April 28, 1997
"Arms Spending Falls (Show Me the Savings)"
San Jose Mercury News
By Timothy Taylor
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DURING the Cold War, one of the repeated refrains from the liberal side of American politics was that America was spending too much on defense.

And not just America. Countries around the world were buying tanks and airplanes instead of food and medicine.

Heard this lately? There's a reason this lament faded away.

Global military spending has made a U-turn since the mid-1980s. In 1985, defense was 4.9 percent of the world's economy. By 1995, it had fallen to just 2.4 percent of global economies, according to a recent analysis by Benedict Clements, Sanjeev Gupta, and Jerald Schiff, three economists at the International Monetary Fund.

By their calculation, the world saved $720 billion in 1995 by scaling back from the 1985 levels of spending on soldiers and weapons.

Both the United States and the Soviet Union played key roles in this decline. U.S. defense spending peaked at 6.2 percent of gross domestic product in 1986, but will be just 3.4 percent of GDP this year. Within the countries of the former USSR, defense spending was 8.4 percent of GDP in 1990, but just 3.1 percent of GDP by 1995.

In Europe, Africa and the Middle East, military spending as a share of GDP has also been trending slightly down. As the IMF analysts put it: ''It is possible that we are observing, over the last decade or so, a 'virtuous circle' in which military spending reductions in some countries lead to cuts in such spending by other countries, as perceived external risks decline.''

However, in Latin America and Asia, military spending rose just slightly faster than economic growth from 1990-95. This trend is especially worrisome in the fast-growing countries of East Asia, where the rise in defense spending has been outstripping annual economic growth rates of 8-10 percent.

But taking the world as a whole, the fall in the share of resources going to defense spending is clearly good news. Defense spending is, on the international level, rather like spending money on self-defense courses, burglar alarms, a home security system, even a gun for the bedside table.

Nations and people spend money on defense because the possible consequences of not spending -- like unchecked assault or theft -- are worse. However, money spent on defense provides no direct satisfaction of its own. It doesn't put jam on your toast, or gas in your car, or a shirt on your back.

We spend on defense, either personally or nationally, because we are afraid not to. We're happy to be able to spend the money on something else.

So if the world has saved hundreds of billions of dollars in defense spending, can someone show us the money?

Part of the story here is that from 1985 to 1995 the size of the global economy roughly doubled, and the percentage devoted to military spending shrank by half. The result was that the absolute level of world military spending stayed about the same, although less was happening in the United States and the Russian Federation, and more in Asia.

The question about what happened to the ''peace dividend'' also reminds me of a friendly riff that my father and mother play. Mom buys something on sale and tells dad about it. Dad responds: ''I'm so glad you saved money. By the way, I'm a little short on cash, so could I have some of that money you saved?''

The point, of course, is that there's a difference between having saved money on one item and having spending money in your pocket.

On a national level, most of the money saved by defense spending cuts has ended up as lower budget deficits or lower taxes. Of course, less government borrowing to finance deficits means more capital for private investors, and lower taxes means more money in people's pockets. Moreover, lower defense spending forces resources that had been used for defense -- management, labor, investment and technical expertise -- to migrate to the civilian sector.

From a lofty economic perspective, these are clear and substantial benefits to reduced defense spending. But from the ground-level, day-to-day, just-trying-to-get-by view of a citizen, such effects can seem altogether insubstantial.

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