Can we cut the military budget without harming innovation?

at 02:37 PM ET, 01/07/2012


Defense Secretary Leon Panetta (center) listens as President Obama delivers remarks on the Defense Strategic Review at the Pentagon on Friday. (JIM WATSON - AFP/GETTY IMAGES)
There’s an argument health reformers occasionally face that goes something like this: Sure, America way overspends on health care. But that overspending ultimately encourages medical innovations of incalculable value. Sharp cuts to health-care spending could lead us to lose out on those innovations.

I thought of that argument while reading Binya Appelbaum’s article warning that cutting the defense budget could kill off the military’s historical role as a driver of consumer-friendly innovations. The chain of reasoning goes something like this: We funnel huge amounts of money to the military; some of that money goes to R&D; some of that R&D unexpectedly pays off for consumers; and so cutting the military budget could ultimately hurt consumers.

A few thoughts:

— The correct question here is not, “Does the military innovate?” It’s “Is continuing to increase the military’s budget the best way for the federal government to fund innovation?”

— As Appelbaum notes, military R&D accounts for 55 percent of the federal government’s R&D spending. This is likely because it is very difficult to cut the military’s budget and very easy to cut so-called “non-defense discretionary spending,” the part of the budget where most of the rest of the R&D spending sits.

— The proposed cuts to the military are cuts to the military’s expected rate of growth — and this is after a decade in which the military budget ballooned. In real terms, the proposed budget envisions military spending increasing, not decreasing, over the next decade.

— R&D accounts for 12 percent of military spending. The administration’s proposed cuts would shave 8 percent off the military budget over the next decade. Depending on how the military chooses to use its resources, R&D may or may not be harmed. Indeed, if the military moves from focusing on conventional warfare to emphasizing next-gen warfare, R&D could even increase.

— Overspending on the military in the hopes that some of the money will run into R&D is a very inefficient way to support R&D. If we want spending on military R&D to remain constant or even increase, we can direct the military to protect that category of spending.

— By the same token, funding military R&D is probably an inefficient way to fund nonmilitary innovations. If what we want is R&D focused on innovations with broad applications, we should fund that R&D directly rather than hoping that some of the military’s innovations turn out to also be of use to consumers.

— Perhaps the best argument for funding military R&D is that it’s economically inefficient but politically efficient. It would be better to fund R&D directly, but the only politically sustainable form of innovation funding is military spending. That is depressing, but it might be true.

That said, it is convenient for many in both the health-care and military sectors to try and protect their funding by pointing to their innovations. But ultimately, if we want to spend money encouraging innovation, we should do that directly. We shouldn’t just shovel money to bloated sectors in the hopes that some of it ends up funding innovations.

 
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