Military spending: growth stimulus or economic aberration?

Military spending: growth stimulus or economic aberration?

The federal government plans to increase its defense spending to up to five percent of gross domestic product (GDP) in the coming years. This goal should not only promote the expansion of the military, but also a comprehensive modernization push for industry and thus economic growth. This comes from a new study by Prof. Dr. Tom Krebs and Dr. Patrick Kaczmarczyk from the University of Mannheim, who analyzes the economic impact of military spending. According to the study, the fiscal multiplier for military spending in Germany is a maximum of 0.5. This means that every dollar in military spending generates, at best, 50 cents of additional economic activity. In comparison, public investments in education, infrastructure or child care generate two to three times the additional value added surplusmagazin.de reported.

The need for this rearmament is reinforced by the war in Ukraine and the US foreign policy change, which is resulting in a new dynamic of rearmament in Europe. Under the new Chancellor Friedrich Merz, the decision was made to increase defense spending to 3.5 percent of GDP, supplemented by 1.5 percent for militarily necessary infrastructure projects. These plans were sealed at the NATO summit in The Hague, while financing will largely come from new debt.

Economic concerns and long-term consequences

The authors of the study warn about the long-term displacement effects: The expansion of arms production ties up financial and human resources that could be used for other socially relevant tasks. Since the state's financial scope remains limited, expanding all key policy areas at the same time is unrealistic. Proponents of high military spending argue that it could give the German economy a growth stimulus. Increased demand for defense equipment is expected to boost production and create new jobs. The possibility is even raised that technologies from military research could increase productivity in the long term by finding civilian applications.

However, the Mannheim economists question the economic benefits of these armament efforts. Despite the massive investments amounting to many billions of euros, there may be no real growth spurt. The researchers recommend a reform of procurement law in the defense sector or, alternatively, direct government participation in key defense companies in order to use public funds more specifically. What concerns many critics is the question of whether increasing defense spending actually serves to improve the Bundeswehr's military capability or whether it benefits the profit margins of defense companies.

conclusion

Given current developments, which are characterized by a military Keynesianism reminiscent of Ronald Reagan's policies in the 1980s, it remains to be seen to what extent these ambitious plans will impact the German economy. In any case, the study results make it clear that political decisions can have long-term consequences for both society and the economy. A careful balance between military priorities and social investments will be essential in the coming years. How rheinpfalz.de summarized, the waste of tax resources could become a central topic in political discourse.