Lockheed Martin Job Layoffs Are Good For the Economy

Lockheed Martin's vice president for legislative affairs, Greg Walters, recently announced that if the $500 billion in automatic cuts to defense spending mandated by last year's "supercommittee" budget deal go through as planned, it may have to issue layoff notices to the "vast majority" of its 123,000 employees. 

The announcement is being spun as an attempt by the largest player in the defense contracting industry to influence the political environment before election day, by linking cuts in defense spending with massive job losses. However, before heeding the hollow pleas of Washington's most favored industry, we should clarify the real economics at play here.

According to USASpending.gov, Lockheed currently has roughly $302 billion in defense contracts, which is nearly half of the entire defense budget for fiscal year 2012. Of course, not all of this money is disbursed in one year, but it gives a good idea of the magnitude of Lockheed's dependency on revenue from the government. Many of the required cuts in defense spending will likely come from these contracts, and while it is doubtful that the vast majority of Lockheed's employees will actually be axed if the cuts go through, the company is required by law to give a two-month notice before layoffs due to its reliance on federal money. Thus, given the uncertainty about what may actually be cut, Lockheed must cover its bases and put everyone on notice.

The goal here, clearly, is to lead politicians to the conclusion that a bunch of layoffs at Lockheed would be disastrous for the economy. However, that Lockheed has a vice president dedicated solely to "legislative affairs" speaks volumes about the composition of the company. This is an organization which thrives on public money. Furthermore, it is an organization which, by and large, produces the tools of war. The vast majority of Lockheed's employees are engaged in designing, producing, and maintaining weapons systems, and they are paid to do so by everyone else in the country, through our tax dollars.

Given the aggressive nature of our foreign policy in recent decades, I would actually prefer that my taxes didn't go to Lockheed. I would prefer that the people employed by Lockheed were engaged in other industries like education or construction which actually increase the wealth of our society, instead of destroying the wealth of other societies. By continuing to devote large portions of national output to the defense industry, we are implicitly handicapping the growth of more useful enterprises.

This is one of the most basic concepts in economics: opportunity cost. Spending time, money, or any other scarce resource to one end prevents it from being used for any other ends. Even deficit spending, which is the supposed magical elixir for when the economy tanks, follows this basic rule. While deficit dollars may not be scarce because the Fed can theoretically print an endless supply, the resources which are purchased with those dollars are bound to reality.

The defense cuts are part of a package intended to reduce the government's reliance on deficit spending, but the greater issue here is that all defense spending, whether funded by taxes or Treasury bonds, is a deadweight loss to society. Ideally, a society will devote the minimum necessary resources to ensure an adequate defense. I am rather unconvinced that our military adventures in the Middle East and Africa, and sprawling bases scattered across the globe, contribute one iota to our collective defense. Indeed, the concept of "blowback" asserts that our defense is actually undermined by much of this activity, by creating new adversaries among the populations affected.

Yes, layoffs are damaging to the people affected by them. Their incomes will be sharply reduced, and they will have less to spend elsewhere in the economy. But an individual's contribution to the economy is not measured by what they spend, but what they produce. And by gradually winding down the bloat and excess in the defense industry, we are freeing these people to pursue vocations which improve lives instead of destroying them.