The Hole in the Donut:
The Midwest and the Military Budget

By Robert W. Reuschlein

December 29, 2005

No region is more sensitive to changes in United States military spending than the heartland of the industrial Midwest. Every state bordering on a Great Lake is below average in per capita military spending. Wisconsin is at the heart of this low military spending region, being the only state in the nation bordered on all sides by “bottom eight military spending per capita” states, including the state of Wisconsin itself. Wisconsin and its neighbors constitute five of the bottom eight. The Midwest is 60% below the national average in per capita military spending and funds 70% of the gap between military spending allocated to the states and the total military budget in a given year. The East funds 22% of that gap, the West 9% and the South gets subsidized 1%. So no other region is as far from the national average as the Midwest.

Nothing changes the state and regional economic growth rates like the uneven allocation of military spending in a military buildup as in the Ronald Reagan and George W.Bush administrations. For about 80% of the nation, economic growth was 97% correlated to the share of the military buildup procured by their powerful federal politicians. Hence under Reagan, the home states of the president, the speaker of the House and leading Senate Hawk Sam Nunn benefited the most. The sixteen states on the East Coast and California that got 80% of the military buildup grew at a 4% annual growth rate for five years, while the Midwest grew only 1% per year and the low military 34 states grew at an average of 1.3% per year.

But the military regional shift is fueled at the nation’s expense, as the spectacular Cold War growth of low military Japan, Italy, and Germany shows, with a 99.7% negative correlation between military levels and manufacturing productivity growth. The increased tax load punishes low military states while being offset by spending in the high military states, as if low military states “ante up” to the military poker game but only the well connected politicians of the high military states win the “pot” in the poker game. It’s a rigged game, if you don’t have a substantial military industry in your home state, you have no industrial allies to back you up in Congress.

In the nineties the dynamic turned around with the end of the Cold War. The Midwest and the nation responded enthusiastically to reduced military spending. The building boom of 1994 was 40% in the Midwest, more than double the rate of the rest of the nation. By 1999 Wisconsin had the lowest unemployment rate in the nation for a “top twenty population” state. The national unemployment rate dropped to levels not seen since the sixties. Measured by unemployment changes, a contiguous region of about 80% of the nation showed a 97% correlation with the military changes. Low military states were doing best and in 1992 fourteen of the sixteen Reagan boom states now showed the largest increases in the nation in unemployment rate increase. The two military exceptions? South Carolina and Georgia, home of the leading Senate Armed Services Committee members from each party, Strom Thurmond and Sam Nunn. The biggest gain was Senate Majority Leader George Mitchell’s Maine, which doubled its military spending while the nation was reducing 31%.

This brings us to today. The Bush buildup caused military spending to increase about 75% in four years, losing 2.8 million jobs by 2003. Surveys show 1,000,000 of those lost jobs were due to trade agreements. The remaining 1.7 million manufacturing jobs lost are in exact proportion to the $180 billion military buildup, 10,000 jobs lost per billion dollars. The low military Midwest has four of the top five manufacturing states, relative to each state’s size. Nonproductive military spending drains research, capital, and working resources directly form the good producing industries of America, especially hurting the Midwest. Over the period of 1/01 to 11/02, 1,436,000 jobs were lost. The low military eight Big Ten conference states lost 41 % of the entire nation’s lost jobs, four times the rate of the high military half of the nation. Comparing the low military half of the nation with the high military half of the nation, the lows had three times the jobs lost, 76% to 24%.

People and politicians both ignore the fact that if your state is getting less than its per capita share of military spending, you are in fact subsidizing the national government by paying more in taxes than you receive in military spending. People and politicians easily recognize the opposite effect when your state receives more in military spending than their per capita share. This is easily understood as a subsidy to your states economy, and great resentment occurs if this subsidy is threatened or reduced. But low military states are oblivious if there is a military buildup and their states’ economy is suffering. Newspapers and economists act as if there is no connection between the military and the economy. In fact, economists recognize that the military spending leads to a Keynesian economic stimulus in military states, but are completely blind to the related economic backlash in low military states.

The best way I’ve found to explain the regional impacts of military buildups or builddowns is to look at high military states and low military states differently. The high military states are military “owner” states and the low military states are military “renter” states. Those that “own” the military benefit from military buildups and suffer from military builddowns. Those that “rent” the military do the opposite, they benefit from military builddowns and suffer from military buildups. So the low military Midwest, because it is farthest from the national average of any region, is most sensitive to the military changes.

The Midwest is like the hole in the middle of the donut, ignored because there is relatively nothing there in the way of military spending. And those living in the middle of the donut are ignorant about the net effect of military changes on them because the military is out of sight and out of mind to them. If those in the middle of the donut begin to realize how they are being taken advantage of by those who lie about our threats and wars, they can begin by voting against costly but ineffective wars and military buildups. They can begin to reclaim America’s greatness from those who would waste our industrial strength on exaggerated nightmares while ignoring the deaths and bankruptcy from inadequate medical coverage and the blocking of the American dream by skyrocketing college costs.