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Has Defense Spending Declined Significantly Since 1965? It Depends on Which Numbers You Use


Demian Brady
February 3, 2012

In a recent op/ed, the Washington Examiner featured a chart from our friends at the Heritage Foundation (based on data from the Office of Management and Budget) that shows spending on national defense and entitlements as a percentage of GDP over the past several decades. The data shows that defense spending consumed 7.4 percent of GDP in 1965, rising to its peak of just under 10 percent a few years later during the Vietnam War. The subsequent years show a steady decline that was partially interrupted by the Reagan years, but then resumed, sinking to around 3 percent of GDP in 2000. The post-September 11th build-up saw defense spending rise to 5 percent of GDP by 2010.

A caption on the chart notes that “spending on national defense … has declined significantly over time, despite wars in Iraq and Afghanistan.” But there are other ways to examine the numbers. Here’s another chart, also based on budget data.

defense_outlays_thumbnail
(Click to open chart in a new window)

 

The above chart converts annual defense spending totals to the dollar’s value in 2005. A constant-dollar comparison illustrates how much we have been spending while accounting for inflation that changes the worth of the currency from one year to another.

In 1965, defense spending was $364 billion in constant dollars. Rather than shrinking steadily since that time, the chart shows that spending on defense reached $402 billion in 2002 before rising to $608 billion in 2010. Because our economy is much larger than it was in 1962, we were able to spend comparatively more on defense than we did in 1965, $245 billion more, in constant dollars, even though the figure represents a smaller percentage of total GDP.

In current dollars, we spent $693.6 billion on defense in FY 2010. If we did return to a 7.4 percent level of GDP, defense outlays would have been $1.07 trillion in current dollars.

But is it necessary to maintain that ratio of defense spending? As our technology and productivity improves, shouldn’t we expect to get a bigger bang from our defense dollar as we do from domestic programs? We can invest less as portion of the economy, but get smarter, better results than were possible half a century ago.

The President has called for a plan to cut the number of forces and procurement of programs in order to reduce defense spending by $487 billion over a ten year period. These reductions would be in addition to the military cuts mandated in last year’s deficit deal. Many are concerned that this will reduce our regular troop levels too far, especially given the extensive reliance on National Guard units that were deployed in Iraq and continue to be deployed in Afghanistan.

There is also concern as to how much of these savings will be used to reduce the deficit, and how much would be re-allocated to expand discretionary programs. After consecutive years of annual deficits exceeding $1 trillion, savings need to be found across the board. But despite the President’s vow to go line-by-line through the budget to cut out waste and duplication, taxpayers have not seen significant reductions in domestic program from this Administration. If last week’s State of the Union address was a preview of the forthcoming FY 2013 budget, we will see more of the same: NTU Foundation tallied up the cost of new proposals in the President’s speech and found that for every dollar in domestic spending that would be cut, defense spending would be cut by $128. And only lip-service was paid to confronting the fastest growing part of the budget: entitlements.

Over the ten years since FY 2001, defense spending rose by about $24 billion a year, in constant dollars. After major wars, such expenditures typically decline with a draw-down of forces. We are now having a national debate about the best way to proceed with reductions while maintaining a strong military. A complete picture of the budget figures needs to be a part of this discussion.


 

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Submitted by Paul at: February 4, 2012
If the US government maintained a spending to GDP ratio for all spending programs, we'd be in even worse shape than we are now. The only way to cut spending is to do less of certain things than was previously done or do them more efficiently or cheaply.