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An Alternative Answer to: Who Pays for Defense?

Published online by Cambridge University Press:  01 August 2014

Jerry Hollenhorst  and
Gary Ault
Jerry Hollenhorst
Affiliation:
Southern Illinois University
Gary Ault
Affiliation:
Southern Illinois University
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Extract

In a recent article (this Review, 63 [June, 1969]), Bruce Russett attempts to answer the title question by using two-variable regression analysis to estimate the “trade-off” relationships between the defense spending proportion of Gross National Product (GNP) and the other nondefense expenditure proportions of GNP for the 1939–68 period. This paper contends that Russett's method of analysis is misleading because it does not permit the detection of possible subperiod shifts in the trade-off relationships. The results of a multiple regression, dummy variable analysis indicate that significant shifts in both the sign and the numerical values of the trade-off relationships occurred between the three war periods and the peacetime period. Two attempts to identify the reasons for the shifts produced mixed results, but our tentative conclusion is that the shifts are related to subperiod differences in the unemployment rate and the methods of financing defense expenditures.

Type
Articles
Information
American Political Science Review , Volume 65 , Issue 3 , September 1971 , pp. 760 - 763
Copyright
Copyright © American Political Science Association 1971

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Footnotes

1

Research for this paper was partially supported by the Office of Graduate Studies and Research, Southern Illinois University. We are indebted to the anonymous referees who made valuable suggestions for improving an earlier draft of this paper. As usual, we retain sole claim to all errors and opinions.

References

2 Russett, Bruce, “Who Pays for Defense?”, America Political Science Review, 63 (06, 1969), 412–426 CrossRefGoogle Scholar.

3 In a footnote Russett, op. cit., pp. 414–415, argues that excluding World War II would be inappropriate since the degrees of freedom would be reduced and the range of experience in the data would be restricted. While we are not as concerned over the loss of the few degrees of freedom, it is true that to ignore the World War II experience would eliminate much of what we are trying to investigate. Consequently, our method incorporates the World War II years in the data but at the same time allows the possible differential effect of that experience to express itself.

4 For a more complete description of this technique see Johnston, J., Econometrics (New York: McGraw-Hill, 1960), pp. 221–228 Google Scholar. Another alternative method would be to estimate separate regressions for each of the sub-periods. Considering the few data points in each sub-period, however, the results probably would be meaningless. Our technique allows the use of the “t” test of significance with 25 degrees of freedom. Estimating the sub-period regressions separately would give degrees of freedom of 3, 2, 2, and 15 respectively for World War II, the Korean War, the Vietnam War, and the peacetime period.

5 Our results, however, imply that the sub-categories of consumer expenditures for nondurable goods and services were adversely affected by defense spending increases during the Korean War, while expenditures for nonresidential structures were positively associated with defense spending increases.

6 Russett, op. cit., p. 418.

7 As given in Table 2, our method indicates that the Vietnam War import coefficient is statistically “zero,” while the export coefficient is .199; applied to the total increase of $11.7 billion in defense expenditures in 1967, the export coefficient yields the above-cited $2.3 billion net impact on the balance of payments. The estimates $2.4 billion and $4.0 billion, derived by “direct” methods rather than regression analysis, are given respectively by, Bohi, Douglas, “War in Vietnam and the United States Balance of Payments,” Review of Economics and Statistics, 51 (11, 1969), 471–474 CrossRefGoogle Scholar, and Dudley, Leonard and Passell, Peter, “The War in Vietnam and the United States Balance of Payments,” Review of Economics and Statistics, 50 (11, 1968), 437–442 CrossRefGoogle Scholar.

8 Russett, op. cit., p. 418. We are puzzled by Russett's assertion that enemy occupation of normal sources of import goods and interdiction of sea lanes (among other factors) reduced the United States' opportunity to import. The facts are that U.S. imports increased consistently from $3.6 billion in 1940 to $7.9 billion in 1945. See the Economic Report of the President: 1970 (Washington: U.S. Government Printing Office), p. 185 Google Scholar. Imports from Europe and Asia did decline during World War II, but imports of foodstuffs and raw materials from South America, Canada, and Mexico increased dramatically. Imports averaged about 3.5 percent of GNP during World War II, compared to about 4.5 percent during the “peacetime” period of 1960–65. It is a moot question, however, whether the difference of one percentage point represents “unusually low importation activity.”

9 See Samuelson, Paul, Economics (New York: McGraw Hill, Inc., 1970)Google Scholar, Chapters 12 and 13.

10 We will provide the detailed numerical results of these two experiments upon request.

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