Jobs Plan? End the Wars, Save 400,000 Jobs

President Obama is preparing to deliver a major address to a joint session of Congress on Thursday, outlining his plans for spending and tax cuts to create jobs.

Here's a plan that would likely save at least 400,000 jobs over the next ten years, without increasing the deficit or raising a dollar of additional revenue: bring the troops home from Iraq and Afghanistan as previously scheduled, and use the savings to reduce the debt in place of proposed cuts to Social Security and Medicare benefits – or other cuts in domestic spending.

The total savings to the federal budget of using the chained Consumer Price Index (CPI) as a measure of inflation (including cuts in Social Security benefits) and raising the Medicare retirement age appear to be on the order of $200 billion over 2012-2021. This proposal was a key feature of the deal that President Obama and Speaker Boehner agreed to in the debt ceiling negotiations. The deal collapsed, because Speaker Boehner could not deliver the House on the deal, since it also included revenue increases. Judging from press reports, the president and others would like to revive this deal. So – unfortunately, from the point of view of the values and interests of the overwhelming majority of Americans – this proposal appears to still be on the table.

As good fortune would have it, $200 billion is a conservative estimate of the savings to the federal budget from 2012-2021 of withdrawing all US troops from Iraq this December (as previously agreed) and withdrawing all US troops from Afghanistan after 2014 (as previously announced.) It's a conservative estimate for at least three reasons: because it assumes that the Pentagon's plan is to keep 25,000 troops in Afghanistan after 2014, which is towards the low end of the estimates that have appeared in press reports; because it uses the current average cost of keeping troops in Afghanistan and Iraq, and the average cost is likely to be higher when troop levels are lower; and because it is only based on current appropriations, not future implied costs of current action, like veterans' health care.

In addition to the direct benefit to the overwhelming majority of Americans of protecting Social Security and Medicare benefits from any cuts, taking the money from the military rather than Social Security and Medicare would have the effect of protecting US employment, since spending money in the domestic economy creates more US employment than military spending in general and war spending in particular.

Here is a rough estimate of the effect this proposal would have on saving jobs.

In a 2007 paper, Robert Pollin and Heidi Garrett-Peltier of the University of Massachusetts estimated the impact of an additional billion dollars in military spending on employment compared to other uses, using a standard input-output model of the US economy.

They found that an additional billion dollars in military spending would create 8,555 jobs. In contrast, an additional billion in tax cuts for personal consumption would create 10,779 jobs. Other categories of federal spending examined – education, health, mass transit – created more jobs than tax cuts for personal consumption. (See table 1, page 6.)

Thus, the net effect of moving one billion dollars from the domestic economy to military spending would be to destroy at least 2,224 jobs; moving $200 billion from the domestic economy to military spending would destroy at least 444,800 jobs. Conversely, saving $200 billion by ending the wars as previously scheduled, rather than saving it from the federal budget by using the chained CPI and raising the Medicare retirement age, would save more than 400,000 jobs.

What does saving 444,800 jobs mean in the context of the US economy? The US labor force is about 150 million people, so 400,000 jobs represents about 0.3 percent of the labor force. If those jobs were added to the economy today, the measured unemployment rate, instead of being 9.1 percent, would be 8.8 percent. Not at all where we want to be, obviously, but still a significant improvement – for hundreds of thousands of people – from where we are now.

Of course, there are much more savings to be had by cutting the military budget. We could draw troops down in Afghanistan between now and 2015 faster than the Pentagon wants. Every year we have 25,000 fewer troops in Afghanistan, we save more than $17 billion. As David Ignatius notes in The Washington Post, according to the analysts of the CIA, we're currently spending $100 billion a year in Afghanistan for “stalemate.”

And then there is the question of cutting the “base,” nonwar, Pentagon budget. Under the automatic trigger, currently projected Pentagon spending would be cut by roughly $600 billion over ten years, in addition to the $350 billion reduction that the administration and press reports say was implied by the previous debt reduction agreement. Pentagon chief Leon Panetta has said this additional reduction in projected Pentagon spending would be unacceptable and the money should come from “entitlements” – the Social Security and Medicare benefits we have already paid for through our payroll taxes – instead.

But if taking $200 billion out of the military instead of domestic spending would save 444,800 jobs, then taking $600 billion out of the military instead of domestic spending would save 1,334,400 jobs. If you added 1,334,400 jobs to the economy today, the unemployment rate would be 8.2 percent, rather than 9.1 percent. If we end the wars as scheduled and cut projected Pentagon spending by an additional $600 billion, instead of taking money out of the domestic economy, that would save 1,779,200 jobs, an effect akin to reducing the unemployment rate today from 9.1 percent to 7.9 percent.

Ending the wars and cutting the base military budget by $600 billion will not by itself solve our unemployment problem. But failing to end the wars and failing to cut the base military budget and cutting domestic spending instead, will, so long as we have an unemployment problem, make our unemployment problem significantly worse; and ending the wars and cutting the base Pentagon budget will have the effect of significantly lowering unemployment relative to taking cuts from the domestic economy.

Here's another way of looking at the stimulus effects of moving money from the military to the domestic budget. If you find a billion dollars lying on the sidewalk, you can use that to create 10,779 jobs through tax cuts for personal consumption, the least efficient means of creating jobs besides military spending. If you move a billion dollars from military spending to domestic spending, you create 2,224 jobs. Thus, every time you move a billion dollars from the military budget to domestic spending it's as if you found $206 million lying on the sidewalk to use for economic stimulus. If you move $800 billion to the domestic economy by ending the wars and cutting projected Pentagon spending it's as if you found $165 billion lying on the sidewalk to use for economic stimulus.

You can urge Congress to end the wars as part of the deal to reduce the nation's debt here.