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
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
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
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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