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 na├»ve 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).

1955
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%)

1980
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%)

1990
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%)

2000
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%)

2010
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:

https://www.whitehouse.gov/wp-content/uploads/2023/03/hist03z1_fy2024.xlsx

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%).

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