Sequestration cuts to curb defense spending harmed the overall economy, budget experts said on Monday, as the full force of the across-the-board budget cuts is set to return in fiscal 2016.
Ben Bernanke, former chair of the Federal Reserve, said cuts to defense spending in recent years were to blame for a moderate decrease of about 0.3 to 0.4 in the gross domestic product.
That’s partly due to the drawdown as the war in Iraq ended and the war in Afghanistan wound down, he said. But across-the-board sequestration cuts, meant to cut spending and boost the economy, also had a negative impact.
“Part of it was completely understandable, certainly you wouldn’t want to determine the resources devoted to Iraq and Afghanistan in any way by U.S. cyclical considerations,” Bernanke said in an event at the Brookings Institution. “The other part I think was in some sense a self-inflicted wound, since all these cuts were made for economic reasons, but mostly went in the wrong direction in the sense that they were a mild negative in an economy that was trying to recover.”
Bernanke said it’s not as significant as it was during World War II or Vietnam because defense spending today is a smaller part of the economy, but that “unwisely, the cuts in military spending, which were not motivated by defense needs the last few years, were actually a negative in terms of our economic recovery.”
Experts also raised questions about how cuts to modernization, including military research and development, have affected technological developments in the private sector.
Mark Muro, a senior fellow at Brookings, said the military often makes early investments in emerging technology and continues to be a customer of those innovations. Officials should look for ways to change the private sector to make up for a cut to federal efforts, he said.
Lawmakers on Capitol Hill agree that ending sequestration is one of their top priorities, yet there have been no plans to actually repeal the automatic cuts, even as the few years of relief provided by the Murray-Ryan budget deal in 2013 are set to expire this year.
