If US military builds up, will economy be held down?

Closely tied to the public debate over increased military spending is the question of whether a steadily expanding Pentagon budget helps or hurts the US economy.

The Defense Department argues that the proposed armed forces buildup should be measured ''against the threat,'' as Deputy Defense Secretary Frank Carlucci puts it. Administration officials add that the military budget can help some segments of the civilian economy, stimulating development and production in related technological fields and creating jobs.

In Congress, where the defense budget will be finally shaped, there is growing bipartisan concern over projected federal deficits, their impact on the economy, and the part sharply rising military spending plays in causing such deficits.

The Business Roundtable, a group of nearly 200 top corporate executives, this week told the Reagan administration that ''deficits cannot be addressed adequately without . . . a slowing of the defense budget.'' The United States Chamber of Commerce and the National Association of Manufacturers have taken similar stands.

A forthcoming report by the Council on Economic Priorities (CEP) in New York gives greater weight to those concerns.

The nonprofit CEP compared the economic performance of 13 major industrial nations over the past two decades and found that ''those countries that spent a smaller share of economic output on the military generally experienced faster growth, greater investment, and higher productivity increases.''

''Those, like the United States, that carried a heavier military burden had poorer economic performance,'' the CEP concluded in a report to be released March 8.

The council uses as a basis of comparison the gross domestic product (GDP) of each country, which is gross national product (GNP) minus imports and exports.

According to the study, the US spent the highest percentage of GDP on defense (7.4) during the 1960s and 1970s. At the same time it experienced the lowest average GDP devoted to fixed capital formation, and ranked 11th in average real growth in GDP and productivity increase.

Administration officials contend that the planned defense buildup is well paced, unlike the rapid Vietnam-era increase in military spending.

The CEP agrees that the military's share of GNP was higher before the Vietnam war that it is today. But it points out that the economy was much stronger in the mid-1960s, with inflation at only 1.7 percent and a real GNP growth rate reaching 6 percent.

The organization also found that a greater military burden harmed US competitiveness in nondefense industries.

''Devoting over 20 percent of the nation's scientists and engineers to military research and production has distorted technological progress and also contributed to poor economic performance,'' the CEP report states.

Some have argued that costly social programs and relatively high manufacturing wages are the main culprits in the current US recession. But the study shows that 10 countries spent relatively more of their GDP in the civilian government sector than the US, but still enoyed greater economic growth. Likewise, four countries paid a higher average hourly wage than the US, and still their economies grew at a faster rates than did America's.

''While our analysis does not rule out a role for these factors in explaining America's decline,'' the CEP reports, ''Only military spending statistically correlates with lower economic growth, less investment, and slower productivity increases internationally.''

The CEP agrees with the recent findings of Employment Research Associates in Lansing, Mich. The Michigan group found that spending $1 billion dollars in the military sector resulted in a net loss of 9,000 jobs compared with spending the same amount in civilian industry.

The CEP report may not be entirely free of philosophical -- if not political -- bias, because it was sponsored by the International Association of Machinists and Aerospace Workers, AFL-CIO, and a coalition of 49 church, peace, and social-service advocacy groups.

But its findings are based on generally accepted US government and international sources, and it comes at a time when many business economists agree that a sharp military buildup could hinder economic recovery.

Defense Secretary Caspar W. Weinberger says the Soviets have developed a new strategic bomber similar to the B-1. The US has deemphasized its air defense capabilities in recent years because the Soviets directed a much higher portion of its nuclear weaponry toward land-based missiles. The White House argues that air defense needs to be beefed up, and it has allocated sharp spending increases for interceptor fighters and Airborne Warning and Control System (AWACS) aircraft. This part of the Pentagon budget is being eyed by many critics of rising defense spending.

Comparisons of average gross domestic product (GDP) spent on defense and important indicators of economic well-being for 1960-79. GDP represents value of the total goods and services a nation produces, less exports and imports. Figures for each country are present.

Average GDP Average real Average GDP Rates of change devoted to growth in GDP output per hour military Fixed capital in manufacturing spending formation productivity United States 7.4 3.6 17.6 2.6 United Kingdom 5.4 2.5 18.4 2.9 France 4.6 4.8 22.7 5.5 West Germany 3.9 3.9 24.1 5.4 Sweden 3.8 3.4 22.4 5.3 The Netherlands 3.7 4.2 23.4 6.7 Norway 3.3 4.4 29.8 -- Belgium 3.1 4.2 21.4 6.8 Italy 2.9 4.5 20.8 6.1 Canada 2.7 4.8 22.9 3.9 Denmark 2.6 3.9 22.8 5.6 Austria 1.2 4.4 26.7 -- Japan 0.9 8.5 32.7 8.1

Figures from the Organization for Economic Cooperation and Development, the United Nations, the US Bureau of Labor Statistics, and the Stockholm International Peace Research Institute.