Dean Baker: Jobs, Climate and Defense Spending

A post by Dean Baker caught my eye at the new group blog, Real World Economics Review.

There is a major national ad campaign, funded by the oil industry and other usual suspects, to convince the public that measures to reduce greenhouse gas emissions (GHG) and slow global warming will result in massive job loss. ...

A few years ago, the Center for Economic and Policy Research commissioned Global Insight, one of the leading economic modeling firms, to project the impact of a sustained increase in defense spending equal to 1.0 percentage point of GDP. This was roughly equal to the cost of the Iraq war.

Global Insight’s model projected that after 20 years the economy would be about 0.6 percentage points smaller as a result of the additional defense spending. ...

The scenario we asked Global Insight to model turned out to have vastly underestimated the increase in defense spending associated with current policy. In the most recent quarter, defense spending was equal to 5.6 percent of GDP. By comparison, before the 9/11 attacks, the Congressional Budget Office projected that defense spending in 2009 would be equal to just 2.4 percent of GDP. ...

The impact of higher spending will not be directly proportionate in these economic models. In fact, it should be somewhat more than proportionate, but if we just multiple the Global Insight projections by three, we would get that the long-term impact of our increased defense spending will be a reduction in GDP of 1.8 percentage points. This would correspond to roughly $250 billion in the current economy, or about $800 in lost output for every person in the country. ...

In other words, the standard economic models that project job loss from efforts to stem global warming also project that the increase in defense spending since 2000 will cost the economy close to two million jobs in the long run.