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February 3, 1992
"The Decline of the Defense Dollar"
San Jose Mercury News

By Timothy Taylor
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SURROUNDED by broad oceans and amiable neighbors, America has little to fear about protecting itself. With the disintegration of the Soviet Union and the surge of democracy throughout the world, there should be less need for America to protect others, either. Everyone except a few defense contractors and the Soldier of Fortune magazine mailing list agrees that defense spending should be cut. But how far and how fast?

Actually, the process of transferring defense spending to the civilian sector has been going on since World War II, when national defense consumed nearly 40 percent of gross national product for several years. During the Korean War in the early 1950s, defense was 13 percent of total GNP. President Eisenhower was looking at numbers like these when he inveighed against the "military-industrial complex."

After dropping off in the late 1950s and early 1960s, defense spending bounced back to 9.6 percent of GNP at the height of the Vietnam War in 1968. After the U.S. departure from Vietnam, the defense spending share of the total economy shrunk rapidly during the 1970s, bottoming out at 4.8 percent in 1978 and 1979, before the Soviet invasion of Afghanistan.

From 1950 to 1980, the amount of growth in federal civilian spending that was not attributable to Social Security was essentially equal to the fall in defense spending. The United States was steadily transferring government spending from defense to civilian purposes for these three decades.

The defense buildup started by President Carter and then continued by Reagan did not move spending to an unprecedentedly high level. However, it did reverse the downward trend, pushing defense spending back to a peak of 6.5 percent of GNP by 1986.

But any reasonable way you cut it, defense spending has now been falling for several years. Measured in inflation-adjusted dollars, defense spending has dropped since 1989.

In the fiscal year 1993 budget document, President Bush proposes a decline in total defense spending from $320 billion in 1991 to $290 billion in 1997. This request isn't quite as pathetic as it may look at first glance, because it does allow inflation to eat away at the buying power of the defense budget. Over six years, it would result in a drop in the defense budget of 25 percent in inflation-adjusted dollars, to about 3.6 percent of GNP.

The primary problem with Bush's approach, according to William Kaufman and John Steinbruner of the Brookings Institution, is that "the view from the Pentagon is of a scaled-down version of the Cold War." It presumes that a minimum defense budget should enable the United States to respond unilaterally to at least two of the following at any time: an escalating conflict in Europe (perhaps from the breakup of the Soviet Union); another one in the Middle East; another in Southeast Asia (perhaps focused on North Korea); and two lesser regional conflicts elsewhere in the world.

"From this perspective," Kaufman and Steinbruner write in their recent book "Decisions for Defense: Prospects for a New World Order," "the new world is only slightly less threatening than the old one."

They propose several alternate visions of a lower defense budget, based on the ideas that the world is considerably safer; that unilateral projection of U.S. power should not be the goal in all cases; that diplomacy can reduce the need for military spending; and that other economic needs may be more pressing than preparing to fight two or three wars simultaneously. However, their reduced defense establishment would still be large enough to mount a Desert Storm-sized operation.

The immediate budgetary savings are not large: the Kaufman and Steinbruner approach might leave defense spending only $10 billion below Bush's proposal five years from now.

The difference is that Bush sees the cuts as finished by 1997. As he said in his State of the Union address: "This deep, and no deeper." The Brookings writers see the cuts continuing for a decade. At that point, real defense spending would be down to half its current level, about 2 percent of gross national product. More radical proposals for cutting defense more quickly are easy to come by, of course, but all share a belief that it's high time to reconsider U.S. defense needs from the ground up.

Even if such a rethinking happens, however, I suspect that the "peace dividend" will disappoint many people. We aren't in the 1950s anymore, when defense spending was sometimes more than one-eighth of GNP. Even with immediate cuts far more severe than those proposed by Bush, the likely additional savings will be measured in tens of billions.

Those amounts are not chicken feed, but they certainly won't eliminate the budget deficit, provide a tax cut for the middle class, assure health care to all, rebuild bridges and roads, fix public education and job training, fight crime, assure industrial competitiveness, and buy everything else on society's wish list.

Tuesday, part 3: Interest Payments

The chart shows total federal spending and defense spending as percentages of the gross national product. (Fever chart)

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