Military Spending / GDP = Nonsense for Budget Policy Making


If we were inclined to borrow a phrase from Ronald Reagan, we might reproach the Pentagon bigwigs by saying, “Well, there you go again.” This year, as in virtually every year for the past fifty years, the military chiefs are trying to minimize the enormousness of their proposed baseline budget ($515.4 billion) by dividing it by the amount of the concurrent gross domestic product (GDP).

And, as usual, the news media are playing along with this trick, which, as always, will surely occupy many commentators and fuel heated debates about the adequacy of the defense budget. The New York Times has got this year’s show off to a bang-up beginning with a February 4 article by Thom Shanker, who notes, as if it were relevant, that “even the colossal Pentagon budgets for regular operations and the war efforts consume a smaller portion of gross domestic product than in previous conflicts.”

Want to make this year’s gigantic Pentagon proposal look small? All you need to do is to divide it by this year’s GDP and then compare the resulting ratio to the ratio that obtained during the Korean War (13–14 percent) or the Vietnam War (7–9 percent). To make this year’s spending appear almost tiny, dredge up the ratio for the fully mobilized years of World War II (37–38 percent).

The current ratio, including the Pentagon’s baseline budget, the nuclear-weapons program (run by the Energy Department), and the supplemental budgets enacted to fund direct war-fighting costs for the wars in Afghanistan and Iraq, comes to about 4 percent. In military lingo, that fraction is usually expressed as “only 4 percent.” The military leadership, fearful that the future may ultimately bring a spending retrenchment after the fighting subsides in southwest Asia, wants to make this 4 percent figure a lower bound on future spending. (Note well: to arrive at all military-related spending, we must approximately double the Pentagon’s baseline budget.)

Defense Secretary Robert M. Gates and Admiral Mike Mullen, the chairman of the Joint Chiefs of Staff, recently emphasized the importance of this limit. Said Mullen, “I really do believe this 4 percent floor is important . . . really important, given the world we’re living in, given the threats that we see out there, the risks that are, in fact, global, not just in the Middle East”—standard Pentagon gibberish to suggest a world populated by terrifying and deadly monsters intent on destroying this country root and branch.

Pentagon press secretary Geoff Morrell sang the same song. “The secretary believes that whenever we transition away from war supplementals, the Congress should dedicate 4 percent of our G.D.P. to funding national security. That is what he believes to be a reasonable price to stay free and protect our interests around the world.”

A far more reasonable price, however, would be one arrived at completely independent of its relation to GDP. Recall that the GDP purports to be the value at market prices of all currently produced final goods and services the U.S. economy brings forth in a year. It includes everything from hamburgers to computer software to H-bombs. Why, we might ask, should military spending bear any particular proportion to this figure?

Does it not make much more sense to assess the actual threats the country faces, to determine the optimal means of meeting or deterring these threats with a sufficient degree of confidence, and then to add up the costs of obtaining the stipulated means? Whether this total amount happens to be 1 percent or 20 percent of GDP is entirely beside the point, which is to protect the American people from potential, likely, external attackers. Once an adequate defense program has been designed and its components priced, the military leadership can present the total bill to Congress and defend it by showing, item by item, why each of its elements is necessary to achieve the desired degree of national security.

If the national economy produces more hamburgers and computer software next year, these economic developments in no way imply that more money should then be spent for defense. If the threats remain the same and the costs of acquiring defense goods and services remain the same, then the defense budget can remain fixed in amount and still serve its proper purpose. Notice, however, that if the GDP continues to grow, this adequate, fixed-amount, military budget will constitute a smaller fraction of GDP.

During national emergencies or non-emergency military buildups such as that of the 1980s, the military leadership invariably argues that defense spending must be increased as a fraction of GDP. Then, when the emergency fades or the buildup is completed, the argument becomes that the ratio must not be permitted to decline. This sequence of events is a recipe for upward-ratcheting growth of the defense share of GDP, regardless of its reasonableness in relation to dealing with actual foreign threats. It’s no wonder the U.S. military has so many golf courses, executive jets for top-ranking officers, and more than 700 bases scattered around the world, most of them wholly superfluous in relation to defending the American people.

It is long past time for the media and the American people to stop being taken in by shopworn rhetorical trickery such as that attending the ritual discussion of defense spending relative to GDP. Its only real purpose is to minimize the magnitude of a defense budget that has swollen to absurdly gigantic proportions. Why can’t the Department of Defense today defend the country for a smaller annual amount than it needed to defend the country during the Cold War, when we faced an enemy with large, modern armed forces and thousands of accurate, nuclear-armed ICBMs?

Robert Higgs is a Senior Fellow in Political Economy at the Independent Institute and Editor at Large of the Institute’s quarterly journal The Independent Review. He received his Ph.D. in economics from Johns Hopkins University, and he has taught at the University of Washington, Lafayette College, Seattle University, the University of Economics, Prague, and George Mason University.

  New from Robert Higgs!
TAKING A STAND: Reflections on Life, Liberty, and the Economy
Organized into 99 short, accessible chapters Taking a Stand offers the grand opportunity to make Robert Higgs’ vast insights available to general readers by combining his keen analysis with his engaging wit, humility and compassion.