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Defence Economics Primer


Army.ca Veteran
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This video Defence Economics by Perun is an hour-long investment, but I think it should be required viewing for those who like to post about what equipment Canada should buy/produce etc. It focuses on the US and the aerospace sector, but I think it can applied to other areas as well. There is a bit of Canadian content with a photo of the Avro Arrow...

The video makes several points. First, looking at overall defence spending can be useful, but it will not tell the whole story. We tend to view government spending through our lens as private consumers. We need a car, we work out what we can spend and buy one. That money leaves our account and we get a car. Done. A government looks at it differently. Taxes and economic accelerators mean that defence money spent in Canada generates secondary economic benefits. Defence spending on wages, for example, mean that the government gets some of that back in income tax. Those soldiers also spend money locally on cars, houses, beer and pizza and so on, so those dollars keep making more dollars in Canada. Defence spending is not as "efficient" in terms of secondary benefits as infrastructure spending, for instance, but it is something that we need to be aware of.

He also points out why every nation cannot simply produce all of its needs "in-house." He offers that a country has choices to make in three basic areas when contemplating spending on a capability: it can be (comparatively) cheap, it can built domestically; and it can be cutting edge. A market leader in a given capability can pick all three. Most nations can pick two. Some can only pick one. The US can pick all three with most things: they are the market leaders in most systems, so they can reap secondary benefits and benefit from economies of scale (cheap), they can build it domestically and its cutting edge. A nation under embargo might have to build domestically at great cost and not having access to cutting-edge capabilities. Canada might be able to pick three in some areas (LAVs), but in most we will have to pick two.
I am watching his stuff while at work in the security shack, it really is great stuff.