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Gates, Defense Spending and the GDP

May 26, 2011

With his departure as Secretary of Defense coming soon, it is normal for Robert Gates to express his thoughts on the direction his department should go.  Moreover, given his experience under both Republican and Democratic administrations, he is uniquely qualified to put forward ideas devoid of the typical political rhetoric.  He made some qualified comments in a speech hosted by the American Enterprise Institute for Public Policy[1].

Regardless of anyone’s stance on the United State’s involvement in Iraq and Afghanistan, the fact is we are involved and someone has to run the Department of Defense (DoD) during that involvement.  In that capacity, Gates’ performance is a marked improvement over his predecessor, Donald Rumsfeld.  During his tenure, he changed the philosophy of our strategy to one that works to end a conflict as well as reduced waste in spending within the Defense Department.  In other words, Gates is fighting our wars as cost effectively as possible.

In his speech, Secretary Gates points out the need to address the future needs of the military to meet our political goals.  He quotes Winston Churchill with “the price of greatness is responsibility…  [and] the people of the United States cannot escape world responsibility.[2]”  While the sentiment is true, it is more a question of if the United States can afford the price in the first place.  Mr. Gates frames his argument in terms of Gross Domestic Product (GDP).  While that is useful for generalized thinking, it masks the real-world reality he points to in his speech.

Using his GDP comparison is like an individual using his extended family’s purchasing power compared to one of his particular debts.  The amount of production of the US economy does not directly correlate to our level of debt.  A better index compares DoD spending in a particular year to tax revenue for the same year.  Secretary Gates does point this out in his speech DoD spending is less than 15% of federal spending, but couches in the number in the rosier GDP comparison.  Think about it, 15% of our tax revenue goes to military spending.  Using the $540 billion from his speech, that works out to $1,630.00 per citizen last year.  Taken in a vacuum, it is hard to understand the relevance of such numbers.  For that, we need to look at the United States compared to other countries.

Using information gathered from the search site Wolfram Alpha (www.wolframalpha.com), the United States, compared to other nations, spends an inordinate amount on defense.  Consider the following:

  • The United States spends 4.5 times as much on defense as China
  • The United States spends more on defense that the next ten highest spenders combined ($420 billion):
 Defense Spending (in billions) Compared to US
 United States  $ 503.40 N/A
 China  $ 114.70 22.79%
 France  $   55.29 10.98%
 United Kingdom  $   53.43 10.61%
 Germany  $   41.80 8.30%
 Japan  $   35.48 7.05%
 Italy  $   31.72 6.30%
 Saudi Arabia  $   30.98 6.15%
 Russia  $   29.81 5.92%
 Brazil  $   27.76 5.51%
  • The United States spends more per capita ($1,630) than any other country in the top twenty ranked by spending:
 Spending Per Capita
 United States  $1,630.00
 Israel  $1,406.00
 Saudi Arabia  $1,180.00
 Greece  $1,091.00
 Australia  $   869.00
 United Kingdom  $   863.00
 France  $   854.00
 Netherlands  $   604.00
 Italy  $   528.00
 Germany  $   509.00
 South Korea  $   486.00
 Canada  $   367.00
 Spain  $   298.00
 Japan  $   279.00
 Turkey  $   254.00
 Russia  $   212.00
 Brazil  $   142.00
 China  $     84.70
 Indonesia  $     36.30
 India  $     18.60
  • Indonesia (the country with the closest population size to the United States) only spends $36.30 per person.  The US ranks third overall behind Qatar ($2,816) and Kuwait ($1,757).
  • The United States maintains military bases in 28 foreign countries around the world (Afghanistan, Australia, Bahrain, Brazil, British Indian Ocean Territory, Bulgaria, Cuba, Germany, Greece, Greenland, Guam, Iraq, Israel, Italy, Japan, Kosovo, Kuwait, Kyrgyzstan, Netherlands, Philippines, Portugal, Qatar, Saudi Arabia, Singapore, South Korea, Spain, Turkey, and the United Kingdom).

Given this data, isolating spending to the United States alone does not paint a complete picture.  Secretary Gates points to the need of a military capable of fighting two simultaneous regional wars.  Perhaps it’s time to evaluate what other countries, out partners in many cases, are and are not doing.  Simply put, we (the United States) can no longer fund a military that serves as a positive externality for the economies with which we compete.

For example, our military spends billions of dollars in the Asiatic region.  We support goals like freedom of access to shipping lanes, mutual defense agreements, and deterrence of piracy.  While there is no question it is in our interest, it is in the interest of China too.  The question becomes why should we pay for something that benefits the Chinese economy.  Furthermore, given that China holds a substantial amount of our public debt, in the form of US Treasury Bonds, China loans us the money with which we finance our military.  This means we are paying for the privilege of defending China’s national interests in their own backyard.

By no means is the positive externality limited to China.  Every country listed above spends less of defense simply because we spend more.  In this regard, the amount of military spending compared to GDP is meaningless.  What matters is the long-term debt to GDP ratio.  In this regard, China is in a much better position to take on more costs in defense than the United States.  China’s debt is estimated at $483.5 billion with a GDP of $5.308 trillion.  The United Stated debt is estimated at $14.03 trillion with a GDP of $15.03 trillion.  China’s debt represents 9.6% of GDP.  The United States’ debt represents 93.47% of GDP. Again, calculations based on Wolfram Alpha search results.

By allowing China to avoid their rightful costs, we strengthen their economy and weaken ours.  They benefit not only by the sweat and labor of our military but also by loaning us the money to protect the region.  This is the aspect Mr. Gates does not directly address in his speech.  It is also the flaw in Mr. Churchill’s quote.  Our responsibility to our greatness does not extend to allow other’s to abdicate theirs at our expense.  Perhaps before Mr. Gates suggests the political strategy for the next decade, he needs to temper his thoughts with another quote, by Stephen Crane:

“A man said to the universe:
“Sir, I exist!”
“However,” replied the universe,
“The fact has not created in me
“A sense of obligation.”[3]


[1] Gates, Robert M. “American Enterprise Institute (Defense Spending).” America in the World: An Address by Secretary of Defense Robert Gates. Wohlstetter Conference Center, Twelfth Floor, AEI, Washington DC. 24 May 2011. Speech.

[2] Churchill, Winston S. “The Price of Greatness.” Welcome to WinstonChurchill.org. Web. 26 May 2011. <http://www.winstonchurchill.org/learn/speeches/speeches-of-winston-churchill/118-the-price-of-greatness>.

[3] Crane, Stephen. “War Is Kind.” The Literature Network: Online Classic Literature, Poems, and Quotes. Essays & Summaries. Web. 26 May 2011. <http://www.online-literature.com/crane/2560/>.

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