Why War Is So Affordable: The Military's Role in the U.S. Economy

Article excerpt

During each conflict since the end of World War II, the military establishment has used a smaller share of the nation's resources than during the preceding engagement. Although the absolute level of military resource utilization has been rising during the fighting in Iraq, this general pattern continues to hold.

In every way that it can be measured, the military's take of economic activity is a smaller fraction than during the Gulf War--or Vietnam and Korea. This relationship holds for the military share of the economy (as measured by gross domestic product) as well as for its portion of the Federal budget, capital investment, research and development, and personnel. Consequently, the U.S.'s underlying economic strength provides great leeway to Federal government decisionmakers--and to Americans generally--in setting policy on national security.

While there is intense debate concerning the details of the U.S.'s military role in Iraq, it seems appropriate to step back and raise several larger questions on national security policy: Exactly how much of the nation's resources are being taken by the military establishment? Is that military share rising? Is it sustainable?

The current data are clear: military expenditures in the U.S. are rising in absolute terms and as a proportion of total economic activity (as measured by GDP). Total Department of Defense expenditures grew from $281,000,-000,000 in Fiscal Year 2000 to $436,000,000,-000 in FY2004--significantly faster than the overall rate of inflation. The national defense portion of GDP rose from 3.8% in calendar year 2000 to 4.4% in 2004. This short-term upward trend is hot surprising. The conduct of war invariably exerts increasing pressures on the military budget. That was the experience during the Gulf, Korean, and Vietnam conflicts, and especially during World Wars I and II.

In the long term, however, a number of factors contribute to the "smaller share" trend, such as the geographically limited nature of the wars during the past half-century. Moreover, the increasingly high-tech orientation of defense spending and operations may be generating a special rise in productivity. However, that point is offered merely as a surmise rather than a finding bolstered by supporting detail.

The record shows that, at its World War II peak, military outlays equaled about 35% of GDP: during the Korean War, approximately 15%; Vietnam, 10%; and the Gulf War, six percent. The current ratio (as of mid 2005) is 4.4%. None of these numbers provides any solace to the Americans and out allies who have been wounded in Iraq or to the families of the servicemen and women killed. Keep in mind, though, that the purpose of this study is neither to justify nor attack the conduct of the U.S. involvement in Iraq--or Afghanistan or elsewhere. Rather, it is the mere contribution of an economist who is trying to measure an important and often misunderstood aspect of the American economy.

Thus, it is beyond the scope of this report to state whether devoting 4.4% of the national output--or any other number--to military purposes is too much, too little, or just right. As many economists have pointed out, military spending generates an important "opportunity cost" since the resources used are not available to meet other needs--and desires--of the nation. Simultaneously, of course, society can receive substantial benefit from military spending in the form of enhanced national security. These are the types of issues that public sector decisionmakers continue to wrestle with.

In contrast, the point being made in this report is much more modest: factual information on the military use of economic resources should get more attention than it now receives. That would help to raise the information level of the ongoing policy debates. Nevertheless, the aggregate comparison of military spending and the national economy is just the beginning of a serious analysis. …