for procurement and for research would contribute about $20 billion a year to the overall stimulus budget. A 5% rise in spending on operations and maintenance would add an additional $10 billion. That spending could create about 300,000 additional jobs. And raising the military's annual recruitment goal by 15% would provide jobs for an additional 30,000 young men and women in the first year.
Of course, in typical Keynesian fashion, Feldstein only looks at half the equation, and not for a minute does he discuss where the money for this spending is to come from, what jobs will be lossed becasue of the transfer of wealth, what inflation may be created if the spending is financed by Federal Reserve money printing.

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