Former Federal Reserve Chairman Ben Bernanke on Monday gave a word of advice to lawmakers who might try to reduce the U.S. deficit through deep cuts to the defense budget: Don’t.
“I think it was wrong, it was a mistake that during sequestration … there were these steps taken to correct the deficit in the very short run that probably had long run costs in terms of preparedness, in terms of canceling systems,” he said during an event at the Brookings Institute on the economic effects of defense spending. “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 medium 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 and costly implications for our defense posture, just for deficit reasons,” he added. “The deficit is a longer run issue, and we should be thinking about it in a longer run context.”
He noted that the Congressional Budget Office projects that the deficit will remain flat throughout the next decade and then increase because of the rising cost of Medicare and Medicaid.
Throughout the discussion, Bernanke gave mostly tepid responses about Defense Department spending’s effect on the broader U.S. economy. Since 2010, budget cuts and the drawdown from Iraq and Afghanistan have had a mildly adverse effect on the gross domestic product—but only a decrease of about 0.4 percent, he said.
Research and development (R&D) is one area where the private sector sees a great return on Pentagon investments, he said.
“Every dollar of extra military R&D not only does not displace a dollar of private sector R&D, it probably adds 20 or 30 cents of extra private sector R&D because of the things that are learned in the military applications,” he said.
Bernanke said the federal government has the greatest incentive to subsidize basic scientific research, which can have “tremendous economic returns” but may not yield technologies that are immediately profitable for companies. He pointed to the study of laser technologies, much of which was pioneered through Pentagon funds, spread to the commercial sector and now is found in barcodes, DVD players and laser eye surgery.
However, he cautioned that defense spending cannot be counted on to trickle through all parts of the economy and does not always result in improvements to the private sector. For instance, manufacturing in the United States has shifted from a large industry that could provide many jobs to low skilled workers into a smaller one in which highly-skilled workers build specialized equipment and products.
Defense manufacturing can support some of those skilled laborers who can build complex platforms like aircraft carriers and munitions, but it “is not going to take us back to the world of the 1950s where you have assembly lines with hundreds of workers building a car,” Bernanke said.
Additionally, studies have shown that military experience doesn’t always provide the kind of experience needed in the private sector, he said. “If you go into the military at age 18 versus an identical person who stays in the private sector…10 years later, if you leave the military, your skills and wages aren’t probably going to be quite as high, on average.”