Friday, October 20, 2006

Our Small Defense Budget

Wall Street Journal Editorial
October 20, 2006; Page A12

Congress recently passed a record defense-spending bill for 2007, and critics lost no time adding it to their list of woes caused by the Iraq war. The real story is more interesting: to wit, how relatively little the U.S. now spends on national security, notwithstanding a war on terror and especially compared with previous periods of global conflict.

It's true that overall defense outlays for fiscal year 2007 are on track to surpass -- in dollars adjusted for inflation -- defense spending at the height of the Vietnam War. It's also true that defense spending has already increased by some 40% since 2001, when President Bush came to office. War opponents cite such figures to suggest that the Iraq campaign is too great a burden, and is sucking up funds better spent on domestic programs.

Less talked about is that the $528 billion spent on national defense in fiscal 2006, which ended on September 30, equaled only 4% of U.S. gross domestic product. Historically, that level is far more in line with peacetime military spending. Many Americans might be surprised to learn that current U.S. defense spending isn't all that much above the 3% share of GDP that prevailed from 1999-2001 and was a postwar World War II low.

The top chart nearby tracks defense spending as a share of the economy since 1940, when it was 1.7% before the mass mobilization of World War II. It reached a postwar high of 14.2% in 1953 during the Korean War, 9.5% in 1968 at the height of Vietnam, and 6.2% in 1986 at the peak of the Reagan re-armament that showed the Soviets they couldn't win the Cold War.

Defense spending then took an especially rapid plunge from 4.8% in 1992, falling to 3% by the end of the 1990s. Some of this "peace dividend" was warranted after the Berlin Wall fell, but letting the security budget fall so far is also one of the ways in which the Clinton era was a holiday from global history.

This huge defense drawdown is also the real story behind President Clinton's ballyhooed deficit reduction. The GOP Congress gets some credit for slowing the rate of growth in domestic spending in the mid-1990s. But nearly all of the decline in government spending in the Clinton years came from defense. Only toward the end of the 1990s did the GOP Congress begin to agitate for modest defense increases, which Mr. Clinton accommodated in return for more spending on his own domestic priorities.

Sooner or later this trend had to stop, and it did with the jolt of September 11. President Bush needed to find more resources to fight the war on terror, and he has done so by increasing defense spending by a full percentage-point of GDP over his six years in office. More than half of the fiscal 2006 budget deficit of 1.9% of GDP can thus be attributed solely to this rebuilding of American defenses after the Clinton drawdown.

Today's relatively modest defense buildup is also apparent if you look at defense spending as a share of all federal outlays. (See lower chart.) Nearly half (46%) of all tax dollars went to national security during Vietnam, and 28.1% as recently as 1987. But spending for the war on terror, including Iraq and Afghanistan, has only lifted defense to 19.8% of all federal spending today. We have less to spend on guns because we are spending so much more than we once did on the rest of government, especially health care.

In retrospect, Mr. Bush missed a historic opportunity after 9/11 to ask government to spend less on non-essential programs so it could spend more on security. Instead, overall federal spending grew by nearly 50% in Mr. Bush's first five years, as he allowed Congress to spend more on just about everything. At least Mr. Bush avoided the trap of asking for a tax increase, which would have slowed the economic growth that we have seen throw off record amounts of revenue in the past two years, and thus fund spending on both guns and butter (or, too often, pork).

The larger point is that America remains a long way from a state of "imperial overstretch," as critics of an assertive foreign policy like to put it. U.S. defense spending remains at modest levels, probably too modest given the threats we face and the overseas deployments by our servicemen and women. In addition to hot wars in the Middle East and against terrorism everywhere, the U.S. must maintain its air and sealift capacity to deploy to other regions if needed. Weapons built during the Reagan era must be upgraded or replaced, and the Pentagon will also have to invest in new technologies to deter any future enemies. And all of these priorities must compete with the ever-larger share of the defense budget consumed by health care and salaries for the volunteer force.

Our own judgment is that the U.S. is going to have to increase defense spending to meet these challenges, and that the time to begin such a debate is now.


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