The Job Loss from Reducing Greenhouse Gas Emissions and the Job Loss from Defense Spending

There is a major national ad campaign, funded by the oil industry and other usual suspects, to convince the public that measures to reduce greenhouse gas emissions (GHG) and slow global warming will result in massive job loss. This ad campaign warns of slower growth and the loss of hundreds of thousands of jobs, possibly even millions of jobs, if some variation of the current proposals being debated by Congress get passed into law.

In fact, standard economic models do show that measures designed to reduce GHG by raising energy prices will lead to some cost in terms of slower economic growth. And slower economic growth implies fewer jobs, although the impact will almost certainly be less than indicated in these scare stories.

However, the oil industry's scare stories about job loss never put it in any context. In these models, any government measure that interferes with market outcomes almost by definition reduces efficiency, leading to less economic growth and fewer jobs. Efforts to slow global warming fall in this category, but so does almost everything else, and many items in the everything else category have a much larger impact.

For example, defense spending means that the government is pulling away resources from the uses determined by the market and instead using them to buy weapons and supplies and to pay for soldiers and other military personnel. In standard economic models, defense spending is a direct drain on the economy, reducing efficiency, slowing growth and costing jobs.

A few years ago, the Center for Economic and Policy Research commissioned Global Insight, one of the leading economic modeling firms, to project the impact of a sustained increase in defense spending equal to 1.0 percentage point of GDP. This was roughly equal to the cost of the Iraq war.

Global Insight's model projected that after 20 years the economy would be about 0.6 percentage points smaller as a result of the additional defense spending. Slower growth would imply a loss of almost 700,000 jobs compared to a situation in which defense spending had not been increased. Construction and manufacturing were especially big job losers in the projections, losing 210,000 and 90,000 jobs, respectively.

The scenario we asked Global Insight to model turned out to have vastly underestimated the increase in defense spending associated with current policy. In the most recent quarter, defense spending was equal to 5.6 percent of GDP. By comparison, before the 9/11 attacks, the Congressional Budget Office projected that defense spending in 2009 would be equal to just 2.4 percent of GDP. Our post-9/11 build-up was equal to 3.2 percentage points of GDP compared to the pre-attack baseline. This means that the Global Insight projections of job loss are far too low.

The impact of higher spending will not be directly proportionate in these economic models. In fact, it should be somewhat more than proportionate, but if we just multiple the Global Insight projections by three, we would get that the long-term impact of our increased defense spending will be a reduction in GDP of 1.8 percentage points. This would correspond to roughly $250 billion in the current economy, or about $800 in lost output for every person in the country.

The projected job loss from this increase in defense spending would be close to two million. In other words, the standard economic models that project job loss from efforts to stem global warming also project that the increase in defense spending since 2000 will cost the economy close to two million jobs in the long run.

For some reason, no one has chosen to highlight the job loss associated with higher defense spending. In fact, the job loss attributable to defense spending has probably never been mentioned in a single news story in the New York Times, Washington Post, National Public Radio, or any other major media outlet. It is difficult to find a good explanation for this omission.

If we want to have a serious discussion of the economic impact of efforts to reduce GHG then the economic impact must be put in context. We know that the oil industry is interested in preserving its profits, not informing voters. However, if the media discuss projections of job loss from efforts to contain global warming without putting them in any context, then the public would be right to question their motives as well.

 

Comments

[TrainSeller]

I think a lot of pundits still see defense spending through the lens of WWII. The increase in demand for war materiel exerted the last massive tug needed to pull the country out of depression. That it succeeded once leads many to believe it will always work. I doubt that is the case any longer.

It's a shame that humanity is more focused on developing new ways of killing people or fabricating justifications for killing others than we are on moving our civilization forward to a more enlightened existence. If we put half the money we've pissed away in Iraq or Afghanistan into developing alternative energy sources here in the U.S., how many new patents would we have in 8 years? How much of the new technology could be exported to other countries to help rectify our trade imbalance?

For those of you more interested in trying to make yourselves look more intelligent or claim some moral high ground by smacking down other peoples' comments, those last two questions were rhetorical ones. I don't pretend to know the answers; I'm just posing the questions.

[DuganS1]

Very high levels of military spending is one big reason that the US economy boomed in the 1950s, 1960s, and early 1970s. This was the era before the entitlement spending began (or became anything more than marginal, as in the late 60s/early 70s).

The cap and trade idea to me doesn't even make sense. The program would attack domestic industries like coal, natural gas, refining, and utiltiy companies; when in reality, the real problem is oil. The bill does virtually nothing to stop the massive drain on the economy from paying for imported oil. In fact, the bill will force refining companies abroad, which means our economy will have to import even more. It just doesn't make sense. Also, the increase in energy prices will hurt low income earners the worst by far, reducing their buying power and standard of living. IMO, what the economy really needs is a move from oil to natural gas vehicles, particularly heavy duty trucks (the Pickens plan). Nat gas is domestically produced and increases in use will result in job creation in drilling and manufacturing. So instead of money leaving the country to foreign countries, it will fuel job growth here. Cap and Trade doesn't do that.

[FoonTheElder]

Military spending has always been one of the worst ways to spend money for the economy. When you spend tax money on a bomb, it sits there producing nothing until it goes off and destroys something, or it is too old and disposed of.

Investment in infrastructure, on the other hand, allows other commerce to move more smoothly and cheaply. It provides the means for other jobs to be completed more efficiently. It has a multiplier effect unlike spending on the military.

[jmadisonftw]

..... spending has always been one of the worst ways to spend money for the economy. When you spend tax money on a ........., it sits there producing nothing until it goes off and destroys something, or it is too old and disposed of.

Sounds eerily similar to many of those sucking on social programs. Don't you agree?

[Ben Dixon]

You are both right, and both wrong. Government spending is part of the economy, most economist make the mistake of trying to act as though the Government is a blackhole, a one way flow of money. The bigger point that is usually missed is that when Government spending leads to deficit spending, that is the most harmful thing that can done to the economy.

[sonofsamphm1c]

There is also an assumption that business as usual is free; that global in of itself will not cause slower economic growth and job loss. This is not much different in naivete than the assumption that our sophisticated financial markets could persevere throughout a subprime foreclosure tsunami.

Global warming will eventually begin to take a severe toll on the economy.