US MILITARY SPENDING

US Military spending

--Dr.Debesh Bhowmik

Military budgets are only one gauge of military power. A given financial commitment may be adequate or inadequate depending on the number and capability of a nation's adversaries, how well a country invests its funds, and what it seeks to accomplish, among other factors. Nevertheless, trends in military spending do reveal something about a country's capacity for coercion. Policymakers are currently debating the appropriate level of U.S. military spending given increasingly constrained budgets and the winding down of wars in Iraq and Afghanistan. The following charts present historical trends in U.S. military spending and analyze the forces that may drive it lower.

The data from the Stockholm International Peace Research Institute (SIPRI) and from the U.S. Bureau of Economic Analysis (BEA) include spending on overseas contingency operations as well as defense. This distinguishes them from data used in the U.S. budget, which separates defense spending from spending on overseas operations. In inflation-adjusted dollars, SIPRI's measure of U.S. military spending rose sharply after the terrorist attacks of 2001. In calendar year 2012, military spending declined from $711 billion to $668 billion. In dollar terms, this was the largest decline since 1991. The reduction in U.S. operations in the Middle East and the sequester mean this figure is likely to fall again in 2013.

When U.S. inflation-adjusted military spending fell by one-third in the 1990s, the U.S. share of global military spending only fell by six percentage points because other countries, particularly Russia, reduced their military spending as well. The 6 percent fall in U.S. military spending in 2012 resulted in a two percentage point fall in the global share, as military spending by the rest of the world remained essentially flat.

To see why U.S. military spending is likely to keep falling as a share of global military spending, even if the sequester does not go into effect, it helps to look at the drivers of this ratio. For any country, a change in military spending as a share of the global total can be attributed to two factors: changes in income and changes in the allocation of that income. A rising share of global military expenditure based on a rising share of global GDP (gross domestic product) is likely to be more sustainable over the long term than a rise based on a decision to spend more of GDP on defense at the expense of other priorities. The following charts distinguish between the impact of growth and the allocation of income on the U.S. share of global military spending.

From 1990 to 2000, U.S. growth roughly kept pace with global growth. So the impact of U.S. growth on the nation's share of global military spending offset the impact of rest-of-the-world growth . As a result, the net growth effect, shown by the blue line, was close to zero. Over the past ten years, faster foreign growth has reduced the U.S. share of global military spending.

The impact of growth on military budgets, shown above, has been disguised by shifting policy on how much of GDP to allocate to defense. In the 1990s, the United States cut the defense budget  whereas from 2000 to 2010, the defense budget increased. Between 1990 and 1995, cuts in foreign allocation of GDP to defense (especially in Russia) boosted the U.S. share of total military spending . Since 1995, the rest of the world has spent a fairly stable share of GDP on the military.

Combining the two previous charts, it is clear that changes in spending as a percentage of GDP have buoyed the U.S. share of world military spending, while changes in GDP have been a headwind. A decline in the U.S. share of world military spending seems likely in the absence of a new sense of insecurity.

The next chart consolidates the information from the previous three images. The black line shows the U.S. share of world military spending at five-year intervals, while the bars show what drove the change during each five-year period. The blue bars show how willing the nation has been since 2000 to spend a rising share of GDP on defense. Even if one assumes this commitment holds steady in the next five years, and if one uses International Monetary Fund (IMF) growth estimates, the U.S. share of military spending is set to decline as U.S. GDP growth  is lower than that of other military powers.

If the United States decided to spend a smaller share of GDP on the military,  would decline more sharply still. How likely is this?

Overall funding for overseas contingency operations has declined by just over 50 percent since 2008 as the war in Iraq has wound down. Funding for the two operations was as high as $187 billion in fiscal year 2008, which represents 30 percent of SIPRI's measure of U.S. military spending for that year. War funding is projected to come to $79 billion in fiscal year 2014, but it is likely to decline thereafter with the winding down of the war in Afghanistan.

As of fiscal year 2013, the number of troops deployed in Afghanistan and Iraq has declined 66 percent since fiscal year 2008. The Department of Defense projects troop levels will decline a further 40 percent in fiscal year 2014.

U.S. national defense spending has ranged widely, from less than 1 percent of GDP in 1929 up to 43 percent in 1944. These extremes illustrate that resource allocation to defense can increase rapidly when a war demands it.

Focusing just on the post-World War II period, U.S. national defense spending as a percent of GDP has ranged from a high of 15 percent in 1952 (during the Korean War) to a low of 3.7 percent in 2000 (the period of relative tranquility preceding the terrorist attacks of the following year).

In the post-Cold War world, the U.S. national defense budget has fluctuated within a relatively narrow band. It fell by about three percentage points of GDP as the nation reaped the peace dividend of the 1990s, then rose after the terrorist attacks of 2001. President Barack Obama's budget proposes cutting security spending to 2.4% of GDP in 2023. This would represent the lowest allocation of GDP to defense spending in the post-World War II era.

To put U.S. military spending in context, consider GDP and population shares relative to the rest of the world, as of 2012,the United States accounts for a larger share of global military spending than of either GDP or population, and would continue to even if military spending were to revert to 2000 levels as a percent of GDP.

As noted at the outset, military power depends on multiple factors, including the military budgets of a country's allies. To get a sense of this factor, the chart from page four was redone, with spending by NATO, Japan, South Korea, Israel, and Saudi Arabia added to the analysis. The United States and these allies account for a formidable 75 percent of global military spending in 2010. However, as the black line in the chart shows, the trend is less reassuring. The United States' and its allies' share of world military spending fell from 2005 to 2010. It is projected to fall further, to 60 percent by 2015, even if U.S. spending as a share of GDP holds up at today's levels. Budgetary pressures in Europe may mean this share falls even more rapidly.

Democracies are generally regarded as friendly to the United States, and this chart delivers a similar verdict to the last one. After the collapse of the Soviet Union, democracies accounted for the vast majority of the world's military spending. However, since the early 1990s, this share has declined slightly.

In 2012, U.S. military spending fell faster than overall military spending by democracies. However, the United States continues to account for almost half of all military spending by democracies. A decline in U.S. military spending is therefore likely to have a large impact on democracies' military spending as a share of the global total.

What would happen if the U.S. defense budget were cut? Differences in military spending among countries tend to have a big influence on equipment procurement and a far smaller one on personnel count.

This chart compares each country's share of spending and share of military equipment. The equipment measure includes twenty-one categories such as tanks, aircraft, and satellites. Spending and equipment levels are correlated. Russia is the exception, perhaps because it still has equipment left over from its period of high spending before 1990.

Unlike equipment, personnel is relatively uncorrelated to spending. Because of differences in labor costs, $1 million in the United States will hire fewer soldiers than $1 million in Russia or China. If military budgets were compared in a way that reflected varying personnel costs, U.S. military preeminence would appear smaller than it does using straightforward comparisons based on market exchange rates.

The effect of defense cuts on personnel would depend on which part of personnel spending decreases. Of the $195 billion in Department of Defense payroll outlays, only $84 billion went to active-duty military pay. Retired military pay, which does not directly increase defense capabilities, accounted for nearly 20 percent of total personnel expenditures in 2009.

The number of personnel employed by the Department of Defense has declined since the 1960s, while personnel costs have risen rapidly, in part due to rising U.S. health-care costs. The cost of military pay and allowances and military health care has risen almost 90 percent since FY 2001, while the active-duty personnel count has risen by less than 3 percent. Military health care costs have risen from $19 billion in FY 2001 to $49.4 billion in FY 2014.

As noted above, rising spending on defense personnel has not resulted in increasing troop strength. The following illustrate two additional reasons why spending may overstate the U.S. ability to project power.

The cost of military hardware has grown more than inflation. Today's spending results in less procurement than does spending in the past. Although the rising cost of hardware partly reflects rising quality, shipbuilders reported to the RAND Corporation that uncertainty surrounding the number of ships ultimately purchased increases labor costs and reduces the incentive to invest in processes that could reduce costs.

Countries such as the United States that have invested a substantial sum in their military must spend simply to maintain existing levels of equipment. The chart shows that the United States must spend about 1 percent of GDP on military hardware just to tread water. Spending in countries that have low military capital stocks will result in larger increases in defense stocks due to lower levels of depreciation.

SEMINAR ON LABOUR AND EMPLOYMENT : THEORY AND EMPIRICS

SEMINAR ON “LABOUR AND EMPLOYMENT : THEORY AND EMPIRICS”

-Dr.Debesh Bhowmik

Bengal Economic Association has organized a Mid-Year National Seminar on 27^th September 2013 at Krishnagar Government College,Nadia,W.B.,India.This Seminar has been sponsored by ICSSR.The theme of the seminar was “Labour and Employment:Theory and Empirics”.This seminar was inaugurated by Dr. Arabinda Ghosh,ADM,Nadia who is also an Economist.In his address he emphasized that in India like ours,in the process of globalization,growth is not the single factor alone for socio economic development. The welcome address was given by Prof. Jayasri Ray Choudhury,Principal Krishnagar Govt.College and the Association’s President Prof. Biswajit Chatterjee of Jadavpur University.In the technical session-I,the key note paper presented by Prof.Debendra Narayan Bhattacharjee,Director APEX Management Institute, Kolkata on “Labour and employment-Theory and Empirics:An Analytical Overview”.In his address, summarized some prominent theories such as disequilibrium theories of fix price model type,implicit contract,efficiency models of various types’ insider-outsider theories which were supported by empirical studies where variations across countries in the impact of economic activities on price setting were found to be generally small across the countries were mentioned. Large variations in unemployment effects on wages are strongly inversely related to the duration of benefits and directly related to the proportion of small firms in the economy.He also mentioned some limitations of major theoretical pursuits of mainstream approach.Prof.Rajib Bhattacharjee of Hoogly Hohsin College,on his paper “A Review of employment Scenario in India in the Post Liberalisation Era”,said that the longterm trends in overall employment situation with special focus on employment in the organized sector of India which consists of both the public and private sector and highlighted the trends in women’s employment in the organized sector of India.Shreya Some of Jadavpur University in her paper”Balance between the growth of labour force and employment opportunities:the constraints” focuses mainly on different constraints that lead to an imbalance between the growth of labour force and employment opportunities along with some policy measures taken by the Govt. of India. Dr.Sadhan Chandra Kar,Dr.Surya Narayan Ray of Dinhata College and Ranjit Kumar Ghosh of Alipurduar College on their joint paper on ”Employment Generating Capacity of an Agrarian Based Economy in Pre and Post- liberalisation period” throw light on the potentiality of an agricultural alternative sector in generating employment opportunity for the labourers who are being employmed rather disguisedly in the basic sector of our rural economy.Dr.Tushar Das-Headmaster of Sadananda Mission High School,Howrah, on his paper , “Economic Reform and Labour Market Characteristics in all India and West Bengal:A comparative Study” mentioned the changing trends of wage share in value added ,labour productivity and unit labour costs of producing output in industries for West Bengal as well as for all india level over the period from 2000-01 to 2007-08.Arini Bhattacharjee,a researcher,on her paper,”Employment and unemployment in India” emphasised on current scenario of unemployment and role of RNFS in reducing rural poverty and RNFS  provides diverse employment opportunities in rural areas itself that ,in turn, reduces urban migration and urban unemployment.Prof.Moumita Chakraborty of Kanchrapara College,in her paper on “Increase in higher education enrolment and its impact on employment level in India” studied to discuss issues regarding rise in higher educational attainment and change in employment level in the post reform era and also tries to address the important initiatives taken by central government to synchronise quality education with changing job requirement.Prof.Manoj Kumar Halder of Krishnagar Govt.College studies the causes and impacts of internal migration on rural weaker ,marginal section of Karimpur Bloc-I of Nadia District.Prof.Tanusree Banerjee of Krishnagar Govt.College, in her paper on “Stigmatized Employment-A Statistical Measure” proposed a model to estimate the proportion( of Stigmatised employment randomized response survey) was  unbiasedly without using randomized device which is more efficient than Takahasi model.Suman Das of Krishnagar Govt.College and Suman Pal ,Prof.of said college in their paper on,”Impact of Village tourism on income and employment generation” suggested a plan for the generation of employment through sustainable use of local resources and village tourism for the betterment of economic conditions of the villagers of Baranti. Dr.Debesh Bhowmik of International Institute for Development Studies,Kolkata,in his paper on “The nexus between productivity and employment” tried to explore the various studies on the nexus between the productivity growth and the employment through VAR model of Dritsakis(2012) and  Blanchand, Solow and Wilson(1995) model and found cointegration and causality but the association went to either direction. In the short run, the nexus was seen negative but not in all countries and in the long run , the association was found both positive and negative in the world economies like Europe, America ,Africa and in Asia. No general conclusion could not be drawn on the nexus because state of technology, employees benefit, wage structure, hours of labour vary from country to country whether it was in USA,France,UK ,India or in EU. Even, the association is different from sectors to sectors. Above all, if the scale of measurement of labour productivity differs, the association between labour productivity  and employment may also differ.

Lastly,the vote of thanks was given by Prof.Anupam Chakraborty of Krishnagar Government College,Nadia.       

   

WORLD IMBALANCE OF NATURAL OIL - KEY POINTS

World Imbalance of Natural oil-Key points

-Dr.Debesh Bhowmik

[1]The world has ample proved reserves of oil and natural gas to meet expected future demand growth. At the end of 2011, global proved reserves of oil were sufficient to meet 54 years of current (2011) production; for natural gas that figure is 64 years.

[2]The distribution of global proved reserves of oil and natural gas – while essential for energy production – is not a good predictor of the distribution of future production growth. Indeed, the world’s oil and gas importing regions – Asia Pacific, North America, and Europe – are expected to contribute a disproportional share of the world’s oil and natural gas production to 2030.

[3]These countries sit atop just 16% of global proved reserves of oil and natural gas, yet they will account for 38% of global production in 2030, and will deliver one-third of the growth in global production.

[4]We project that the current decade will experience the most rapid growth in global production of tight oil and shale gas. After 2020, North American growth is expected to moderate, in part due to current assessments of the resource base. Continued, but more modest, growth elsewhere results in slower global production growth in the next decade.

[5]The global understanding of tight oil and shale gas potential is still evolving, however, and the range of external forecasts reflects the uncertain landscape. Different views on the North American resource base – in particular, whether to expect further growth – are the key factor behind the range of external forecasts. Elsewhere, varying assessments of above ground issues are another driver of divergent forecasts.

[6]These uncertainties could result in a significantly higher path for tight oil and shale gas production – as much as 5 Mb/d and 35 Bcf/d, respectively, by 2030. Additional supplies would have follow-on implications for the broader outlook: in the case of oil, for example, by reducing the market requirement for OPEC crude and boosting spare capacity.

[7]Growing production and flat consumption will see the US become nearly self-sufficient in energy by 2030. The US will remain a small net importer of oil, although net imports will decline by about 70%. With net exports of natural gas and coal, US energy production will reach 99% of domestic consumption, up from a low of 70% in 2005.

[8]China is on pace to match Europe as the world’s leading energy importer by 2030, and will replace the US as the world’s largest oil importing nation by 2017.

[9]However, the growth in Chinese energy imports will be taking place in a context of robust economic growth. Adjusting the volume of energy imports for expected economic growth will leave China relatively less dependent (per unit of GDP) than EU on imported energy.

[10]Other things equal, the development of energy imbalances point toward a reduction of global trade imbalances.

[11]Russia will remain the world’s largest energy exporter, with increases in exports of all fossil fuels. Net energy exports will rise by 25% in volume terms.

[12]By 2030, Saudi Arabia will be the world’s largest oil exporter, although the trajectory over time will be impacted by the likelihood of OPEC production cuts discussed earlier. By 2030, oil exports in volume terms are likely to be 17% above the 2010 level.

[13]As a region, Africa will become an increasingly important source of fossil fuel exports as well.

[14]Once again adjusting for expected economic growth, Russia – and the African countries as a group – are likely to remain significantly less dependent on energy exports than Saudi Arabia.

[15]Carbon emissions from energy use continue to grow, increasing by 26% between 2011 and 2030 (1.2% p.a.). We assume continued tightening in policies to address climate change, yet emissions remain well above the required path to stabilise the concentration of greenhouse gases at the level recommended by scientists (450 ppm).

[16]There is some progress: the changing fuel mix, in particular the rising share of renewables and substitution of coal with gas, results in a gradual decoupling of emissions growth from primary energy growth.

[17]Carbon emissions continue to fall in the EU – on the back of carbon abatement policies, support for renewables and declining overall energy demand – and in the US – driven by falling oil demand (efficiency gains in the car fleet), renewables in power and the displacement of coal by gas.

[18]The structural transformation of China’s economy slows its energy demand growth, especially after 2020 and especially for coal, causing a significant reduction in the growth of China’s carbon emissions.