Veronique de Rugy on Defense Spending and the Economy

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University. Her primary research interests include the U.S. economy, federal budget, homeland security, taxation, tax competition, and financial privacy issues. Her popular weekly charts, published by the Mercatus Center, address economic issues ranging from lessons on creating sustainable economic growth to the implications of government tax and fiscal policies.

She has testified numerous times in front of Congress on the effects of fiscal stimulus, debt and deficits, and regulation on the economy.

de Rugy writes regular columns for Reason magazine, the Washington Examiner, and blogs about economics at National Review Online’s The Corner and at Big Government. Her charts, articles, and commentary have been featured in a wide range of media outlets including the Reality Check segment on Bloomberg Television’s Street SmartNew York Times’ Room for DebateWashington Post, Wall Street Journal, CNN International, Stossel, 20/20, C-SPAN’s Washington Journal, and Fox News.

She is a former resident fellow at the American Enterprise Institute, policy analyst at the Cato Institute, and research fellow at theAtlas Economic Research Foundation. Before moving to the United States, de Rugy directed academic programs in France for the Institute for Humane Studies-Europe.

Dr. de Rugy received her MA in economics from the University of Paris IX-Dauphine and her PhD in economics from the University of Paris 1Pantheon-Sorbonne and did post-doctorate work on tax revolt at George Mason University. 

On the show we cover:
-Republican Keynesianism 
– Defense Spending and the Economy  report by de Rugy and Barro
 
from Report: 

Aggregate Effects from Cutbacks in Defense Spending

Treating sequestration as a cut of five percent in defense outlays, defense spending would fall $34 billion in 2013 from its 2012 level of $677 billion. For given taxes and other federal spending, the defense-spending cut reduces the federal deficit. Hence, the public debt is lower than it would be otherwise and requires correspondingly lower taxes in the long run when compared to a benchmark path (if other federal spending does not change).

  • Using a defense-spending multiplier of 0.4 within a year and 0.6 over two years and assuming that taxes have a multiplier effect on GDP of -1.1 with a one-year lag, real GDP falls compared to the benchmark path by $13.6 billion in 2013 (because of the spending multiplier) but rises by $17 billion in 2014 (because the effect from the tax multiplier more than offsets the spending effect). 
  • Private-sector portions of GDP rise by $20.4 billion in 2013 (60 cents on the dollar compared to the spending cut) and $51 billion in 2014 (because GDP is now above its benchmark).
  • The effect of +$17 billion on real GDP continues into the future. 
  • Relative to the benchmark path, defense spending falls by $170 billion, taxes are cut also by $170 billion, private sector portions of GDP rise by $224 billion, and real GDP increases by $54 billion by 2017. 
  • In other words, over five years, we get roughly $1.30 of extra private spending for each $1.00 reduction in defense spending. 
Other reports by de Rugy
 
 
de Rugy;  Reason and National Review 
 
on twitter- @veroderugy