NCPA - National Center for Policy Analysis


June 10, 2010

The largest driver of the long-term federal budget gap is entitlement spending that is slated to grow faster than the economy.  But a second key driver -- growth in security spending -- often gets short shrift.  That national security is important does not mean that the Pentagon should be exempt from fiscal oversight or off the table when we talk about balancing the federal budget.  This is especially true because higher defense spending does not always make us safer, says Josh Barro, a senior fellow at the Manhattan Institute. 

For instance: 

  • From the end of the Vietnam War through the end of the Cold War, national defense spending typically ran between 5 percent and 6 percent of gross domestic product (GDP).
  • With the Soviet threat eliminated, the "Peace Dividend" allowed a reduction in defense spending as a share of the economy, bottoming out at 3 percent of GDP in 1999 and 2000.
  • This restraint was one of the key drivers of the budget surpluses of the Clinton-Gingrich era. 

Since the September 11th attacks, the trend has reversed: 

  • In 2010, defense spending will again reach 4.9 percent of GDP, the same level as in 1980.
  • About half of this increase has been driven by specific costs of the wars in Iraq and Afghanistan, and the rest by faster growth in base military spending than economic growth.
  • With deficits expected to run in the range of 4 percent of GDP over the next decade, a 2 percent of GDP rise in defense spending is a huge deal. 

Sen. Tom Coburn (R-Okla.) made these points last month in a letter to the chairmen of the president's deficit commission.  Coburn, who sits on the commission, puts a spotlight on rapid, inflation-adjusted growth in military spending and the lack of oversight at the Pentagon as that money is spent: 

  • In his letter, Coburn notes that inflation-adjusted base Pentagon spending (that is, the figure excluding the additional costs for operations in Iraq and Afghanistan) rose from $407 billion in 2001 to $553 billion -- a 36 percent increase -- by 2011.
  • "Supplemental" spending to cover the wars in Iraq and Afghanistan will add a further $159 billion in 2011. 

Coburn's letter gives reason to believe that we can find significant savings in military spending -- though perhaps not as much as 1.4 percent of GDP -- just by increasing accountability and making wiser spending choices.  Given our overall fiscal situation, we can hardly afford not to, says Barro. 

Source: Josh Barro, "Sen. Coburn Tackles Runaway Defense Spending," Real Clear Markets, June 8, 2010. 

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