Mitt Romney and Paul Ryan want to cut domestic spending in order to increase military spending. Regardless of whatever else may be true – that is, regardless of whether you think more military spending is otherwise a good idea, or how you feel about the public services that would be axed by greater domestic cuts – their plans to cut domestic spending in order to increase military spending would cost hundreds of thousands of American jobs.
How many jobs? A plausible estimate is that their plans to cut domestic spending in order to increase military spending would cost at least 530,000 jobs.
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What does 530,000 jobs mean in the context of the US economy? According to the Bureau of Labor Statistics, there are currently about 12.8 million unemployed out of a labor force of about 155 million, for a measured unemployment rate of 8.3 percent. If an additional 500,000 people were employed today, there would be 12.3 million unemployed and the unemployment rate would be 8 percent.
By comparison, in September 2011, economist Mark Zandi of Moody’s Analytics estimated that if two stimulus measures were allowed to expire at the end of 2011 – the 2 percent employee payroll tax holiday and the emergency unemployment insurance program – that would cost 750,000 jobs in 2012. As you may recall, there was a huge fight about whether those two stimulus measures should be allowed to expire. The job loss from replacing military cuts with domestic cuts is roughly of the same order of magnitude. If it was worth fighting about saving those 750,000 jobs by extending the stimulus, then it’s worth fighting about saving 530,000 jobs by not replacing military cuts with domestic cuts.
But there’s a crucial difference between the two measures: saving those 750,000 jobs by extending the stimulus cost the government real money, $160 billion. Whereas, saving 530,000 jobs by not replacing military cuts with domestic cuts is absolutely free. It doesn’t cost the government a single dollar.
Replacing military cuts with domestic cuts costs jobs because domestic spending is more efficient than military spending at creating jobs. Because this is true, military spending can’t create jobs if the money is taken from domestic spending to pay for it. If the money is taken from domestic spending to pay for it, then military spending actually has the net effect of destroying jobs – the diversion of resources destroys more jobs than the military spending creates.
How many jobs? The Economic Policy Institute (EPI) has estimated that the Ryan budget, by making $404 billion in domestic cuts by 2014, would destroy 4.1 million jobs through 2014.
Under the sequester established by the Budget Control Act, cuts are supposed to be split 50/50 between the military budget and the domestic budget. But in the Ryan budget, no cuts come from the military budget; all cuts come from the domestic budget.
Suppose we are allowed to alter the Ryan budget in just one way: by restoring the principle that for every dollar of domestic cuts, there should be at least one dollar of military cuts. How would that change the job loss from the Ryan budget?
The answer is that it would reduce the job loss from the Ryan budget by at least 12.9 percent. Instead of losing 4.1 million jobs due to the Ryan budget, we’d lose only 3.57 million jobs, thereby saving 530,000 jobs.
The 12.9 percent figure derives from a December 2011 paper by Robert Pollin and Heidi Garrett-Peltier of the Political Economy Research Institute at the University of Massachusetts-Amherst, which used standard means of estimating the impacts of spending on the US economy. Pollin and Garrett-Peltier found that spending an additional billion dollars on the military creates 11,200 jobs. Every method they looked at for spending an additional billion dollars in the domestic economy created more jobs. The least job-creation-efficient of these – tax cuts to promote personal consumption – would create 15,100 jobs. If tax cuts to promote personal consumption are the least efficient form of domestic spending from the point of view of job creation, then it follows that every time you move a billion dollars from domestic spending to the military budget, you destroy at least 3,900 jobs. Conversely, every time you block a move to transfer a billion dollars from the domestic spending to the military budget, you save at least 3,900 jobs. Given a certain amount of job loss from domestic cuts, you reduce the job loss by at least 3,900/15,100 = 25.8 percent by replacing all the domestic cuts with military cuts. If you only replace half the domestic cuts with military cuts, then you reduce the job loss by 12.9 percent. Thus, restoring to the Ryan budget the principle of at least one dollar in military cuts for every dollar in domestic cuts would reduce the job loss of the Ryan budget by at least 12.9 percent.
I checked this calculation with Pollin and Garrett-Peltier and they agree: 12.9 percent is a lower bound for how much you reduce job loss when you replace half the domestic cuts in the Ryan budget with military cuts.
Indeed, Garrett-Peltier wrote back with another path to the same result:
$404 billion in cuts yields 4.1 million jobs lost, according to EPI
$404 billion in cuts yields 4.52 million jobs lost using PERI’s military multiplier of 11,200 jobs/$1B
$404 billion in cuts yields 6.10 million jobs lost using PERI’s tax cuts for consumption multiplier of 15,100 jobs/$1B (the proxy for “domestic” cuts)
If, instead of the Ryan cuts (all domestic), we used a 50/50 split as Robert [Naiman] suggests, the multiplier would be 13,150 jobs/$1B (average of two categories above)
Then $404 billion yields 5.31 million jobs lost
This is 12.9 percent lower job loss than using the “domestic” multiplier, so it would be accurate to say that restoring the cuts to 50/50 military/domestic would reduce job losses by 12.9 percent as compared to all domestic.
Of course, this is arguably a lower bound, since all of our other domestic multipliers (health, clean energy, infrastructure, education) are higher. So the reduction in job losses would likely be greater than this 12.9 percent.
Again, it should be noted that while 530,000 jobs is 12.9 percent of the overall job loss figure estimated by EPI, there is a crucial distinction. Avoiding the 4.1 million in lost jobs estimated by EPI due to the Ryan plan simply by not doing it and continuing the status quo would cost the government $404 billion. Avoiding 530,000, or 12.9 percent of the Ryan job loss, by keeping the principle of at least one dollar in military cuts for every dollar of domestic cuts would cost the government nothing.
This is especially important to keep in mind because the EPI estimate is measured against a baseline that no one in Washington is advocating as policy: the budget projections of the Congressional Budget Office (CBO). It’s a standard baseline for analysis and the CBO is mandated by law to assume as a baseline that mandatory spending will continue according to current law and that discretionary spending – both domestic and military – will grow by 2 percent a year, to take account of inflation. But no one in Washington is proposing as their ten-year plan that discretionary spending grow by 2 percent a year, and Ryan’s proposed cuts to Medicare spending are copied from Obama. Everyone is proposing to cut compared to the CBO baseline. That means, almost surely, that at least some of the job loss attributed by EPI to Ryan is misleading, in the sense that Obama and everyone else are also proposing to cut spending from the CBO baseline and therefore are also proposing to destroy jobs compared to the CBO baseline. Not cutting any spending compared to the CBO baseline and therefore not destroying any jobs is not on the menu in the restaurant.
So, in practical terms, the question, at least in terms of job destruction, is not, whose plan for cutting spending will destroy jobs – every plan for cutting spending will destroy jobs – but whose plan for cutting spending will destroy the most jobs and whose plan for cutting spending will destroy the least jobs.
And, therefore, while restoring the principle of at least one dollar in military cuts for every dollar of domestic cuts would remove 12.9 percent of the EPI-estimated job loss compared to the CBO baseline, it’s likely to be a greater share of the Ryan increase in job loss compared to any currently politically plausible Democratic plan for cuts.
In “The Five Reasons Why the Ryan-Romney Economic Plan Would Be A Disaster for America,” economist and former Secretary of Labor Robert Reich notes:
FOURTH: He wants to add money to defense while cutting spending on education, infrastructure and basic research and development. America already spends more on defense than the next five biggest military spenders put together. Our future productivity depends on the public investments Ryan wants to cut.
But unfortunately, Reich doesn’t give us any numbers to give us a sense of the relative impact of this component of Ryan’s plan.
There’s been a flurry of activity around the job losses of the Ryan plan, but until now few have said boo about the job losses of the Ryan plan attributable to replacing military cuts with domestic cuts, and until now no one – as far as I am aware – has tried to put a number to it. Let this be the first salvo. Progressive and liberal economists should get on the case. Explain to America how replacing military cuts with domestic cuts is going to cost America jobs and put a number to it, so Americans can get a sense of the scale of the impact.