The War Economy

THE President's Advisory Commission on Civil Disorders (read Riots Commission) will probably recommend, unsurprisingly, that up to $20 billion be spent in the cities over the next five years. Skeptics have doubted that such large outlays will ever materialize. They reason that the health of the economy as a whole depends on such heavy Federal spending in the defense complex that there is little left for poverty wars and ghetto reconstruction.

A paper delivered by Otto Eckstein, professor of Economics and former member of the Council of Economic Advisors, in late January at the Institutional Investor Conference in New York raises the fascinating, if nebulous, possibility that ending the war in Vietnam may make such social capital available.

Eckstein points out first that with the war in Vietnam raging, the non-Vietnam military budget today is, by normal standards, an austerity budget. All military construction in the U.S. has been stopped. Pay-increases to military personnel have been deferred. There have been surprising declines in contract awards to aerospace industries and other businesses, Eckstein notes. The procurement of the Minuteman-three has been postponed for eleven months. In addition it has been officially announced that the extra $3 billion of Vietnam spending in the current fiscal year will come entirely from the reprogramming of non-Vietnam military expenditures.

This is not to say that non-Vietnam defense spending is not very high, currently about $50 billion, but simply that, owing to the Vietnam squeeze, it is lower than it might have been.

At the same time, Eckstein shows, economic growth is being maintained--stimulated in 1968 almost entirely by the private sector. In the last few years the stimulus came from Vietnam spending. This means that the increase in private demand this year will probably make up for the levelling of the total defense budget. In this sense "the economy is being weaned from its dependence on military spending," he says.

Suppose the war in Vietnam is brought to an end sometime this year. Eckstein estimates that the direct and immediate saving will exceed $10 billion as "spending for munitions, planes, helicopters, food, gasoline, transportation, and extra troops pay tapers off."

HOWEVER, Eckstein goes on in his paper to make the gloomy prediction that "much of this saving will be re-directed into the strategic components of the defense budget." He gives two reasons. First, he says, there will be a strong need to resume modernization of the defense establishment after having deferred it during the Vietnam war. Secondly, Eckstein believes that the U.S. is in Asia to stay and this will prove costly.

Both of these arguments are at least debateable. If Senators Fulbright (D-Ark.) and Kennedy (D-N.Y.) are right, the U.S. could make substantial reductions in the scope and nature of its Asian commitments without seriously endangering the country's security. Similarly, it is not at all obvious that American security and well-being depend on the incessant production of more and more modern missiles.

If the war ends, the aerospace industries will certainly try to get their appropriations back. The recent widely-publicized scare stories about the U.S.S.R.'s efforts to close its "missile gap" with the U.S. seem to be part of such a campaign. However, if these industries have lived with lower (but still high) profits during the Vietnam war, they could be forced to live with them even after the war is over. So the war could conceivably reduce the aerospace's share of the federal budget for good.

The actual allocation of the extra money saved from ending the war in Vietnam will probably depend on political rather than economic criteria.

Channelling large sums of money into the cities becomes an especially viable alternative given the apparent capacity of private demand to generate adequate economic expansion. This tendency will clearly be strengthened by the grant of more spending power to the ghettoes, a development that might draw investment from the big corporations.

Obviously, a policy of urban spending would also be socially beneficial, providing new jobs and better housing.

In short the people of the cities can attempt to wrest the money now being spent in Vietnam for themselves only by wielding their political muscle.

There will be pressures, as Eckstein points out, to divert money back into the defense establishment. The cities have to respond by mobilizing counterpressure.

In this context, even summer riots begin to appear as potent, constructive political moves.