Thursday, September 14, 2006

How to View Defense Spending

Jeffrey Tucker, one of the inmates of the Mises Economics Blog, posts "Why Libertarians Should Care about Defense." The entire post consists of this chart:

Because Tucker doesn't state the point of the chart, I'll have to read his mind. He's probably trying to convey a message like this:

  • Defense spending was just "right" (i.e., close to zero) in the years immediately after World War II, which might or might not have been a justifiable war for the United States.
  • Look at what has happened since then: Defense spending (in inflated dollars) has risen to a very large number.
  • Inasmuch as the United States really needs little defense, we're obviously spending way too much on it.

Defense spending, unlike domestic spending is driven by the outside world, by what others could or would do to us, regardless of our delusions about their benignity. It is necessary to spend a lot on defense even when we are not at war, for two reasons: deterrence and preparedness. With that thought in mind, let's look at three indices of real (inflation-adjusted) government spending: defense, federal nondefense, and state and local -- the red, black, and blue lines, respectively:

Sources: Indices of government spending derived from Bureau of Economic Analysis, National Income and Product Accounts, Table 3.9.1: Percent Change From Preceding Period in Real Government Consumption Expenditures and Gross Investment. Real GDP from What Was GDP Then? (Louis D. Johnston and Samuel H. Williamson, "The Annual Real and Nominal GDP for the United States, 1790 - Present." Economic History Services, April 1, 2006, URL : Population statistics from U.S. Census Bureau, 2006 Statistical Abstract, Population: National Estimates and Projections, Population and Area: 1790 to 2000 and Resident Population Projections 2005 to 2050.

What does the chart suggest? Several things:

  • The benchmark for "necessary" defense spending is World War II. Real defense spending has yet to return to that level.
  • But, as a result of our foolish rush to demobilize after World War II, defense spending had to rise in response to Soviet- and Communist Chinese-backed aggression in Korea and the growing military power and aggressiveness of the Soviet Union.
  • The partial demobilizations following the Vietnam and Cold Wars necessitated remobilizations to deal with the continuing Soviet miltary buildup and the USSR's adoption of a forward naval strategy; the likelihood that second-rate powers (e.g., Russia) would strive to counterbalance U.S. power; and our belated understanding of the threat posed by terrorist organizations and their state sponsors.
  • Federal nondefense spending and state and local spending have risen generally in step with GDP (green line), and faster than population (purple points and purple regression line). (Note that the chart does not reflect the massively disproportionate growth in spending on transfer-payment programs: Social Security, Medicare, and Medicaid.)

In sum, having becoming locked into the regulatory-welfare state via the New Deal and Great Society, nondefense spending at the federal, state, and local levels has kept pace with what we can "afford" to spend on programs that actually destroy income and wealth. By contrast, defense spending has fluctuated around a high but necessary level, a level that we are much better able to afford now than we were in the days of World War II.

It is customary in democratic countries to deplore expenditures on armaments as conflicting with the requirements of the social services. There is a tendency to forget that the most important social service that a government can do for its people is to keep them alive and free.

-- Marshal of the Royal Air Force Sir John Slessor, in Strategy for the West

Related posts:
Not Enough Boots
Defense as the Ultimate Social Service
I Have an Idea
The Price of Liberty