Social Security Spending Helps the Economy

Military spending drives the deficit

I could have sworn that my 28th letter to the Washington Post, which follows here, would be the second one that they would publish. Alas, I was wrong, again, but it is the content that matters, not the quarrel. The letter focuses, once more, on how unhelpful it is to talk about the national debt and federal budget deficit without even acknowledging military spending. Dean Baker, of the Center for Economic and Policy Research (CEPR), also addressed the same opinion piece to which I'd responded. I've interspersed Baker's response, which ran in his weekly Beat the Press blog, in the text of my letter.

Editor,

So Robert Samuelson is calling on the Obama administration to be more open about future debt and deficit difficulties (“America’s Candor Gap,” Feb. 8), but his version of fiscal reality lacks some important details, as well. The federal government is projected to spend almost $46 trillion between 2011 and 2020, Samuelson writes, and $20 trillion will go to Social Security, Medicare and Medicaid. Such a “…budget is mainly a vehicle for transferring income to retirees from workers, who pay most taxes,” he continues.

But as income transfers go, Samuelson’s example is relatively benign. Most of the transfer in this instance is from younger workers to older ones and most of the money transferred is spent immediately on goods and services—a reliable exchange that helps to keep the economy going. And, as economist Dean Baker and others have pointed out (see a list of CEPR's many reports about Social Security here), if the cap on Social Security and Medicare taxes is raised, higher income professionals will bear more of the tax burden, making the income transfer even more positive for the economy.

But there is a less benign income transfer that Samuelson does not even mention: military spending of more than $1 trillion annually (the sum of Defense Department spending + national security spending + military spending in other departmental budgets + supplemental war spending + interest on that portion of the national debt attributable to deficit spending on the military in previous years). In fact, 25 percent of the six to eight trillion dollars that will be spent on interest on the national debt during 2011-2020 will be attributable to previous military spending.

Discussing the country’s fiscal hemorrhage without discussing the military budget falls far short of full disclosure.

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Readers of this blog may find Dean Baker's report, "The Social Security Shortfall and the National Defense Shortfall" of particular interest.

Baker's response to the same column by Samuelson is here. More about the rise in Pentagon spending compared to the increase in spending for Social Security is here. Finally, it is worth noting that, in the last cited piece, Baker does not use the $1 trillion+ figure for military spending that I use because he includes only budgeted spending for the Department of Defense and does not include the additional spending itemized in my letter to the Post.