Panel Paper: The Public Benefit of Public Goods: The Defense Sector, Scientific Investment, and Economic Growth

Friday, November 9, 2012 : 2:00 PM
Chesapeake (Sheraton Baltimore City Center Hotel)

*Names in bold indicate Presenter

Bruce D. McDonald, Indiana University, South Bend and Robert J. Eger, Naval Postgraduate School

The “benefits principle” has been used to guide policy makers for some time as a tool for deciding what services the government should provide. Although some services have clearly established public benefits, others only have a presumed benefit. This paper seeks to explore the public benefit of public goods through a unique, yet controversial, type of government spending: defense expenditures on scientific advancement. In 2008, the Department of Defense spent more than $11 billion on for the research and development of new technologies that have a public, nonmilitary related, use. The budget was further expanded with the American Recovery and Reinvestment Act of 2009. As part of the stimulus, the Department of Defense received $300 million for the research and development of new energy technologies. Although the expenditures have an intended public utility, funding for the defense sector is often criticized as having a "guns vs. butter" trade-off. If a trade-off exists, then the benefits principle will have been violated.  This paper contributes to the discussion of the public benefit of government services by exploring the relationship between defense spending and economic growth and developing a theoretical model for the economic effect of the defense sector. The model is then tested to further the understanding of the influence of the defense sector’s stimulus money on economic growth and the scientific community.