I am very reluctant to believe that a U.S. president would time defense spending for political purposes, but it is hard to explain the 18.1 percent jump in the third quarter in any other way. Over the last 40 years, this increase is exceeded only by a 36.3 percent jump in the 2nd quarter of 2003 (the Iraq War) and an 18.2 percent rise in the fourth quarter of 1984, at the height of Reagan's military buildup. At a time when we are supposed to be de-surging in Iraq, it is difficult to identify any events in the world that would warrant such a large jump in military spending. The increase in defense spending added 0.86 percentage points to GDP growth for the quarter. In other words, GDP would have fallen at a 1.2 percent annual rate in the absence of the leap in defense spending. One of the reasons that I didn't think that President Bush (or any other president) would manipulate defense spending for political purposes is that I assumed that such an unusual jump would draw attention from the media. I was wrong. This peculiar leap in defense spending was almost completely ignored in the coverage of the GDP report.
--Dean Baker
