Tuesday, June 27, 2023

Government Spending Addendum: Military Spending and the Discretionary vs Mandatory Budgets

Click here to read the original Cautious Optimism Facebook post with comments

2 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff shouts kudos to CO regular Lisa Dennis Lee for a comment reminding him about one more defense spending statistic.

As mentioned in a previous column on government military spending, one of the more common fallacies/deceits you’ll hear from the political Left is “Half your tax dollars go to war,” proven with pie charts of federal discretionary spending (example attached, left).

The Economics Correspondent knows firsthand. Being a resident of San Francisco he's seen activist flyers with the same slogans and charts taped to his apartment building's front door.

The key word here of course is “discretionary,” which the same sophists never define.

Because the federal discretionary budget is only one third of the overall federal budget, the other two-thirds being the ***mandatory budget*** which is dominated by Social Security, unemployment, Medicare, and Medicaid (attached chart, right).

The mandatory budget is consistently twice the size of the discretionary budget, although in 2022 it was even larger (73% versus 27%) due to higher Covid-related medical spending. 

And according to the White House's budget website the 73/27 ratio isn't scheduled to subside anytime soon, but we'll be generous and assume discretionary spending remains one-third.

So if defense is one-half of the discretionary budget, and we know the discretionary budget is only one-third of the overall federal budget, then grade school math tells us...

Military spending = one-half of one-third = one-sixth of the federal budget: right in line with the 17.6% that we already calculated in previous articles.

(Actually defense was only 12.2% of federal spending in 2022, but it creeps higher once veterans affairs and Department of Energy nuclear-arsenal related costs are added)

Yep, that’s pretty misleading to tell folks half of all federal spending is military when at most it’s only one-sixth, but most of these people aren’t in the honesty business and many of their readers/followers don't shop for honesty anyway.

BTW even if you don't do fractions you still have to know something is amiss when the FY22 discretionary budget you're being fed was $1.5 trillion yet the federal government ran a $1.4 trillion deficit. Did the IRS only collect $100 billion in taxes last year? No, it collected $4.9 trillion... fifty times more.

So maybe the government actually spent a few trillion dollars more somewhere that are missing from that misleading chart on the left.

Finally, a commonsense impression.

The Economics Correspondent has always found it strange that military spending is considered “discretionary” while micromanaging Americans’ retirements and healthcare into insolvency is classified “mandatory.”

Most people with a dictionary would think if any function of government is “mandatory” it’s protecting its citizens from violence, both domestic and from abroad.

But in the world of Newspeak keeping people safe is considered a “discretionary” function of the state while Social Security and unemployment spending has been classified as “mandatory” going back to 1935. 

And healthcare has been classified as "mandatory" since the passage of Medicare and Medicaid in the 1960’s.

Wednesday, June 21, 2023

Government Spending, Part 3: Military Spending, the Military Industrial Complex, and "The Next Ten Countries Combined"

Click here to read the original Cautious Optimism Facebook post with comments

6 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff submits one last analysis of military spending in the U.S. government budget.

Click to enlarge

The last two weeks we’ve determined the following about defense spending in the USA:

1) In 1955 defense spending including veterans affairs was 69.3% of the federal budget and “human priorities” such as Social Security, healthcare, unemployment, welfare, and education was 24.6%.

Today defense spending's share has fallen by three-quarters to 17.6% of the federal budget and human priorities has nearly tripled to 64.8%.

2) Including all levels of government—federal, state, and local—defense spending is 12.6% of combined budgets. Human priorities is 61.5% or nearly five times greater.

3) In 1955 defense spending including veterans affairs was 13.1% of GDP. Today it’s 4.4% of GDP which reflects primarily the enormous growth of the U.S. economy and the improved technological efficiency of the armed forces.

4) Korean War expenditures cost 10% of GDP annually. The combined Iraq and Afghanistan wars cost 0.6% of GDP annually at a time when human priorities averaged 20% of GDP.

5) Finally the total estimated cost of operations in Iraq and Afghanistan from 2001 to 2017 was $1.2-$1.7 trillion (source: Obama’s own budget director Peter Orszag). From 2001 to 2017 the federal government alone spent $35 trillion on human priorities and state & local governments several trillion more.

Although the Economics Correspondent isn’t naïve enough to believe every penny of the military budget is spent wisely, the statistics clearly show that in the 21st century military spending and particularly wartime operations have been reduced to a drop in the bucket compared to what American government spends “helping people.”


Which brings us to the next criticism of defense spending: that it’s bloated and out of control at the behest of the military industrial complex, a cartel of giant corporate military contractors who pull the puppet strings of government to start wars so that they may sell more weapons systems to the Pentagon for unconscionable sums of money.

The Economics Correspondent agrees without doubt that large defense contractors lobby heavily to sell their systems to not only the Pentagon but also to other countries’ militaries. But just how big is this evil, shadowy corporate creature whose tentacles spread throughout and dominate the economy?

Breaking down the $814 billion 2023 defense budget (not veterans affairs, just the military) we look at the one pure “military industrial complex” budget item: procurement of new weapons.

Procurement is the third largest defense budget subitem (yes, third) after military personnel salaries/pensions and operations & maintenance. 

The 2023 cost? $170 billion.

$170 billion to buy new weapons and replace existing weapons (like munitions) is 2.9% of the $5.88 trillion the federal, state, and local governments will spend on human priorities. So while it’s not a meaningless number, $170 billion is hardly the make-or-break budget item driving 2023’s forecast $1.5 trillion deficit. 

And "buy one less aircraft carrier," which the political left forever espouses to solve all the federal government's budget woes, is going to fall far short when the cost of ***all military procurement*** is just 11% of the budget deficit.

However the USA’s recent military assistance to Ukraine will probably drive higher procurement costs spread out over the next few years to replenish depleted weapons supplies and could add several dozen billions more to future procurement budgets. This in turn could add another 0.34% to 0.68% to the equivalent of combined "human priorities" spending, assuming procurement budgets are elevated anywhere from $20-$40 billion per year down the road.

However there are two more budget items that partially pay out to military contractors. A large share of the $146 billion for “Research, Development, Test, and Evaluation” likely goes to defense contractors, and a smaller share of a larger item—”Operations and Maintenance” at $309 billion—also goes to contractors for “maintenance and modernization,” although the larger combined O&M budget items are training, recruitment, exercises, disposal, and overseas bases administration.

It's hard to find exactly how much of each subfunction is paid to contractors but Bloomberg estimates a grand total of $409 billion for the last complete year (2021) although some of those transfers include “Drugs and Pharmaceutical Products” ($36.8 billion), “Facility Related Services,” ($24.5 billion), “Management Advisory Services” ($21.7 billion), and “Construction Related Services” ($19.6 billion). 

Yes, these dollars go to contractors too, but they’re not exactly Northrop Grumman or Lockheed Martin-type weapons dealers. 

Backing those soft-contractor expenses out we get a final estimate of $306 billion for the purchase of new weapons systems, maintenance of existing systems, and R&D for weapons systems. Not an insignificant number, but again just 5.2% of what government spends on human priorities.

And while we’re speaking of industrial complexes: Medicare, Medicaid, and state/local government healthcare programs will spend $2.2 trillion of tax money in 2023, nearly all of it as reimbursements to or purchases from doctors, hospitals, clinics, laboratories, pharmaceuticals, medical device makers, etc… 

That's over seven times more than the Pentagon pays its contractors for weapons.

So who is bigger, has more to gain and has more lobbying influence over our tax dollars? The military industrial complex at $306 billion? Or the healthcare industrial complex at $2.2 trillion? 

(We won’t even talk about the welfare industrial complex) Perhaps it’s long past time people added “healthcare industrial complex” to their vocabulary and gave it seven times the weight of its military nephew.


Finally we get to the last soundbite of “the United States spends more on defense than the next ten countries combined” as if this signifies the lions share of government spending is military (when in fact only 17.6% is).

Checking the data confirms that yes, ***on a nominal basis*** the United States does spend more than other countries like Russia, China, etc… although it’s no longer the next ten countries combined, but rather “only” the next nine (yes, admittedly nine is still a lot although that number is still falling).

But the real fallacy in this comparison is ignoring the per-capita costs of running a military in the United States versus running one in China and Russia.

Starting with personnel: the standard of living of a U.S. soldier or officer is far higher than his/her Chinese or Russian counterpart, making him/her a lot more expensive to employ.

Although the best data the Correspondent could find is from 2018-2020, the Kremlin recently raised its average army lieutenant’s salary to 66,100 rubles per month. In U.S. dollars that’s about $791 per month, or $9,500 a year.

A Russian lieutenant colonel made 88,700 rubles per month ($1,062 per month, or $12,747 a year).

The Economics Correspondent has an active lieutenant colonel in his family and knows he's paid more than ten times that, and Chinese counterparts make even less than Russians.

The healthcare, pension, housing subsidies, and other benefits for U.S. service personnel are also far better/more expensive than for Russians and Chinese.

The same holds true for weapons systems, maintenance, and R&D. Try paying technicians, engineers, and factory workers developing and producing M1A2 Abrams tanks and F-35 fighters the same salary as their Russian counterparts are paid to make T-90 tanks and Su-57 aircraft (all 21 of in existence so far). 

Then watch the Americans all quit their jobs and go work in another industry.

So of course the U.S. military budget is going to be larger than a lot of other countries’ combined. It's like complaining that "America spends more than the next X countries combined on information technology." Sure, what does it cost to employ an American software engineer compared to a Chinese one?

A much more accurate measure that offsets for cost of living is military spending as a share of national GDP. Using that measure, which critics of military spending *never* mention, the United States falls to anywhere from #15 in the world (Stockholm International Peace Research Institute – 2021) to #20 (World Bank) or #24 (cia.gov).

In all three cases the USA is several spots lower on the list than Russia although not China (yet).

Of course if U.S. allies in Asia and particularly in Europe carried a greater share of the financial burden of military readiness/operations—say NATO members meeting or slightly exceeding their minimum 2% of GDP defense spending targets—U.S. military spending both nominally and as share of GDP would fall considerably further.

If the top five NATO members, South Korea, and Japan were to increase their defense budgets by just 15% to offset regional American cost burdens the USA would fall several more spots on the per-GDP scale—on all three aforementioned lists.
Links to data:

1) "Government Spending" articles, parts 1 and 2



2) Nominal defense spending by country


3) Defense spending as % of GDP by country




4) U.S. defense spending by subfunction


5) 2018-2020 Russian military raises (published 2018)


6) Estimated defense contractor spending


Wednesday, June 14, 2023

Government Spending, Part 2: Military Spending vs All Government Spending and GDP

Click here to read the original Cautious Optimism Facebook post with comments

6 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff resumes analyzing U.S. government spending with a continued focus on the military budget.

(Disclaimer: The Economics Correspondent would like to repeat he makes no claims that every penny of the military budget is spent wisely or that the Pentagon never overpays for maintenance or procurement of new weapons. Rather his objective in these columns is to place the scale of military spending into context with other forms of government spending and the overall budget.)

Last week we looked at the shrinking role of military spending as a percentage of the federal budget and its corollary: an expanding share of spending on “human priorities” such as Social Security, Medicare, Medicaid, welfare, unemployment, and education.

In 1955 military spending (including veterans affairs) constituted 69.3% of federal spending. In 2023 it will be 17.6%.

In 1955 spending on human priorities constituted 24.6% of federal spending. In 2023 it will be 64.8%.

The two have effectively changed places and defense is now one-sixth of the budget.


But these numbers only include federal spending. As everyone knows, state and local governments also impose taxes and allocate outlays. Cautious Rockers are reminded every day by their sales taxes, property taxes, gasoline taxes, utilities taxes, hotel and rental car taxes, and road tolls.

So how do the numbers change when accounting for U.S. government spending at all levels?

In 2023 the combined federal, state and local governments are forecast to spend $9.55 trillion. But state and local governments contribute very little to defense which is primarily a federal function, while they do spend a great deal more on education, unemployment, welfare, and medical assistance.

Thus total defense spending, including veterans affairs and what little state governments spend to accommodate military reserves and local infrastructure, is projected at $1.2 trillion in 2023.

However “human priorities” spending, which is $4.14 trillion at the federal level, balloons to $5.88 trillion—390% higher than military spending—with the biggest state/local increases in education and healthcare

Adjusting for these new data, “human priorities” spending across all government accounts for 61.5%, down slightly from 64.8%, offset by large state/local bumps in transportation, law enforcement, and water infrastructure.

However nominal military spending barely rises, so as a share of all government spending the defense budget falls from an already modest 17.6% of federal to 12.6% of all government spending.

Final tally? Government in the United States spends 12.6 cents of every dollar on the military and 61.5 cents on Social Security/pensions, healthcare, education, welfare, and unemployment. That’s one-eighth of all spending versus more than 60%.

So please don’t let any left-winger tell you “Half of your tax dollars go to war” (which the Correspondent sees all the time here in San Francisco). Government in the United States spends five times more on “helping people” than it does on the military.


Every now and then when quoting these statistics you’ll hear an uninformed progressive complain that the numbers are misleading and military spending is far higher than the data suggest.

Reason? The Department of Energy, they say, is almost completely dedicated to America’s nuclear weapons arsenal and needs to be factored in.

Once again we have an example of people who don’t do math making an assertion simply because they think it sounds good.

The Department of Energy’s budget for 2023 is $160 billion, and it’s an easy matter of looking up its components online (links to all data at end of article).

As anyone with eyes can see, the DOE has been allotted $26.8 billion for the “National Nuclear Security Administration” and another $13.9 billion for “Environmental and Other Defense Activities.”

Without knowing how much of the $13.9 billion is allotted for “environmental” and how much for “other defense” activities, if we’re extremely generous and assign all $13.9 billion to the military we get a total DOE military allocation of $40.7 billion.

That’s at most $40.7 billion atop $1.2 trillion, a military increase of 3.4%. That's like claiming the cost of your airline ticket to Dubai is wildly understated because it doesn't include the $15 fee for inflight wi-fi.

Or put into perspective, $40.7 billion of DOE money is 7/10ths of one percent of the $5.88 trillion government will spend on “human priorities.”

Another math fail for the anti-defense spending lobby.


Lastly, how much of the entire U.S. economy is devoted to the military?

FY2023 GDP is estimated to end at just shy of $27 trillion.

Therefore the $1.2 trillion government at all levels will spend on defense, veterans affairs, and yes, trinkets from the Department of Energy for nuclear arsenal security, represents 4.4% of GDP.

4.4% doesn’t sound like much and historically it’s not. If we go back to 1980 defense spending was 5.9% of GDP. And in 1980 Jimmy Carter was still president and the military was still two years away from the Reagan buildup.

Going back further to 1955, two years after the end of the Korean War, defense spending was 13.1% of GDP.

But coming back to the 21st century, if we look at 2007, when the Iraq War was sliding into insurgency and the Pentagon was launching the “surge” while simultaneously fighting in Afghanistan, military spending was 4.5% of GDP. All the while lefties were complaining that George W. Bush’s wars were bankrupting the United States even as human priorities spending (in 2007) was consuming 20% of GDP.

Incidentally, even Peter Orszag, Barack Obama’s first budget chief, testified before Congress in 2007 as CBO Director that the combined cost of operations in the Iraq and Afghanistan wars would total $1.2 trillion to $1.7 trillion for the period 2001 through 2017.

Taking the largest figure of $1.7 trillion and dividing it by 17 years, war operations budgets averaging $100 billion per year constituted 0.6% of annual GDP (in 2011). Over the same 17 years the federal government alone spent $35 trillion on “human priorities” or more than twenty times Orszag’s highest war estimate and nearly thirty times his lowest.

But yes, we’re told that war was bankrupting the United States, not the 20-30 times more spent domestically.

The Economics Correspondent is not making an editorial statement on the wisdom or effectiveness of the Iraq and Afghanistan wars, only pointing out their monetary costs were insignificant compared to what government routinely spends on payments to individuals for Social Security, healthcare programs, welfare, unemployment, and funds for education.

Which leads us to the final point. The United States has the world’s top military, protects (or overprotects) allies all over the world, and does it for a price tag that is historically a tiny sliver of economic output. If one goes back centuries or even to the more recent Korean War, military conflicts have been incredibly expensive for nations. The cost of fighting the Korean War alone (measured as the difference between military spending before and during the war) was 10% of GDP per year. Iraq and Afghanistan combined on average cost the U.S. economy 0.6% of GDP per year.

This is a testament to two factors. First, the U.S. economy has grown by such leaps and bounds even since 1953 (and far more since the 19th century) that it can support a highly effective military with a presence all over the world (rightly or wrongly) and fight two regional wars for just a tiny fraction of what used to be diverted from the nation's economic output. 

Such a decline in cost, by the way, is why Democratic complaints that “In every past war we’ve had to raise taxes but George W. Bush irresponsibly won’t do it” fell on deaf ears for those of us who understand math. War has become a much cheaper business in the 21st century than it was in the 20th century or before, and 2007 Democrats were just pushing, as always, their 5,734th excuse to raise taxes.

Second, despite all the money the Pentagon spends (and sometimes wastes) while running the military, the final product is still a historically incredible bang for the buck. 

In a regional conventional war no longer does the United States need to slug it out with conventional armies for three years, sacrifice 50,000+ American lives, and blow 10% of GDP annually to conclude a conflict like Korea. Even in Iraq, which went badly for three years after the initial invasion, about 5,000 Americans died (a tragedy for each casualty, but one-tenth the number in Korea and one-twelfth that of Vietnam), the conventional army of Saddam Hussein was routed in a matter of days, and the annual cost as a percent of GDP was less than 1/16th that of Korea.

The U.S. military is so much more effective than it was in the 1950’s that the question of winning regional conventional wars is no longer one of huge spending, years-long quagmires against enemy tanks and infantry, and racking up 50,000 deaths, but rather a question of competent management of the theater, political will, and preventing social justice crusades from rotting it from within. Thanks to economic growth and advances in technology, the ratio of the U.S. military’s effectiveness to its cost is at an all-time high in world history.

Now if only we could say the same about Social Security, Medicare, Medicaid, and government education.
All of the numbers cited in this article are easy enough to confirm via links in the comments section.

1) White House budget tables for federal spending by superfunction 1940-2023: 


2) Total government spending, adjustable by year, by $$$ amount, or by share of GDP:


3) Department of Energy outlays by subfunction:


4) Peter Orszag’s 2007 testimony:

“Including both funding provided through 2007 and projected funding under the two illustrative scenarios, total spending for U.S. operations in Iraq and Afghanistan and other activities related to the war on terrorism would amount to between $1.2 trillion and $1.7 trillion for fiscal years 2001 through 2017”


Wednesday, June 7, 2023

Government Spending, Part 1: Military Spending Over Decades

Click here to read the original Cautious Optimism Facebook post with comments

4 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff offers a few columns analyzing how the U.S. government spends its/our/our grandchildren's money.

 A visual from Wikipedia of all places on where the U.S. federal
 government spends its money. Note the "massive military buildup"
of the 1980's under Ronald Reagan.
With a budget deal finally reached between Joe Biden and Kevin McCarthy a lot of commentary has been going back and forth about government revenues and outlays, both in the press and on the Internet's comment boards.

The Economics Correspondent wants to start with a focus on military spending, but first would like to state up front that he’s not naïve enough to believe every dollar of the defense budget is being spent wisely or that the Pentagon doesn’t overpay for maintenance or weapons systems. He merely wishes to place the size of the military budget in context with that of other spending programs.

So not only today, but for decades going back as far as the Correspondent can remember the political left has made defense spending the target to solve all of Washington, DC’s fiscal and deficit ills. “Cut the military budget and we wouldn’t have a deficit” we hear, along with “all those expensive aircraft carriers and weapons we buy drive the national debt.”

He’s even seen “Half of all your taxes go to war” taped to his San Francisco apartment building’s front door.

But instead let’s go back a bit in time and compare how the size of defense spending has changed over the decades against that of other major federal spending programs.

It turns out such data are easily found on the White House’s budget website. Historical statistics have been available and consistent throughout the George W Bush, Obama, Trump, and Biden administrations, with budget data going back to 1940.

To make sure we avoid tripping up one year with unusual military spending for a major war (like Korea or Vietnam) let’s look at budgets by superfunction in 1955, 1980, 1990, 2000, 2010 and 2023 and then as a percentage of total federal outlays (in parentheses).

Total spending: $68.4B
Defense including veterans: $47.4B (69.3%)
Healthcare: $291M (4.2%)
Social Security and Unemployment: $9.50B (13.9%)
Education and job training: $445M (6.5%)

Total spending: $590B
Defense including veterans: $155.2B (26.4%)
Healthcare and Medicare: $55.3B (9.4%)
Social Security and Unemployment: $205.1B (34.8%)
Education and job training: $31.8B (5.4%)

Total spending: $1.253T
Defense including veterans: $328.4B (26.2%)
Healthcare and Medicare: $155.8B (12.4%)
Social Security and Unemployment: $397.4B (31.7%)
Education and job training: $37.2B (3.0%)

Total spending: $1.789T
Defense including veterans: $341.4B (19.0%)
Healthcare and Medicare: $351.6B (19.6%)
Social Security and Unemployment: $663.1B (37.1%)
Education and job training: $53.8B (3.0%)

Total spending: $3.457T
Defense including veterans: $802.0B (23.2%)
Healthcare and Medicare: $820.7B (23.7%)
Social Security and Unemployment: $1.329T (38.4%)
Education and job training: $128.6B (3.7%)

2023 (est.)
Total spending: $6.372T
Defense including veterans: $1.120T (17.6%)
Healthcare and Medicare: $1.722T (27.0%)
Social Security and Unemployment: $2.144T (33.6%)
Education and job training: $269.0B (4.2%)

The final tally as a share of total federal spending?

Military vs "Human Resources"

1955: 69.3% vs 24.6%
1980: 26.4% vs 49.6%
1990: 26.2% vs 47.1%
2000: 19.0% vs 59.7%
2010: 23.2% vs 65.8%
2023: 17.6% vs 64.8% (est.)

The long-term trend is clear: Back in 1955, two years after the end of the Korean War, military spending including veterans affairs constituted 69.3% of federal spending whereas “human resources” was about 21.8%.

Today military spending is 17.6% and human resources is 64.8%, the two nearly completely switching places.

Clearly since the days of Eisenhower the federal government’s role has changed from primarily protecting the country to instead paying out medical and retirement benefits. Military spending as a % of GDP has also fallen from 10.5% of GDP to 3.1%. 

In fact, if the federal government continued paying for veterans affairs but drew the entire defense budget down to zero, leaving the U.S. completely defenseless to attack along with many of its allies and throwing all military personnel out of work, the 2023 savings would be $814 billion. 

But given the CBO projects a 2023 federal deficit of $1.5 trillion, there would still be nearly a $700 billion deficit.

The fiscal deficit has also been greater than the entire military budget for twelve of the last fifteen years, in some cases much greater such as the first four years of the Obama administration when a collective $5.1 trillion was added to the debt but a total of $2.7 trillion was spent on the military (incidentally $8.8 trillion was spent on payments to individuals during the same period).

And these figures don’t include state and local government spending, virtually none of which goes towards defense but a great deal of which is added atop healthcare, pensions, education, and other human resources at the non-federal level.

Incidentally you can pull all the tables yourself at:


Or if you forget the link just search on “White House budget tables,” select "Historical Tables | OMB," and scroll down to “3.1-Outlays by Superfunction and Function: 1940-2028.” They’ve been there for years and will probably stay there for many years more.

In the next column we’ll take a slightly more detailed look at how defense spending is broken down and we’ll also recalculate these figures accounting for state and local government spending.

ps. Even though military and human resources spending don’t add up to 100% of all spending in 2023, only 82.4%, a growing part of the difference is interest on the debt (2023: 10.4%) plus a little for smaller items like transportation, crime and justice, international affairs, and the environment (5.8%).