Some analysts claim rapid defense buildup will not hurt economy
Washington — Many economists and Pentagon critics have charged that rapidly increasing defense spending will hurt the nation's economy, boosting unemployment, straining industrial capacity, and adding to record deficits.
But in a detailed analysis of the Reagan administration's defense buildup, the usually critical Congressional Budget Office takes exception with much of this analysis. While there may be some risks, the CBO reports, military spending ''should neither rekindle inflation nor stunt employment growth over the next few years.''
This is because the economy remains far from fully recovered and most defense--related industries are producing well below capacity. If the economy perks up faster than anticipated, the CBO notes, some potential production bottlenecks and other problems could occur.
The current defense buildup not only breaks records for any peacetime period, but (perhaps more significantly) includes a dramatic proportional increase in ''military investment'' - weapons procurement, research and development, and military construction. Related to this are steady increases in defense-related items not found in the Pentagon budget (see accompanying story).
Such economists and analysts as Henry Kaufman, Lester Thurow, Charles L. Schultze, and Murray Weidenbaum have warned that adverse economic impacts could result.
The CBO notes, however, that capacity utilization for all manufacturing industries should reach only 81 percent by 1985, below the 85 percent level associated with full employment. High-technology, defense-intensive sectors (aerospace, electronics, and instruments) may reach capacity rates achieved during business peaks in the 1970s, but still remain below the Vietnam-era buildup.
Some critics say defense spending results in unemployment because the same money invested in other areas would yield more jobs.
But CBO analysts find that ''additional dollars spent on defense should provide more or less the same employment as additional dollars spent on most nondefense products,'' which is about 250,000 jobs per $10 billion.
The CBO also finds no evidence of ''inflationary wage pressure'' due to defense-related labor market developments. ''The defense buildup may contribute to future shortages of some scientists, engineers, skilled machinists, and tool-and-die makers . . . ,'' the CBO report says. ''But, in the next few years, these will be exceptional cases in a generally bleak labor market.''
While disputing some defense critics, the CBO does issue several sharp warnings.
It notes that ''at no time in its history has the United States increased defense spending so rapidly without encountering, at about the same time, a substantial increase in inflationary pressures.'' During the four major wars of this century, ''inflation rose following the outbreak of hostilities.''
Especially after 1985, it warns, inflationary pressures due to defense spending could grow. Some military buying programs (especially shipbuilding) will result in big bills coming due in the latter half of this decade.
The CBO forecasts federal deficits will remain at about $200 billion through 1985 and rise to nearly $270 billion by 1988. It reports: ''A defense buildup financed by large federal deficits that continue even after the economy recovers could damage economic performance in the longer run.''
For this reason, CBO urges Congress to look sharply at some questionable weapons-buying programs that will ultimately cost many billions of dollars and be difficult to cut the longer Congress waits.
In a separate report on reducing the deficit, the CBO suggests an alternative defense program that could yield $86 billion in budget authority savings through 1988. Included here are: canceling such troubled new weapons as the F-18 fighter and DIVAD air defense gun; canceling the MX land-based strategic nuclear missile and relying on the equally modern Trident II submarine missile; and restructuring military retirement pay.