NCPA - National Center for Policy Analysis

"Peace Dividend" Balanced Budget

January 26, 1998

President Clinton plans to submit a balanced budget for 1999; but neither he nor the Republican Congress should get the credit, says columnist Robert J. Samuelson. That the budget is nearly balanced is mostly due to the "peace dividend" -- the reduction in defense spending since the collapse of the Soviet Union.

A growing economy and increased tax revenues -- $72 billion more than forecast by the Congressional Budget Office a year ago -- closed the last of the budget gap, but without the decline in defense spending as a portion of the national output and federal spending, massive deficits would endure.

Also, the defense budget is the only area of federal spending that has been restrained, says Samuelson.

  • In fiscal 1998, defense spending will total about $266 billion or roughly 3 percent of gross domestic product (GDP).
  • A decade ago, defense spending was 6 percent of GDP a year -- a difference amounting to an additional $260 billion a year.
  • While defense spending fell between 1988 and 1998, entitlement spending went from 10.2 percent of GDP to an estimated 11.3 percent, and domestic discretionary spending rose from 3.2 to 3.4 percent of GDP.
  • Thus since 1988, spending on domestic discretionary programs has risen about 25 percent after adjusting for inflation.

Some defense analysts are concerned that defense has been cut too far. Since 1990, the number of army divisions has dropped from 18 to 10; the navy's combat fleet has shrunk from 546 to 357 ships; and the number of active air-force tactical fighter wings (72 planes each, without spares) has shrunk from 24 to 13.

Strategist Eliot Cohen of Johns Hopkins University said in the New Republic that "there is no substitute for a bigger budget" to insure a technological lead over China 20 years hence and defend against terrorist attacks, including the use of weapons of mass destruction.

Source: Robert J. Samuelson, "The Peace Dividend," Newsweek, January 26, 1998.


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