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One thing that did take off in the US economy together with the surge in military spending was the amount of public debt.

https://mises.org/wire/president-biden-wrong-military-spending-does-not-produce-wealth

Mihai Macovei

So far, the White House has justified its unwavering support for Ukraine on lofty grounds such as defending democracy and freedom—both in Ukraine and in the West. However, with the American public—who bears the cost of the war in Ukraine—turning against it, several Republican lawmakers questioning its purpose and affordability, and elections approaching, the Biden administration has changed the messaging on the war. Its new line is that sending weapons to Ukraine is actually an investment in American industry, strengthening the economy and creating new jobs.

Joe Biden’s new argument fits well into the flawed Keynesian logic of “Bidenomics” in which economic prosperity is built upon generous public spending for infrastructure, semiconductors, and clean energy rather than on free markets. It is not only unethical to think that a country should use foreign wars and human suffering to give a boost to its economy, but also obviously wrong from an economic point of view. One cannot increase wealth by making gifts—which is what United States military aid to Ukraine is anyway. Moreover, if military spending and wars are so good for the economy, then the US economy should be thriving after the trillions of US dollars spent for this purpose over the last two decades. In reality, the opposite seems to be true.

A Boost to US Manufacturing?

When the Iron Curtain fell in 1989 and socialism seemed defeated, the world moved to a “unipolar” phase with the US as uncontested leader, raising big expectations for a long period of global peace and prosperity. Instead of being drastically cut, however, the excessive spending on military in the US—larger than those of the next ten largest militaries combined—was kept almost flat at about $300 billion for a decade. After the 9/11 attacks and as the US got involved in countless wars and military operations, the defense budget swelled to more than $800 billion by 2023.

According to President Biden’s argument, this huge investment in the defense industry should have led to a manufacturing revival. This was certainly not the case. US manufacturing experienced a nightmare between 2000 and 2010 when the number of jobs, which had been relatively stable at about eighteen million since 1965, declined by one-third to below twelve million while output in the sector as a share of gross domestic product (GDP) dropped too (Figure 1). This was not due to productivity gains and automation but to the loss of competitiveness brought about by the financial and real estate bubbles, which drove US costs up. American companies accelerated offshoring while jobs shifted to services, construction, and the financial sector.

Figure 1: Employment and value added in manufacturing

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Source: “All Employees, Manufacturing (MANEMP)“ and “Value Added by Industry: Manufacturing as a Percentage of GDP (VAPGDPMA),” FRED, Federal Reserve Bank of St. Louis, last updated October 1, 2023, and January 1, 2023. Data from the Bureau of Labor Statistics, “Current Employment Statistics,” last updated November 14, 2023, and the Bureau of Economic Analysis, “GDP by Industry,” last updated November 30, 2023.

More and Better Paid Jobs?

As American manufacturing declined, well-paying jobs for people with lower skills also disappeared, reducing work incentives. Together with an exponential increase in social welfare programs and government intervention in the economy, the decline in these work incentives has contributed to a steady decline in the participation of Americans in the labor market. Both the labor force participation and employment rates have been falling for almost three decades now (Figure 2). Although mainstream pundits blame the long-term decline in labor market participation on demographic shifts, this cannot be the main explanation as shown by the very low and falling participation rate of prime-age men. Only Italy, among developed countries, experienced a larger decline than the US in the labor market participation of 25- to 54-year-old men since 1990.

Figure 2: Labor force participation and employment

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Source: “Labor Force Participation Rate (CIVPART),” FRED, Federal Reserve Bank of St. Louis, last updated October 1, 2023. Data from the Bureau of Labor Statistics, “Current Employment Statistics,” last updated November 14, 2023.

Also, wages and incomes took a hit from slowing productivity growth and the decline in manufacturing. The average wage of low-skilled high school graduates fell not only in real terms, but also in nominal terms by about 10 percent from 1990 to 2022. Despite some ups and downs, average real wages in the US have kept about the same purchasing power over the last four decades, barely increasing by less than 10 percent.

Ailing Productivity Growth and Investment

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