The Four Percent Folly

James Jay Carafano’s op-ed in Thursday’s Washington Times, “In Defense of Defense Spending,” exemplifies the illogic of those who want to devote a fixed portion of our national wealth to defense.

Carafano is part of group of think-tankers and Bush administration officials trying to lock in a military budget fattened by two wars. By arguing that we should spend at least four percent of GDP on defense no matter what, they effectively say that whenever we draw down from Iraq, we should take all the war funds and put them into the non-war defense budget — creating a huge increase in base defense spending.

The op-ed is wrong-headed in three ways. It ignores the meaning of the statistic — percentage of GDP — that it hangs its hat on; it implies that changes in threat levels should not affect defense budgets, and it pretends that most U.S. defense spending is related to terrorism.

Carafano’s conclusion:

Defense spending as a percentage of GDP is the appropriate way to measure our national commitment to keeping America safe, free and prosperous. That’s the number policymakers should keep in mind as they look at the president’s budget.

Maybe I have undue faith in government, but I think policymakers can keep in mind more than one number. As my professor at MIT, Cindy Williams, points out, what number you should consider in thinking about the defense budget depends on what you want to know.

Percentage of GDP is useful for historical comparisons of defense’s economic burden. Carafano substitutes the question of what we can afford for what we ought to spend. The United States can afford to spend four percent of its GDP on defense; indeed we can afford to spend far more. That doesn’t mean we should. Whatever your politics, money spent on defense means money not spent on something else: private investment, deficit reduction, infrastructure, a car, etc. The problem is opportunity cost, not economic malaise.

Percentage of GDP is not useful in demonstrating how much we spend on defense compared to the past, however, because GDP grows. Ours is more than six times bigger than it was in 1950, as I wrote here two weeks ago. True, defense’s share of the economic pie has fallen over the last several decades. But that’s because the size of the pie has grown, hiding the absolute increase in spending. The best way to compare defense budgets over time is to look at absolute spending levels adjusted for inflation. That’s what people mean when they say defense spending is the highest that it has been since World War II.

Like most of those who make this argument, Carafano ignores the fact that wealth creation means that he is supporting ever-increasing defense budgets. Why should our grandchildren spend five times more than us on defense just because they are five times richer? Carafano doesn’t say. Nor does he explain why we should spend less on defense next year if there is a recession.

Defense spending should be guided by threats and our plans to deal with them. That this banal idea needs recitation speaks to the poverty of the arguments made by advocates of the drunken-sailor approach to security budgeting. Four percent of GDP forever, capabilities-based planning — these are the desperate justifications of hawks short of threats to inflate. Carafano does not bother to relate the expensive capabilities he promotes with the enemies that they theoretically protect against. Presumably that is because the Cold War is over; China isn’t much of an enemy, plus its growth is likely to taper off far before it can devote close to what we can to its military, and North Korea, Iran and Syria, according to The Military Balance, together spend just above $10 billion on defense, which doesn’t even get you a year’s worth of spending on a faulty missile defense system around here.

What about the “long war”? That’s where Carafano says all this money goes. But the defense budget is buying and operating mostly carrier battle groups, army divisions and fighter aircraft — tools rarely useful in fighting terrorists, and even then, far more abundant than we need. As for the wars in Iraq and Afghanistan, suffice it to say that there is reason to doubt that perennial wars of occupation in Muslim countries serve counter-terrorism. But even counting the wars as counter-terrorism spending, the vast majority of the defense budget is still going toward conventional conflicts, not Al Qaeda.

For a sensible take on these matters and the source of this post’s title, see Bernard Finel’s recent op-ed in Defense News.