Measuring Defense Spending

The other false target of Democratic outrage is defense spending, which Mr. Bush proposes to lift in fiscal 2009 to $585 billion. The left is decrying this as the most defense spending, in inflation-adjusted terms, since World War II. But using the more appropriate comparison of spending as a share of the economy, Mr. Bush's request would bring defense outlays to 4.5% of GDP next year, up from 4.2% this year.

That is on par with the 4.4% of GDP in President Clinton's first year in office, and remains well below the 6.2% of GDP in 1986 at the peak of the Reagan defense buildup. (See the nearby chart.) With a hot war in Iraq and Afghanistan, and the terrorist threat hardly ebbing, the U.S. should be spending even more on defense. Democrats need to explain why they want record subsidies for gentleman farmers to take priority over national security.

from the WSJ

If we were inclined to borrow a phrase from Ronald Reagan, we might reproach the Pentagon bigwigs by saying, "Well, there you go again." This year, as in virtually every year for the past fifty years, the military chiefs are trying to minimize the enormousness of their proposed baseline budget ($515.4 billion) by dividing it by the amount of the concurrent gross domestic product (GDP)...

Want to make this year's gigantic Pentagon proposal look small? All you need to do is to divide it by this year's GDP and then compare the resulting ratio to the ratio that obtained during the Korean War (13–14 percent) or the Vietnam War (7–9 percent). To make this year's spending appear almost tiny, dredge up the ratio for the fully mobilized years of World War II (37–38 percent)...

A far more reasonable price, however, would be one arrived at completely independent of its relation to GDP. Recall that the GDP purports to be the value at market prices of all currently produced final goods and services the U.S. economy brings forth in a year. It includes everything from hamburgers to computer software to H-bombs. Why, we might ask, should military spending bear any particular proportion to this figure?

Robert Higgs

There is no magic ratio. Real threats should be addressed. 30% would likely have been too low for WWII, 4% might be too high during peacetime.