Defense and the Deficit

Editors’ Note: Controversy over the just distribution of the nation’s resources is a permanent battleground in American politics. This is perhaps inevitable. One recalls Harold Laswell’s dictum that politics concerns “Who gets what, when, how?” On the practical level, these are the perennial questions with which citizens and their elected representatives must wrestle. Yet too often more heat than light is generated by this debate. Myths and inaccuracies multiply and become established points of reference. This is especially the case when the discussion concerns the defense budget and poverty programs. The following set of essays, we think, go far toward dispelling some of the more common misperceptions on the budget controversy. All originally appeared in the April 1985 issue of The AEI Economist, published by the American Enterprise Institute (1150 Seventeenth St., N. W., Washington, D.C. 20036), and are reprinted with permission.

One of the most commonly believed propositions about economic policy these days is that nothing serious can be done about the budget deficit without cutting defense expenditures. Most editorial writers, columnists, and congressmen assert that.

Of course, the proposition is neither literally nor arithmetically true. The deficit projected for 1990, with current programs, is 11 percent of the sum of projected revenues and projected expenditures other than defense expenditures. Thus the 1990 deficit could be eliminated, for example, by raising revenues 11 percent and cutting nondefense expenditures 11 percent. President Reagan’s new budget has shown how the deficit can be reduced to a fairly low level—less than 2 percent of the gross national product (GNP)—without significantly cutting defense and without touching his two big untouchables, social security and taxes.

A person who says that the deficit cannot be reduced without cutting defense should be understood to be saying one of two things: (1) “I do not want to cut the deficit without cutting defense” or (2) “Although I would be willing to cut the deficit without cutting defense, other people, whose assent is required and who are less well informed or public-spirited than I am, do not want to cut the deficit without cutting defense.” (That is what is meant by saying that doing so is “politically impossible.”) Thus we come down to the proposition that important people do not want to cut the deficit without cutting defense. We should ask why they do not.

It is always unwise to underestimate the effect of misinformation. Most of the American people have a vastly exaggerated idea of the size of the defense program. In a poll conducted last year for the Committee on the Present Danger, only 6 percent of the respondents said, correctly, that defense expenditures were less than 10 percent of GNP. (In fact, defense expenditures in 1984 were only 6 percent of the GNP.) Fifty-seven percent thought defense spending exceeded 20 percent of GNP, and 9 percent thought it exceeded 50 percent of GNP. With such inflated ideas of the size of the defense program, people will naturally have inflated ideas of the difficulty of cutting the deficit without also cutting defense.

Presumably many of our representatives and senators are better informed than the public at large, but few of them are willing to stray far from the conceptions of their constituents. Yet even though these constituents have a vastly exaggerated idea of how much we devote to defense, the same poll shows that 71 percent believe that we should devote to our national security programs as much as or more than we do today.

The ideas that the defense program is enormous, is the principal cause of the deficits, and is a great burden on the U.S. economy and the American people seem to resist all factual information. Defense expenditures today, as a fraction of GNP, are smaller than in any year between 1951 and 1972. In fact, defense expenditures in real terms have increased little in the past thirty years, while output used for nondefense programs has increased greatly. Real defense expenditures in 1984 were 8.6 percent higher than in 1954, while nondefense uses were up 190 percent in total and almost 100 percent per capita. In the last year that we had a balanced federal budget, fiscal year 1969, defense expenditures were 9 percent of GNP, compared with the 6.6 percent in the current fiscal year. During the four years of the “big” Reagan defense build-up, defense spending increased by $19 billion while the output used for nondefense purposes—private and public—increased by $145 billion (in 1972 dollars). With the administration’s present plans, defense expenditures would rise to 7.5 percent of GNP by 1990. This percentage would still be less than that in any year of the Eisenhower or Kennedy administrations. With the Reagan administration’s defense program, output available for nondefense use would be 25 percent higher in 1990 than in 1984. It is sometimes suggested that the increase of defense expenditures should be held to 3 percent per year, instead of the 6.7 percent the administration now proposes. That cut would increase the output available for nondefense purposes in 1990 by about 2 percent compared with the administration’s program, making it 27 percent rather than 25 percent higher than in 1984. That is what we would “gain” by cutting the defense program.

Why has this program, small in relation to relevant magnitudes past and present, become the indispensable item in a policy of reducing the deficit? What seems to be involved in many minds is a notion of fairness. “Cap Weinberger should do his share. If we are going to cut aid to agriculture, student loans, urban mass transit, and so on, it is only fair that we should cut defense.” But the defense program is not for the benefit of Secretary Weinberger, or even for the Pentagon, in the same way that the agriculture program is for the benefit of farmers or the student loan program is for students. The defense program is for the benefit of our generation and of future generations of Americans. The question of fairness involved is whether it is fair to risk the lives, fortunes, and freedom of future generations of Americans to raise the consumption level of this generation by two or three percentage points.

One of the cliches of this kind of talk is that the national security depends on the nation’s economic strength as well as on its military strength. A recent article in Fortune magazine explained why the growth of real defense spending should be held to 3 percent a year:

The 3 percent solution is not based on any detailed attempt to construct a program-by-program alternative to the administration’s defense budget. Instead it reflects a judgment about what James Forrestal, the nation’s first Secretary of Defense, described as the complex task of “securing a proper balance between military necessities and national solvency.”

But the United States faces no such complex task today. Our national solvency is not in danger. Whether we are adequately providing for our military necessities is a serious question. When James Forrestal was secretary of defense in 1947, the federal debt exceeded 100 percent of GNP. Today it is about 35 percent of GNP, With the administration’s budget program, the ratio would level off around 40 percent, not a frightening figure. Continuous growth of the ratio of debt to GNP would be a problem and in time a very serious problem. But we are not faced with a choice between solving that problem and meeting our military necessities.

Some people apparently find it emotionally or aesthetically disturbing that we should be increasing military expenditures while cutting expenditures for student loans, Medicare, and similar programs. This choice seems to them the exaltation of death and destruction against life and humanity. Their antidefense attitude can also be portrayed as reflecting a concern for the national security. Thus it is said that people will not support the nation if the nation fails to look after their interests—which are presumably being served by all the nondefense expenditures in the budget. But this attitude is sheer sentimentality. The defense program is designed to protect those humane values, which would be lost if our defense were inadequate. And to suggest that the American people would not support the national defense if their taxes were raised or social programs lowered a few percentage points is incorrect and insulting.

There really are only two issues about the defense budget. One is whether that budget provides as much defense as we need or provides more or less than we need. The other issue is whether the defense could be obtained for fewer dollars.

The first question is the crucial one, but it is not much discussed. One frequently hears the assertion that, since we and the Soviets now have enough weapons to kill each other ten times over, there is no need for more. This assertion leaves open the vital matters of the survivability of our nuclear forces and of the adequacy of the conventional forces when circumstances may require reliance on them to protect our national interests. Not only the Pentagon and the president say that cutting our planned forces would endanger our national security; independent students of the subject, including the Committee on the Present Danger, also say that. Although no one can measure that risk, it does not seem worth taking in order to increase private consumption in America in 1990 by another 2 or 3 percent.

In fact, almost no one who calls for cutting the defense program says that he or she wants weaker forces. Almost all insist that they want to get the same forces more cheaply. One suggestion for getting defense more cheaply is to stretch out the defense buildup over a longer period. That action would reduce the outlays in the near future. But if what is proposed is really a stretch-out, it means more expenditures later. The saving would be the interest saved from making the expenditures later rather than earlier. Defense forces obtained later, however, are not as much security as defense forces obtained earlier: F-16 fighter planes delivered in 1990 will not protect us in 1988 and 1989. Stretching-out is a way of reducing the national defense. How little comfort this proposal holds can be judged from a recent explanation of it by a leading congressman. He said that since our relations with the Soviets were now calm we could safely slow down the defense program and later speed it up if war appeared likely.

Finally, there is the matter of waste. Waste is what most people are talking about when they say that the needed defenses can be provided more cheaply. Certainly there is waste in the defense program, and in respects more serious than $900 screwdrivers. There is waste in most human endeavors, although waste may not survive as long where a market test must be met. The question is whether we know how to remove the waste without impairing defense. Can we remove Cap Weinberger’s pound of fat without shedding a drop of vital blood?

Setting dollar limits on the defense program will not make the program more efficient and reduce waste without cutting strength. Waste exists basically because decisions are made by people who naturally and inevitably have a different view of what is efficient than the taxpayers’ ideal, objective representative may have. The air force general who may some day be required to fly over the Soviet Union and who, in any event, has an exceedingly high appreciation of technological advance, naturally wants the B-1, not the old B-52; and he believes that choice is best for national security. He is no different from college professors who think their students are better off if they teach five hours a week rather than six or doctors who think their patients are better off if they provide $200 worth of tests when anyone complains of stomachache. He is also no different from representatives who think the military bases in their districts are vital to something, if not necessarily the national security.

The most prudent assumption is that if the defense budget is cut from $300 billion to $270 billion, to be allocated by the same organizations and people as at present, with the same incentives, we will get about the same proportions of strength and waste from the $270 billion that we would have gotten from the $300 billion. That is, there will be less waste and also less strength. The results might be different if the decision-making system were different. Having lived in Washington through the regimes of fifteen secretaries of defense, all able and honorable men, I do not count on improvement of the system coming easily. Some improvement may, however, be possible, and it is worth seeking. But that is not what we are going to get out of the budget-making process now going on among White House and various congressional factions. If a cut is made in the defense budget, it is going to weaken, not improve, the system; and it is going to result from, or at least be justified by, misinformation about the relation of defense to the budget and to the economy.

  • Herbert Stein

    Herbert Stein (1916 – 1999) was a senior fellow at the American Enterprise Institute and was on the board of contributors of The Wall Street Journal. He was chairman of the Council of Economic Advisers under Richard Nixon and Gerald Ford. From 1974 until 1984, he was the A. Willis Robertson Professor of Economics at the University of Virginia.

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