The case against a minimum-percentage of GDP Defense spending standard

Former Republican presidential nominee Mitt Romney, current presidential candidate Louisiana governor Bobby Jindal, and influential think tanks like the Heritage Foundation, have all at various times endorsed a defense spending floor pegged at 4 percent of GDP. But the idea of spending a minimum portion of national income on defense makes very little sense fiscally or strategically. It’s time to dispense with the idea of a defense spending floor once for all.

The case for a 4 percent defense minimum is usually built on three claims. First, proponents note that current levels of defense spending, as a percentage of GDP, are at a historical low. They also claim that 4 percent is an affordable figure. Finally, defenders of the idea contend that a spending floor would improve military readiness and underwrite a strategy of American military primacy.

{mosads}It’s misleading to think about defense spending in terms of national economic output. If the economy grows at a faster rate than inflation-adjusted defense spending, spending decreases as a percentage of GDP. But it simply doesn’t add up that the level of spending has fallen, or has even become inadequate.

In 1962, at the height of the Cold War, the United States spent 8.9 percent of GDP on national defense. Last year, spending on national defense was 3.5 percent of GDP. But what does this mean in absolute terms?

Outlays for national defense in 1962 were $443 billion in inflation-adjusted dollars. In 2014, they were $638 billion. The American economy is simply much bigger now. A small slice of a big pie can easily outsize a proportionally larger slice of a small pie. Looking at spending as a percentage of GDP creates an illusion of declining spending by ignoring the size of the economy.

Proponents of increasing the defense budget also neglect to mention the damage this would cause America’s long-term fiscal and economic health. Based on calculations drawn from Congressional Budget Office projections of future defense spending and economic growth, spending 4 percent of GDP on defense between the years 2020 and 2024 would likely require $1.2 trillion more than called for under current plans. Given current levels of popular support for entitlement programs, that additional $1.2 trillion will actually increase America’s debt burden.

That debt will further slow economic growth. As economist Benjamin Zycher notes, every dollar of federal spending taken through the tax system costs the private sector around $1.35. Therefore, the economic impact of the 4 percent proposal is actually 5.4 percent of GDP. In 2020 alone, the economic impact of defense spending at 4 percent of GDP would therefore top one trillion dollars.

Those in favor of a four percent minimum for defense spending say these increases are necessary to ensure military readiness. However, readiness is also a matter of how defense dollars are allocated. According to defense analyst Todd Harrison, because military readiness metrics are based on “inputs” for which funding is a proxy, reductions in readiness reflect may not represent an actual reduction in readiness. Where readiness problems do exist, increasing the defense budget in line with economic growth may simply paper over a misallocation of resources.

Military readiness ultimately serves a strategy. But massively increasing the defense budget is likely counterproductive to the strategic goals the 4 percent proposal is meant to serve.

Daniel Drezner, a political scientist at Tufts, argues that increasing spending in pursuit of military primacy produces diminishing strategic returns. China and Russia combined spent about $300 billion less than the U.S. on their militaries in 2013. Considering that both countries have acted more assertively recently, despite the fact that the U.S. spends far more than they do, suggests that more defense spending may not be the answer. Indeed, additional spending may harm America’s real source of global might: economic vitality.

Fortunately, the 4 percent proposal has gained little support this election cycle. It’s promising that the one candidate who has supported it, Jindal, remains at the kiddie table during the GOP debates. Spending as a percentage of GDP is a misleading way to compare defense budgets across time, and a policy of spending a fixed portion of national economic output on defense is anathema to good fiscal, economic, and strategic sense. Republicans take pride in being guardians of America’s fiscal health and national security. Forever rejecting a GDP-indexed defense-spending floor would be a good way to show it.

Fay is a defense policy analyst at the Niskanen Center, and a senior fellow at the National Taxpayers Union Foundation.

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