Tying US Defense Spending to GDP: Bad Logic, Bad Policy

Beginning of article

As the war in Iraq drags into its sixth year and cumulative spending approved by the Congress for the "global war on terrorism" surpasses $850 billion, both the American public and security experts are becoming increasingly concerned about the present and future direction of US defense spending. One proposal under consideration is to allocate the defense budget each year as a specific percentage of America's gross domestic product (GDP). Advocates of this approach typically recommend pegging "base" Department of Defense (DOD) spending, which excludes both supplemental appropriations for ongoing military operations in Iraq and Afghanistan and Department of Energy-administered nuclear weapons activities, at four percent of GDP.

In an April 2008 speech on Iraq, President George W. Bush compared current defense spending to higher levels sustained during the Truman, Eisenhower, and Reagan administrations. He concluded that four percent of GDP "is a large amount of money, but it is a modest fraction of our nation's wealth." (1) Republican presidential nominee Senator John McCain (R-Ariz.), top Pentagon officials, conservative security analysts, and several members of Congress have endorsed the four percent proposal. Media reports indicate that the proposal is under consideration by high-level Pentagon officials and "may look very different by the time it reaches the White House or Capitol Hill." (2)

This is not the first time national leaders have suggested that economic growth should be used to calculate the appropriate level for defense spending. During World War I, the Navy's motto was "a dollar's worth of Navy for every dollar spent." (3) National Security Council report 68 (NSC-68), released in 1950, stated that while the United States was spending only 6.5 percent of its GDP on defense, the Soviet Union was spending 14 percent. NSC-68 cited this higher Soviet percentage as incentive for the United States to push for increased economic activity capable of financing a major military buildup without sacrificing America's domestic standard of living. (4)

Calculating defense spending according to GDP resonates rhetorically and politically, which may be why proponents have adopted it as their preferred approach to accomplish a loftier goal: sustaining higher levels of US defense spending into the future. Tying defense spending to GDP successfully brings debates about future US defense policy to the forefront. As a legitimate policy option, however, the proposal should be rejected by budget experts and national security analysts alike. 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. Keeping defense budgets arbitrarily high by pegging them to GDP, which has demonstrated a long-term pattern of steady increase, avoids the difficult apportionment choices required in this age of unprecedented, diffuse, and dangerous threats.

This article will begin by summarizing the arguments advanced by the principal advocates of spending four percent of GDP on defense. Next, the fiscal year (FY) 2009 defense budget request will be analyzed in order to provide proper context for the GDP debate. Finally, substantive critiques will be made of the four percent proposal's methodology, analytical coherence, and overall utility for future defense planning and budgeting.

The Advocates

Near the end of 2007, Senator McCain wrote in Foreign Affairs that the United States could afford to spend four cents of every dollar, or more, on national defense in the future? In November 2007, Secretary of Defense Robert M. Gates said that four percent of GDP should be a "benchmark as a rough floor of how much we should spend on defense." (6) Pentagon spokesman Geoff Morrell later reiterated Gates's commitment to the four percent benchmark: "That is what [Gates] believes to be a reasonable price to stay free and protect our interests around the world." (7) In February 2008, Admiral Michael Mullen, Chairman of the Joint Chiefs of Staff, told reporters, "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." (8)

Despite this seemingly unified front, nuances in these top policymakers' positions exist. The McCain campaign, for example, softened its stance in July 2008, when former Navy Secretary and McCain adviser John Lehman told National Journal, "[John McCain] doesn't do budgeting by targets.

The number will be what it will be after he has done the thorough analysis and programming and planning.... That may be three percent, it may be five percent, but he's not aiming for a target." (9) A spokesman for Admiral Mullen said that the Chairman's endorsement of the four percent spending floor did not mean he believed the defense budget should be "indexed" to GDP, but rather that GDP should serve as a reference to "stimulate discussion relative to the affordability of increased defense spending in a challenging security environment." (10) Former Air Force Secretary Michael Wynne, after being relieved of his duties in June 2008, even went so far as to admit that the military services perhaps "overstepped our bounds a little bit" by advocating so publicly for the four percent baseline. (11)

A handful of nongovernmental, conservative security analysts laid the recent groundwork for the GDP-derived defense spending baseline. The most vocal of these analysts are affiliated with the Heritage Foundation, which chose "Four Percent for Freedom" as its slogan for the proposal. In a March 2007 National Review cover story, Heritage fellow and former Senator Jim Talent (R-Mo.) argued that …