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”

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