So what if cuts in defense spending shrink the economy?

It is one of those news items that might seem like bad news, but is not:

The U.S. economy unexpectedly shrank from October through December, the first quarterly drop since 2009 and a reminder of the economy’s vulnerability as automatic cuts in government spending loom.

I do not mean to suggest that a contraction in the economy is good, when unemployment, especially among the educated youth, is at levels that are way higher than a "normal" rate of unemployment.

It is a good news because of the underlying reasons for the contraction:

The decline in federal spending last quarter was the largest drop since 1973. Spending at all levels of government fell 6.6% in the period.
That drop was the primary culprit for the economy contracting, said Alan Krueger, chairman of the White House's Council of Economic Advisers.
"Several private-sector components of GDP continued to make positive contributions," Mr. Krueger said. "A likely explanation for the sharp decline in Federal defense spending is uncertainty concerning the automatic spending cuts that were scheduled to take effect in January," and are now set for March 1.

I am cheering not because I a rabid libertarian who believes that all government is evil.  But because at least for a short while we have had a drop in military expenditure.  A slight, very slight, tempering of our war infrastructure is something that ought to relieve us.  If only we can continue to go after the military budget, which, if not for the "fiscal cliff," is always treated as a sacred cow that had to be fed more and more. (too many metaphors?)

If we don't spend money on guns, then we will have more money for butter.  The more we can decrease spending on guns, the better off we will be.  Do not allow yourself to be scared into thinking that this drop in defense spending is bad news.

Economists stressed that the key factors that dragged on GDP in the fourth quarter could prove short-lived, even though the economy faces other threats in 2013.
“Frankly, this is the best-looking contraction in U.S. GDP you’ll ever see,” Paul Ashworth, an economist at Capital Economics, said in a research note. “The drag from defense spending and inventories is a one-off. The rest of the report is all encouraging.”
For all of 2012, the economy expanded 2.2 percent, better than 2011’s growth of 1.8 percent.

We might already be witnessing the "more butter" aspects:

consumer spending accelerated and business investment rebounded, suggesting some fundamental strength that should help to support the recovery even as Washington tightens its belt.
"We are not concerned that the economy is slipping back into recession," said John Ryding, chief economist at RDQ Economics in New York.
A second report showed private employers stepped up hiring in January, suggesting an improvement in the labor market. 

Yep, we don't need a gazillion more bombs and fighter planes and submarines and drones.  Think about the many ways we could constructively spend all that money! (the chart compares the top five military budgets in 2012.)

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