Research: Publications

Minimum Returns: The Economic Impacts of Pentagon Spending

February 7, 2013 | Report

By William D. Hartung, Natalie Peterson

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Over the past two years, Pentagon contractors have financed a series of studies that have made exaggerated claims about the economic impacts of reductions in Pentagon spending.  This report refutes a number of the key findings of those industry-backed reports, which have been extensively promoted in an effort to influence politicians and the media in Washington and around the country.  Specifically, this analysis looks at the impacts of Pentagon contracting for weapons, supplies and services.

Claim #1: Weapons contractors face dire consequences if the Pentagon budget is cut significantly.

Fact: Contractors will be cushioned from the impacts of cuts due to their large backlogs and Pentagon spending already in the pipeline.

  • Major contractors like Lockheed Martin, General Dynamics and Northrop Grumman have backlogs of tens of billions of dollars – the equivalent of two to three years’ revenue.
  • The Pentagon has over $100 billion in unobligated funds that will translate into contract awards over the next few years, providing an additional cushion against budget cuts for Pentagon contractors.
  • Pentagon contract awards have more than doubled since 2001, from $145 billion per year then to over $373 billion per year now.

Claim #2: If the Pentagon budget is significantly reduced, up to 1 million jobs could be lost.

Fact: Independent analyses show that the industry’s jobs claims are grossly distorted. The number of jobs displaced in the event of significant Pentagon spending cuts will be between 290,000 and 500,000, meaning that industry-backed claims are exaggerated by double or triple.

  • Pentagon spending is an especially poor job creator, creating fewer jobs than virtually any other use of the same money, from a tax cut to investments in infrastructure to spending on education.
  • If Pentagon spending is preserved at the expense of tax cuts, infrastructure, education or other public investments it will result in a net loss of jobs nationwide.
  • An analysis based on independent studies from the Cato Institute and the University of Massachusetts demonstrates that the number of jobs displaced in the event of significant Pentagon spending cuts will be just one-third to one-half the levels claimed by industry-backed studies.

Claim #3: Most states face substantial economic impacts from Pentagon spending cuts.

Fact: Pentagon contracts are concentrated in a small number of states.

  • Three states – Virginia ($36.9 billion), California ($36.2 billion), and Texas ($28.4 billion) – account for more than one-third of Pentagon contract awards. And for two of these states – California and Texas – the importance of Pentagon contracting is significantly reduced by the sheer size and diversity of their economies.  The top ten states account for 60% of all Pentagon contracting.
  • Thirty states have Pentagon prime contract awards that are less than 2% of their state GDP – if evenly distributed across states, even a 10% cut in Pentagon spending would have a direct impact of only one-fifth of one percent of the economic activity in these areas.
  • Even in the states that are most dependent on Pentagon contracts, a forward looking economic strategy that marshals local resources now engaged in weapons production to build new industries and expand existing ones can replace or exceed the numbers of jobs displaced by cuts in Pentagon spending.

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