by Travis Sharp
Arguing that defense spending is historically low as a percentage of GDP, and therefore must be increased, is a bit like a landlord arguing that because a tenant received a much-deserved pay raise, their rent should be increased automatically. Intelligent defense planning relies on requirements, tradeoffs, and a thorough evaluation of risk – not GDP – to determine need. Tying defense spending to GDP enables the Pentagon to further delay tough choices about force structure and continue its current push for more research and procurement dollars going towards weaponry that may be useless in future Iraq-style conflicts. Defense spending should remain subject to budgetary survival of the fittest.
TYING U.S. DEFENSE SPENDING TO GDP
President George W. Bush, Republican presidential nominee Senator John McCain (R-AZ), numerous military leaders, and several members of Congress have suggested that the United States should allocate its defense budget each year as a specific percentage of Gross Domestic Product (GDP). Press reports indicate that the proposal to tie defense spending to GDP is “being tweaked” by high-level Pentagon officials and “may look very different by the time it could reach the White House or Capitol Hill.”1
In an April 2008 speech on Iraq, President George W. Bush compared current defense spending of just over four percent of GDP to higher levels sustained during the Truman, Eisenhower, and Reagan administrations, concluding that four percent “is a large amount of money, but it is a modest fraction of our nation’s wealth.” Republican presidential nominee Senator John McCain (R-AZ) wrote in Foreign Affairs last year that the United States can afford to spend four cents of every dollar or more on national defense in the future. In November 2007, Secretary of Defense Robert Gates said that four percent of GDP should be a “benchmark as a rough floor of how much we should spend on defense.” Pentagon spokesman Geoff Morrell reiterated Gates’s commitment to the four percent benchmark in February 2008: “That is what [Gates] believes to be a reasonable price to stay free and protect our interests around the world.”
Admiral Michael Mullen, chairman of the Joint Chiefs of Staff, told reporters in February 2008 that “I really do believe this four percent floor is 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.” Mullen’s spokesman explained in November 2007 that the chairman does not believe the defense budget should be “indexed” to GDP, but that GDP should serve as a reference to “stimulate discussion relative to the affordability of increased defense spending in a challenging security environment.”2
Taking their cue from this growing support, Senator Elizabeth Dole (R-NC) and Representative Trent Franks (R-AZ) introduced a joint resolution (SJ Res. 26, HJ Res. 67) in December 2007 stating that the United States should “commit a minimum of four percent of the nation’s gross domestic product to the base defense budget.” By mid-April 2008, five Republican senators, 23 Republican representatives, and one Democratic representative had added themselves as cosponsors to the resolution.
In March 2008, during debate on the Fiscal Year (FY) 2009 budget resolution, Senator Jim Inhofe (R-OK) offered, and then withdrew, an amendment (No. 4239) expressing the sense of the Senate that, excluding Iraq and Afghanistan supplemental appropriations, the United States should spend 3.7 percent of its GDP on defense by FY 2010, and four percent by and after FY 2011.
BAD LOGIC, BAD POLICY
GDP does not necessarily provide the stability or reliability in defense budgeting that advocates hope for – especially if the United States were to enter a recession.
If GDP decreases, would the U.S. military be supportive of a parallel reduction in its budget? Absolutely not, especially if the United States were at war or were suffering through a period of increased international volatility. Deputy Defense Secretary Gordon England acknowledged this limitation in testimony before the House Budget Committee in February 2008. “If you end up in a recession, then you would find yourself in a very bad situation,” England said in response to a question about whether tying defense spending to GDP made sense. “I have some hesitation because, while it provides predictability…it does worry me that we’re still subject to the economy itself in terms of variations.” Office of Management and Budget Director Jim Nussle similarly lamented GDP’s variability during Senate testimony in July 2007. Nussle testified that tying defense spending to GDP would be “awkward” because GDP projections are readjusted by the government every six months, and “adjusted after that, either up or down, imperfectly making [GDP] a match to use as a denominator” for defense spending.
Tying defense spending to GDP raises some important constitutional questions.
As Office of Management and Budget Director Jim Nussle pointed out during testimony before the Senate Homeland Security and Governmental Affairs Committee in July 2007, rigidly tying defense spending to GDP might “take the prerogative either away from the commander in chief in determining whether [defense spending] should be higher or lower, or for that matter, from the Congress in its Article I responsibility of the power of the purse.”
To tie defense expenditures to GDP, which under an ever-expanding economy is a prescription for ever-increasing defense spending, there are only three choices given the present budgetary constraints: cut domestic spending, raise taxes, or increase the deficit.
Mandatory spending programs such as Social Security and Medicare are often offered as candidates for the chopping block, hated as they are by many conservatives, but mandatory spending reform is the “third rail” of American politics, meaning that whoever touches it risks political death. It will be difficult to convince older Americans on fixed incomes that their benefits are being cut because the United States must spend – for better or worse, come rain or shine – four percent of GDP on defense. Cutting nondefense discretionary spending for education, housing assistance, and environmental protection will be tremendously unpopular, especially considering how little money these programs receive in comparison to defense already. This leaves two choices: raise taxes, which is politically unpopular and anathema to conservatives, or increase the deficit, which is increasingly politically unpopular and threatens long-term U.S. economic solvency. Saying that defense spending should be pegged at four percent of GDP is one thing; finding a way to pay for such a massive financial commitment against competing needs for mandatory and nondefense discretionary spending is something else entirely.
U.S. defense spending in FY 2009, projected to reach over $700 billion, will be the highest since World War II, and represent nearly half of the world’s total military expenditures.
When including $170 billion in projected funding for ongoing military operations in Iraq and Afghanistan, the United States will spend significantly more, in inflation adjusted dollars, for defense in FY 2009 than it did during the peak years of the Korean War (1953; $545 billion), Vietnam (1968; $550 billion), or the 1980s Reagan-era buildup (1989; $522 billion).3 The United States is also slated to spend more on defense in FY 2009 than the next 45 highest spending countries combined – including 5.8 times more than China (2nd highest), 10.2 times more than Russia (3rd highest), and 98.6 times more than Iran (22nd highest) – and will account for 48 percent of the world’s total military spending.4 The defense budget has increased by an average annual rate of more than six percent in nine of the last ten years, a sustained growth rate not seen since World War II. Given these realities, it is hard to argue that the United States does not commit enough resources to provide for its national defense.
When including funding for the wars in Iraq and Afghanistan, the United States already devotes well over four percent of its GDP to defense.
Calculating what percentage of GDP is spent on defense varies according to what number is selected for the numerator. With U.S. GDP expected to reach $15 trillion next year, some examples from the FY 2009 request demonstrate how choosing different numerators can yield significantly different outputs:
$515 billion DOD request (function 051) excluding war funding
$15 trillion GDP
= 3.43 percent
$541 billion National Defense request (function 050) excluding war funding
$15 trillion GDP
= 3.60 percent
$611 billion National Defense request (function 050) plus $70 billion in war funding
$15 trillion GDP
= 4.10 percent
$711 billion National Defense request (function 050) plus $170 billion in war funding
$15 trillion GDP
= 4.73 percent
Advocates of tying defense spending to GDP use the $515 billion figure when making historical comparisons. This is fuzzy math because $515 billion does not represent the total U.S. commitment to national defense in FY 2009. Current war costs for Iraq and Afghanistan should be included when making historical comparisons.
Advocates of tying defense spending to GDP use apples-to-oranges comparisons.
In February 2008 testimony before the Senate Armed Services Committee, Secretary of Defense Robert Gates compared the $515.4 billion DOD “base” budget request to spending levels of 14 percent of GDP during the Korean War and nine percent during Vietnam. What Gates didn’t mention, however, was that the spending figures used to calculate those percentages for Korea and Vietnam include war funding. The National Defense Budget Estimates, or “green book” as it is known by budget experts, is a volume produced by the Pentagon from which most historical comparisons are derived. But the historical spending levels for Korea and Vietnam contained in the green book combine “base” appropriations and combat-related appropriations in the “topline” figure. In making this apples-to-oranges comparison, Gates is guilty of some serious budgetary sleight of hand.
GDP is an important metric for determining how much the United States could afford to spend on defense. But it provides no insight into how much the United States should spend, what the opportunity costs of that spending are, or what burden that spending may place on future American taxpayers.
The question for policymakers today is whether current defense spending levels are going toward the appropriate priorities. After all, money spent on defense means money not spent on private investment, deficit reduction, infrastructure, healthcare, housing assistance, or other important domestic spending programs. Due to the Bush administration’s tax cuts, the United States is borrowing most of the money for its military budget rather than paying for it out of current tax revenues. By adding to debt in order to soften the political impact of its growing defense budgets, the Bush administration has added $3 trillion to the gross national debt in a pattern of profligate debt accumulation. By comparison, Presidents Roosevelt, Eisenhower, and Truman explicitly called for cuts in nonmilitary spending to make money available for war. During the War of 1812, the Civil War, World Wars I and II, and the Korean War, the Treasury secretary decided on and informed Congress about the portions of wartime spending they proposed to cover by borrowing and taxation.5 The Bush administration has practiced no such budgetary restraint, choosing instead to pass on to future generations the debt accumulated through its elevated defense spending.
HOW SHOULD THE UNITED STATES DETERMINE DEFENSE SPENDING?
U.S. GDP is more than six times greater today than it was in 1950 in inflation-adjusted terms. Arguing that defense spending is historically low as a percentage of GDP, and therefore must be increased, is a bit like a landlord arguing that because a tenant received a much-deserved pay raise, their rent should be increased automatically. If the United States devoted 37 percent of its GDP to defense today, as it did during World War II, then defense spending in today’s dollars would be around $5 trillion. This level of spending is clearly unnecessary, but it highlights the methodological shortcomings of historical comparisons. If the American economy doubles in size, should American taxpayers be required to double the Pentagon’s budget automatically? Should our grandchildren spend three times more on defense than we do today just because they are three times richer? The answer is a resounding “no.”
Intelligent defense planning relies on requirements, tradeoffs, and a thorough evaluation of risk – not GDP – to determine need. As the type of political conversation starter envisioned by Admiral Mullen, the GDP-derived baseline proposal should help reinvigorate a much-needed debate over U.S. defense spending. But as a normative policy option, it seems clear that the proposal to tie defense spending to GDP is analytically underdeveloped, fiscally risky, and politically unviable. Strategy is all about matching limited resources to achieve carefully scrutinized and prioritized objectives. When there are more threats, you spend more. When there are fewer, you spend less. Smart strategy is about making choices, and keeping defense budgets arbitrarily high avoids the hard choices that must be made in this age of dangerous threats.
Pentagon planners covet expensive high-tech weaponry, but tying defense spending to GDP simply enables them to further delay tough choices about force structure and continue their current push for more research and procurement dollars going towards weaponry that may be useless in future Iraq-style conflicts. As Secretary Gates outlined in his call last year for bolstering America’s “soft power,” investing in better intelligence, diplomacy, humanitarian assistance, and nonproliferation programs would go a long way to achieving the goal of a stronger, more secure America.
Defense spending should remain subject to budgetary survival of the fittest. If the Pentagon can make the case that the threats the country faces justify larger budgets, then larger budgets should be allocated. But pegging defense spending to GDP gives the Pentagon and defense contractors a free pass and curtails lively and transparent national debate.
1. John Bennett, “U.S. House Panel Questions DoD Spending Estimates,” Defense News (February 27, 2008).
2. Bennett, “Mullen: 4% of GDP Needed for Military,” Defense News (December 3, 2007).
3. Office of Management and Budget (OMB), FY 2009 Historical Tables (Table 6.1), adjusted for inflation using OMB GDP deflator (Table 10.1).
4. International Institute for Strategic Studies, The Military Balance 2008 (London: Routledge, 2008), 443-50.
5. Robert Hormats, The Price of Liberty (New York: Times Books, 2007), 271.