The Arsenal of Democracy and How to Preserve It: Key Issues in Defense Industrial Policy

Mackenzie Eaglen,
Mackenzie Eaglen Senior Fellow - American Enterprise Institute
Rebecca Grant,
Rebecca Grant President - IRIS Independent Research
Robert P. Haffa, Michael E. O’Hanlon, Peter W. Singer,
Peter W. Singer Former Brookings Expert, Strategist and Senior Fellow - New America
Martin Sullivan, and
Martin Sullivan <i>Tax Analysts</i>
Barry Watts
Barry Watts Senior Fellow, The Center for Strategic and Budgetary Assessments

January 26, 2012


The numbers that make up what the United States spends on its military are large to be sure. In 2011, $549 billion was in the main Defense Department budget, with another $159 billion in the “supplemental” budget that funds wartime operations in places like Afghanistan and Iraq. The sum total of $708 billion that the United States spends on its defense is actually 43% of all the military spending in the world, distantly followed by China (7.3% of world military spending share), UK (3.7%), France (3.6%), and Russia (3.6%).

That the United States spends so much on its military may strike some as unreasonable, but it reflects decisions made by the American public and its leaders about the role the US should play in the world. It reflects the global commitments of a superpower and the requirements that go into meeting them via a modern and, importantly, professional (as opposed to draft-based) force equipped with some of the best military equipment in the world. It is also not a huge share of the nation’s economic output. At just over 4 percent of GDP, it is substantially less by this measure than defense spending during the Reagan years (6 percent) or the 1950s and 1960s (typically 9 to 10 percent). Indeed, it is somewhat less than the 4.5 percent figures that characterized the US armed forces during the post-Vietnam days of a “hollow Army.”

Since the attacks of 9-11, these military commitments, and the ensuing costs, have shot upwards, with the Pentagon’s budget effectively doubling. Ten years in, and with the American economy faltering, however, the budget situation is poised for a sea change. With the United States coming to a political and then economic crisis related to its debt and deficit, America’s leaders came to a begrudging compromise in the summer of 2011. In tense, last minute, negotiations between the Obama White House and congressional Republicans, the two sides agreed to continue to finance the growing U.S. debt beyond the old ceiling. But the deal also came with a catch: they would also engage in a massive search for budget savings as well as explore how to deal with the underlying problems in America’s entitlement and tax policies that were truly driving the crisis.

The deal agreed that somewhere between $400 billion and almost $1 trillion dollars worth of spending on national security over the next decade will have to be cut from the budget. $400 billion in cuts were agreed to in the debt ceiling deal reached at the end of summer 2011. And another roughly $500 billion in cuts is potentially on the table, dependent on how the Congress deals with the sequestration commitment it made as part of the debt limit deal.

In short, the fiscal and political reality is that the United States will again undergo a post-war defense budget reduction of the type that has followed every major war in its modern history. The numbers remain to be resolved, but the most likely scenarios are that the annual resources available to the military and the wider defense industrial base will decline significantly over the coming years.