By Skylar Shafer
Problem and Background:
This paper seeks to address two separate circumstances simultaneously. First, U.S military spending is distinctively higher than NATO averages. Second, impending economic damage from well-documented climate change and a lack of infrastructural investment.
The U.S spent 3.42% of its GDP in 2019 on defense, according to the World Bank.(2020) The highest percentage for a western-European nation was Great Britain, with 2.14%. (World Bank 2020) Most of the United States’ NATO allies spend roughly 2% or less. In 2019, had the U.S spent 2%, the U.S military budget would have been 428 Billion USD, rather than over 731 Billion USD.
According to the World Bank, in 2019, China spent 1.9% of its GDP on the military, and Russia spent 3.9%. (2020) This would amount to roughly 272 Billion USD in China, and 66 Billion USD in Russia, considered by many to be the two largest global forces that the U.S should primarily perceive as rivals. We currently spend more than double their budgets combined. To manage our bases overseas, estimates say that we spend between 250 Billion (Dancs & Pemberton 2013) and 160-200 Billion (Vine 2015) in total, with roughly 85-100 Billion on foreign bases not in warzones.
The Cato institute released a report in 2017 entitled Withdrawing from Overseas Bases: Why a Forward‐Deployed Military Posture Is Unnecessary, Outdated, and Dangerous, in which they argue that this overseas network of military bases is outdated and no longer necessary, besides two (of the hundreds currently in use) that could be of circumstantial value. Furthermore, the U.S. Government Accountability Office (GAO) estimated that the DOD lost nearly $11.4 billion in payment errors in 2020.Given this, it seems that the U.S. military may lack the bureaucratic capacity to administer a budget of its current size.
Because of this high-percentage GDP allocation, the military is irregularly large proportional to the U.S economy (as compared to other NATO nations), and so reducing funding could cause a significant amount of damage to employment and, in turn, the economy as a whole, an issue we will address later in this paper. According to the Council on Foreign Relations, the military has 1.3 Million active duty personnel. (2020)
Likewise, climate change has become a source of immediate significant economic damage, with the degree of impact almost certainly growing in the years to come. The UN, in their Adaptation Gap Report for 2020, has projected that by the end of the decade, global economic damage from climate change per year will be between roughly 140 Billion and 300 Billion USD, going up to between 280 and 500 Billion USD per year by 2050 (UN 2020, 14).
The degradation of U.S infrastructure is another key issue that must be addressed. In 2021, the American Society of Civil Engineers released a report card on the state of U.S infrastructure, giving it a C- rating. In it’s report, the ASCE estimated that 2.59 Trillion USD more would have to be invested in the next 10 years, compared to what is currently projected to be invested, in order to leave the country’s infrastructure in “a state of good repair”. The report estimates that ignoring this investment would cost the U.S roughly 3,300 USD per year per household.
If we accept that our military is over-funded in comparison to both our allies and our potential adversarial nations, surely we can then agree that re-allocating capital away from the military would provide better value to our citizens. Furthermore, if we accept that climate change poses a high economic risk to our society, and American infrastructure is suffering from a lack of care, we can agree that investing in both is for the betterment of the American public.
I will attempt to address these problems in a way in which return on investment for the American people is increased, while also minimizing the economic damage of re-allocating significant capital between industries.
Recommendation 1: Gradual Military Spending Cuts
Firstly, I propose a decrease of the military budget by roughly 16 Billion USD per year for the next 5 years, 80 Billion USD in total, with reallocation of these funds into environmental projects (40%) and infrastructural projects (60%). This reallocation would decrease the proportion of GDP allocated to the military from roughly 3.4% to 3%. This funding change will preferably be derived from reducing the presence of global military bases operated by the U.S.
Recommendation 2: Increase Environmental Contracts
Secondly, I propose employing the contract workforce more extensively, and significantly increasing funding from the cuts to the military, in order to start an American equivalent of the German Energiewende, in pursuit of clean energy. This has been advocated for by the GAO in their report Actions Needed to Ensure DOD Considers Climate Risks to Contractors as Part of Acquisition, Supply, and Risk Assessment. (2021) The government will pursue clean energy goals with the 40% directed towards environmental projects in tandem with contractors, integrating clean energy into our infrastructure. The other 60% will prioritize investment in other forms of infrastructure such as roads and bridges, and will also feature extensive usage of contractors.
Recommendation 3: Privileged Bids for Defense Contractors
Thirdly, I propose that these environmental and infrastructural contracts be given a transition period in the first three years, in which private contractors that depended on these funds while they were still allocated to the military have the right to submit bids before any new competition can enter, hopefully mitigating a degree of the economic damage this reallocation would cause. These bids will be privileged in favor of former Defense contractors, in an act of compromise and good faith that will allow them to adapt to new market conditions.
Recommendation 4: Guaranteed GI Benefits
Fourthly, in order to re-train veterans discharged due to this budget decrease and increase their value in working with these contractors, those discharged for this reason will be given access to post-9/11 GI Bill rates, effectively covering tuition at a four-year or two-year public university, if they wish to do so.
In addition, a large majority of U.S soldiers that are discharged due to downsizing because of the military budget decrease will be prioritized in hiring for both the private contractors that are awarded and complete these contracts or with the government in its completion of other environmental projects that also utilize funds from this reallocation. This will be done via a contract stipulation that dictates that any contractor who receives a contract must have a workforce made up of at least 10% veterans. This number is subject to change depending on the number of discharges the military puts into action due to the budget decrease. Veterans Affairs will be asked to collect data on the career choices of veterans (in terms of industry desires, re-education or not, etc.), and this data will be used to determine the exact percent requirement chosen. Furthermore, it will be subject to yearly change, particularly as those who chose to attend college graduate, the percentage necessary will rise. This percent will generally be targeted to hire at least 85% of those who are discharged and want to work in the industry, hopefully more. The government will also prioritize hiring for its work on these environmental projects towards those discharged, with the goal of hiring the remaining veterans who choose to pursue work in this new industry. Overall, the goal of this particular policy course is to provide discharged veterans with priority employment, if they choose to pursue work in this industry. In turn, they are incentivized to pursue work in this industry due to its likely guarantee, which will speed up the process of labor skill adjustment to fit the needs of the market. This lessens transitory economic damages.
Next, I will go more in-depth into why I think this solution is ideal, and the details of its enactment.
This kind of solution is optimal because it allows for reallocation of investment into projects that better benefit the American people in the long-run while mitigating the damage of reallocation through transition programs for soldiers and contract firms. Rather than spending our capital on missiles and maintaining overseas military bases, we would instead invest in our own country, creating jobs while doing so. By mitigating some of the effects of climate change, we will better protect our citizens and our economy.
This transition program is good for the economy in terms of its effect on firms because it prevents some of the frictional damages associated with reallocation. Firms that would normally face huge revenue shortfalls have the opportunity to maintain their size through having an advantageous position in competing for the contracts during the transitory period. In turn, you reduce the likelihood of mass lay-offs associated with this loss in revenue, and so you reduce transitory unemployment and in turn, reduce frictional economic damage.
This same principle also applies to the hiring requirements surrounding discharged military members. By providing guaranteed work opportunities for a large majority of those discharged, we can reduce transitory unemployment and frictional economic damage that occurs from their discharge from the military. This is also a program with which we can provide a long-term career for many of our veterans, as a thank you for their service.
All of this being said, there will certainly still be short-run economic costs derived from the process of reallocating funding, but these regulations of the process will decrease the severity of these transitory costs. Demand may suffer in the short-run, as discharged veterans experience frictional unemployment before gradually progressing into their new careers. Military contractors will suffer temporary decreases in revenue before transitioning a portion of their capital to competing for environmental contracts. In the long-run, the American people will benefit from this transition, investing in improving our own infrastructure and avoiding environmental damage, rather than overseas military bases and weaponry, and the policy course devised in this paper will decrease transitory costs.
Another key detail of this particular situation that makes this transitory system beneficial is that these military contractors represent the forefront of the application of emerging technology in their work for the DOD. Putting these highly-innovative companies to work changing how we react to pollution, environmental degradation and failing infrastructure, rather than solely military assets, will enable us to foster innovation in addressing these issues better than the government alone could, or traditional infrastructural contractors.
The government, by utilizing contractual work, will experience an increase in efficiency, while still being able to provide oversight. As an example, a contractor pursuing a preventative project could be incentivized to not properly create infrastructure that fights climate change, in the hope that they can later generate more revenue from contracts that have the purpose of attempting to mitigate the environmental issue they were supposed to fully prevent. In order to avoid these potential incentives, the government will provide oversight over contractors. Thus, increased efficiency is experienced through the use of competitive contractors, and yet oversight is still available to prevent potential conflicts of interest or corruption.
A worthy question is, given the relative severity of the projected environmental economic damage and infrastructural decay, as well as the overfunding of our military, why does this memo only suggest re-allocating 80 Billion USD? Firstly, by the end of this transition period, 80 Billion USD per year of the federal budget will be reallocated, which cumulatively, over a decade of this level, reaches nearly a trillion dollars in funding (800 Billion).
These allocation numbers are not optimized, in terms of comparing diplomatic risk and necessary military funding to environmental damage and lost profit due to infrastructural depreciation. Instead, this memo intends to point the reader in a general policy direction that could be beneficial to the American economy in the long term. This paper’s purpose is to outline a potential course of action that could gradually re-allocate debatably unnecessary military funds in a way that promotes long-term return on investment for the American economy while reducing the damage of the transition.
Furthermore, this policy plan is numerically conservative considering the data offered because I believe this level is far more likely to legislatively pass in Congress. This initial passing could open the door for additional reallocation of military funds in the same manner at a later date, given its relative success, or funds could be reallocated to environmental/infrastructure projects from other sources. This level of funding, I believe, is a good pilot program for either option to be reviewed at a later date.
Lastly, I believe, in this period of innovation and rapid market transition unlike any other in human history, that transitory policies like those mentioned in this paper that provides transitionary regulations/retraining given a rapid market transformation (in this case caused by government re-allocation, but generally from any source) in order to protect laborers, could be beneficial in commonplace usage in order to protect the economy from transitionary damages in re-allocation. Under certain circumstances, such as the situation that is the subject of this paper, transitionary regulations to firms may be beneficial, as well. By forming a solid, low-cost retraining system (utilizing the college system, potentially with specialized certifications or more comprehensive online degree offerings) we enable the labor market to more rapidly adapt to changing market conditions.
A prime example of where this policy type could simultaneously be enacted for labor transition is the switch from fossil fuels to clean energy, allocating funds away from fossil fuel subsidies, rather than away from the military. As fossil firms are certainly not inherently adapted as well as to the transition of work as well as contractors are in this paper’s subject, I would argue that in that case, the transitory policy should apply only for labor, and not for firms. The fossil fuel to clean energy case is based not entirely on the re-allocation of government funds but partially on a free market transition as well, making it different from the case this paper describes. Furthermore, the full transition to clean energy will take significantly longer than this sudden reallocation over five years, and so the market has a superior period of time to react in the fossil fuels case, with new firms emerging. Therefore, labor retraining or work guaranteeing is the primary concern in a clean-energy case.
In terms of supplying retraining in this hypothetical fossil-fuel labor case, wherein labor does not have inherent access to a degree of funding for re-education as veterans do to GI-Bill tuition rates, a few potential courses of action could be of use. Investing in a fluid reeducation system based on improved online programs and/or certifications that act as an add-on to undergraduate degrees, without having to complete an entirely new degree program, could be key. This allows labor to pivot the knowledge and skills they already possess and add new knowledge that is demanded in the workforce without having to spend four years going back through the entire higher education process. Furthermore, in the online case, those who have never received a degree in higher education have the opportunity to do so in a way that can be made cheaper and more accessible.
Again, this paper has been created primarily to act as a blueprint for transition programs surrounding large reallocations of capital in order to lessen economic damage. This model could be useful in a variety of instances, as we see rapid market transformation and changing societal needs on a scale never seen before in human history.
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