Cutting Back Military Spending: The Vietnam Withdrawal and the Recession

Abstract

The present public complacency about the possible economic effect of further defense cuts probably reflects not so much a confidence that we could adjust to defense cuts without hardship, as a doubt that any further substantial cuts are imminent. Indeed, despite the Vietnam withdrawal, and despite Strategic Arms Limitation Talks, the outlook for major cuts now seems unpromising for the near future. By explaining the 1969-1971 recession as attributable to the Vietnam withdrawal, President Nixon has, however, strengthened the association in the public mind between defense cuts and economic hardship. In our opinion, this explanation is quite unjustified. This recession must be blamed not on defense cuts, but on the failure of public policy to supply adequate offsets to the defense cuts. This is shown by the fact that the loss of gross national product in relation to the size of the cuts was much bigger than after the Korean War or World War II and by the failure to allow non-defense federal programs to expand as the defense programs were cut back. Our ability to transfer defense resources to civilian uses without serious economic difficulties or loss has greatly improved over the last decade. There is now a greater willingness to accept budget deficits, to provide tax reductions, and to expand essential public programs—and there has been considerable experience with manpower retraining programs. But we cannot apply these capabilities in a situation where an economic recession is deliberately induced in a misconceived effort to combat inflation.