The financial page; guns vs. butter.(The Talk of the Town)

Ayear ago, a glum Silicon Valley executive, seeing recession on the horizon, told me, "Only a war can save us now." Well, we got one and, with it, the supposedly resuscitative burst of government spending he had in mind.

President Bush, in his new budget, has called for the biggest increase in defense spending in twenty years. If you listen to those who believe, as Time recently put it, that "war is good for the economy," this infusion of federal money will enhance not only our national security but our economic security as well.

It's a comforting thought, and, in the short run, there might be something to it. Boosting defense spending will put to work some of the people and machines that have been rendered idle by recession. But this kind of stimulus spending is like adrenaline: it works best in small, targeted doses. Bush's proposed defense-budget increases are big and wide-ranging. If the Pentagon gets everything it's asking for, defense spending will be forty-five per cent (or a hundred and twenty billion dollars) higher than it was three years ago. Whatever the strategic merits of the proposed defense budget, it can't be justified on economic grounds. Over time, defense spending stunts, rather than stimulates, economic growth.

Consider the much heralded peace dividend of the nineteen-nineties. It turned out to be even bigger and more consequential than anyone imagined. With the end of the Cold War, defense spending fell from more than six per cent of the G.D.P. to around three per cent. This allowed the government to balance its books, which helped push down long-term interest rates, which, in turn, made it cheaper for American businesses to invest in new products and factories. What's more, people who had previously been working on stuff only the Penta- gon could use were suddenly free to invent and develop stuff civilians might want. The brain trust turned its atten- tion from guns to butter. Between 1994 and 2000, the percentage of research and development that was financed by the government fell to its lowest point ever. Corporate R. & D., meanwhile, accel- erated by 8.5 per cent a year. Produc- tivity rates jumped to levels not seen since the nineteen-sixties, fuelling the longest economic expansion in America's history.

Does increased defense spending take up resources that would otherwise be put to more productive use? Yes. There aren't enough smart engineers and sci- entists to go around. When the Pentagon ramps up spending, it lures many of them out of the private sector and diverts laboratories and factories to military production. During the Reagan era, the percentage of scientists, engineers, and technical professionals who were working on defense projects was nearly twice what it was during the Clinton years. The business world could have used all that talent.

The diversion of ...