Military keynesians: when it comes to defense, Republicans think government spending boosts the economy.

• Author: de Rugy, Veronique

IN SEPTEMBER, Mitt Romney launched a series of Tv commercials promising to protect and create jobs by preventing the military spending cuts mandated in a bipartisan 2011 deficit reduction agreement. "Here in Virginia," one ad says, "we're not better off under President Obama. His defense cuts threaten over 130,000 jobs--lowering home values, putting families at risk."

It's an article of faith among modern Democrats that employment and the overall economy depend on government spending. Although Republicans supposedly reject that premise, they make an exception in the case of military spending.

George Mason University analyst Stephen Fuller gave the Republican argument a boost with an October 2011 study commissioned by the Aerospace Industries Association. Fuller concluded that the scheduled $45 billion cut in military procurement for fiscal year 2013 would reduce GDP by $86 billion that year and eliminate more than 1 million jobs. Virginia and California each would stand to lose more than 100,000 jobs, he estimated.

It is difficult to overstate the impact that Fuller's predictions had on the defense industry. But his analysis is deeply flawed, a fact that has been conveniently ignored by opportunistic politicians and journalists in search of the next economic scare story.

The most critical mistake in Fuller's analysis is his claim that when the government cuts defense spending by $1, the economy will shrink by $1.92--and vice versa when spending increases. The reality is that economists have been debating returns on government spending for years without reaching anything like a consensus. Some studies find large positive multipliers (every dollar in federal spending means more than a dollar of economic growth), but others find negative multipliers (every federal dollar spent hurts the economy).

The multiplier Fuller uses depends on data taken from historical situations or model assumptions that do not resemble our own. For instance, we are not currently engaged in an all-consuming war effort (as we were during World War II), we are not technically in a recession (as we were two years ago), and our unemployment rates are high, but not as high as they have been during other times. In theory, high unemployment rates make government spending more potent since it allows the use of resources that would otherwise be idle. Basically, the idea is that government spending will be used to hire workers who would otherwise be unemployed.

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