Defense Budgets and American Power

Michael E. O’Hanlon


In the late 1980s, as U.S. GDP growth slowed, budget deficits remained stubbornly high, and other nations’ economies outperformed that of the United States, arguments that “the Cold War is over—and Japan and Germany won” were heard frequently. Since that time, however, these U.S. allies have encountered their own challenges—Germany in reintegrating its eastern half and then helping establish the viability (and solvency) of the European Union (EU) and Euro systems; and Japan in dealing with a protracted deflating of its earlier financial bubble, combined with demographic challenges that leave its future economic prospects uncertain, at best.

Today, we are witnessing a period of even greater American economic travails, with much larger fiscal deficits. These are coupled with deep concern that less friendly powers—China in particular and perhaps Russia and others—may be poised to benefit from the relative decline of the United States specifically and the West in general. Is this assessment accurate? What do these shifting economic realities bode for the future of American power and ultimately the security of this country and its allies? Most of all, in light of these changes, to what extent can the United States mitigate the downsides of any hegemonic realignment of global power by more responsible fiscal policy? Put most sharply for the purposes of this essay, to what extent should the United States, as part of a broader strategy to reduce its deficits and strengthen its future economic prospects, accept some defense budget cuts now to preserve and enhance its power in the future?

This paper wrestles with these questions by first exploring the broader question of historic change and the transformations in global economics that ultimately affect military power and national security. It then focuses more specifically on the present American economic and budget challenges. Finally, concluding that serious measures should at least be considered in response to current fiscal challenges, the paper explores options for defense budget reductions that would make a significant contribution towards broader American deficit reduction efforts. In doing so, these recommendations are motivated by the hope that wise, careful reductions can avoid injurious repercussions for U.S. interests and can limit the amount of turning inward by the American people that may well be inevitable, to an extent, in the aftermath of the Iraq and Afghanistan operations.

One need not view warfare as the natural state of mankind—or the rise of China and other new powers as inevitably leading to conflict with the United States—to have the concerns addressed here. There are also powerful arguments that, in a world of nuclear weapons, terrorism and civil conflict, infectious diseases, possibly growing threats from biological pathogens, climate change, and overpopulation, the great powers can ill afford the ultra-competitive habits of the past. But they do not change the fact that American military power is designed in part to maintain stability in an international system that includes rising powers like China, and that is sized, structured and modernized in large part with an eye towards the behavior of those other powers. Nor is it any secret that the U.S. Department of Defense watches these developments with a careful eye. As such, any proper examination of the U.S. defense budget must consider the inherent linkages between global economic trends and future military power. To be sure, it would be penny-wise and poundfoolish to jeopardize the general stability of today’s international system in an overly assertive effort to reduce the U.S. federal deficit by some specific percentage. Today’s defense spending levels are preferable to a major-power war or other serious conflict.

Nor are they inherently dangerous; the United States has enough checks on its uses of force, including general casualty aversion as well as a desire to look inward and focus on domestic issues rather than expend resources abroad, that it is not necessary to cut defense in order somehow to prevent unwanted operations or harmful defense investments. However, it would also be wrong to ignore the facts that major American deficit reduction is probably necessary for the country’s long-term strength, and that only by creating a spirit of shared sacrifice throughout the nation can such deficit reduction likely occur on the necessary scale. Chairman of the Joint Chiefs of Staff Admiral Mullen, Secretary of Defense Gates, and Secretary of State Clinton have all identified U.S. deficit and debt levels as national security threats and they are all surely right.5 Mullen has called the debt the nation’s “biggest security threat.” At a political level, too, the American public is likely ready for a period of less assertive foreign policy, and the relative desirability of “wars of choice” probably will be seen—and should be seen—as lower in the future than it may have been in the past.

This paper begins from the premise that we cannot deduce whether U.S. defense budgets are too high, or determine appropriate levels, with broad and sweeping arguments about the aggregate size of Pentagon appropriations. Such arguments are common, usually among those with a pre-determined agenda of either making the defense budget seem high or low. Many who wish to defend the magnitude of Pentagon spending often point out that in recent decades, its share of the nation’s economy is modest by historical standards. During the 1960s, national defense spending was typically 8 to 9 percent of gross domestic product (GDP); in the 1970s, it began at around 8 percent and declined to just under 5 percent of GDP; during the Reagan buildup of the 1980s, it reached 6 percent of GDP before declining somewhat as the Cold War ended. In the 1990s, it started at roughly 5 percent and wound up around 3 percent. During the first term of President George W. Bush, the figure (inclusive of war costs) reached 4 percent by 2005 and  stayed there through 2007; it exceeded 4.5 percent but remained less than 5 percent by 2009/2010. Seen in this light, current levels (including wartime supplemental budgets) seem relatively moderate.By contrast, those who criticize the Pentagon budget often note that it constitutes almost half of aggregate global military spending (to be precise, 45 percent in 2008, according to the estimates of the International Institute for Strategic Studies). Alternatively, they also note that 2009 and 2010 discretionary spending levels (approaching $700 billion each year) exceed the Cold War inflation-adjusted spending average of $450 billion by 50 percent (expressed in 2009 dollars, as are all costs in this chapter). Indeed, current defense spending exceeds the Cold War average modestly even without including war costs. In addition, they note that defense spending dwarfs the size of America’s diplomatic, foreign assistance, and homeland security spending levels (roughly $16 billion, $38 billion, and $55 billion respectively in 2009).

These observations are all simultaneously true, and as such, they are probably inconclusive in the aggregate. The U.S. defense budget is, and certainly under any plausible alternative strategy will remain, large relative to the budgets of other countries and other agencies of the American government. Yet at the same time, it is modest as a fraction of the nation’s economy at least in comparison with the Cold War era. As such, while informative at one level, these observations are of little ultimate utility in framing defense policy choices for the future. We must look deeper. Only by carefully examining how defense dollars are spent can we decide if the budget is excessive (or insufficient). The key is to try to identify missions that are not needed, or weapons modernization plans that are too fast and indiscriminate, or war plans that are excessively cautious and conservative. But first, we need to take stock of the state of America’s broader security in these early years of the 21st century.