Hoover Daily Report

The Decline of Defense Spending

Monday, December 25, 2000

President Clinton recently announced that the United States was enjoying a record $237 billion surplus for the budget year that ended September 30. President Clinton took credit for the numbers and declared that, together with Vice President Gore, “we turned that around—not by chance, but by choice.” What was once a budget deficit has indeed turned into a record surplus. But the reason for it has less to do with Clinton administration policies than with America’s post–cold war peace dividend.

Beginning in the early 1950s and throughout the cold war, America spent on average 6–8 percent of its gross national product (GNP) on defense, regardless of whether a Democrat or a Republican was in the Oval Office. It briefly dropped slightly below 5 percent in 1977–78 only to rise again.

With the end of the cold war, defense spending declined dramatically beginning in 1990. By 1996 it had dropped to 3 percent of GNP and today is even lower. The United States is now spending less on defense as a percentage of GNP than anytime since the Great Depression.

What if there had been no peace dividend? What if the cold war had not ended? If the United States were still funding the armed forces at cold war levels, the fiscal year 1999 authorized $270 billion defense budget would need to double. The current budget surplus would evaporate and be replaced by a deficit. No doubt, the strong economy has helped reduce the deficit. But there is no escaping the fact that it is the end of the cold war that is largely responsible for today’s rosy financial picture.

America no longer needs a cold war-level defense budget. But there is plenty of evidence that defense cuts have gone too far. There are ample reports of spare parts shortages and cutbacks in training due to concerns about cost. It is also increasingly difficult to retain quality officers and senior enlisted personnel. In part this reflects the hot civilian job market, but surveys also indicate that frustration is high and morale is low in the armed forces.

The new administration needs to immediately ensure that our armed forces remain a fighting force without peer. But at the same time investments need to be made to prepare for the wars of tomorrow. Research and development in the defense arena requires a long lead time. We need to fund research projects that will provide weapons for our soldiers fifteen years from now.

Before Washington contemplates spending the surplus on other government programs, it needs to look at adequately funding the one government program that faced substantial cuts in the 1990s—the military.