Percentages of Reality

Dec. 1, 1995

The headline in The Bulletin of the Atomic Scientists asks, “So Where’s the Peace Dividend?” The leadoff text block declares flatly that “the Soviet Union is gone, but high defense spending continues.” Mike Moore, editor of the Bulletin, is unimpressed with the “modest” reductions to defense and says that “military expenditures have not fallen at the pace one would expect.” He warns that defense spending “may yet suck the life out of the economy.”

Does Mr. Moore understand that the Pentagon budget is about forty percent below its Cold War peak? That military aircraft procurement is down by eighty-nine percent since 1980? Does he know that defense will consume just 3.8 percent of the Gross Domestic Product this year, compared with about twelve percent in the 1950s? How does he figure that military spending, projected at 2.8 percent of GDP by the turn of the century, will suck the life out of the economy

Unfortunately, others share Mr. Moore’s misconception, and his arguments reflect a theme that is growing in popularity. Writing in the Baltimore Sun, for example, Karen M. Paget says that “all talk of a peace dividend has evaporated” and complains that the defense budget has been given “immunity” instead of being cut. The subtitle on a Newsday editorial says that “Defense Overspending Hurts Everything Else.” Michael E. Ruane of the Philadelphia Inquirer claims the government is “lavishing” money on the Pentagon while “slashing spending almost everywhere else.”

Back of this outlash, of course, is the fear that the 104th Congress will carry out its intention to cut federal expenditures ruthlessly in order to balance the budget. All sorts of spending programs are in peril, and their supporters hope to save them by having the reductions fall on defense instead. If possible, they would also like to gain a bit in the exchange.

Mr. Moore of The Bulletin of the Atomic Scientists talks of “diverting at least a few billion dollars each year” from military accounts to “repairing the nation’s tattered infrastructure.” Newsday’s heart lies with “worthy programs such as Medicaid or Head Start.” Ms. Paget says that “welfare and homeless programs, food and nutrition programs” have suffered because the politicians have been too easy on defense.

Defense cuts are only part of what they seek. In August, the Senate rejected, 63-37, an attempt by Sen. Dale Bumpers (D-Ark.) to tear down the budget “fire walls” recently reestablished by this year’s budget resolution. The fire wall provisions say that money gained from defense cuts can be used to reduce the deficit but cannot be spent on such nondefense programs as environmental protection and food stamps.

There is a long tradition of blaming defense for the nation’s economic problems. The general trend of the past fifty years, however, is that the defense budget has become less of a burden, both in relation to the overall economy and to other categories of federal spending. As events unfold, it is useful to remember how we reached this point in our fiscal affairs.

The last time the federal budget was balanced was 1969. Defense outlays that year were 8.9 percent of GDP. Never in the twenty-six straight deficit years that followed did they reach that level again, although total outlays as a percentage of GDP did rise. At the peak of the Reagan defense recovery, defense was 6.5 percent of GDP. Contrary to myth, defense never drove the federal deficit.

Defense reductions began in 1986, but the big drop came after the Warsaw Pact and the Soviet Union collapsed. The Bush Administration moved to reduce the defense budget by another thirty percent. That, on top of the earlier savings, set up a peace dividend of some magnitude, although the effect was offset by increased spending in nondefense programs. Soon after coming to office-and before doing any appreciable analysis of the feasibility-the Clinton Administration announced massive new budget cuts. The notorious “Bottom-Up Review” of 1993 was an attempt to work it out, but the Administration never quite managed to make ends meet. As a result, the Pentagon operated with a rolling shortfall. In December 1994, President Clinton bowed to reality and requested more money for defense. The prevailing mood of the new Congress, however, was that the Administration had cut defense too much and that further adjustments are necessary.

Nobody we know believes that the defense budget is above criticism, but it contributes nothing to the debate to make wild assertions such as the claim that the economic peace dividend didn’t amount to much. For those who believe otherwise, we recommend some study time with Historical Tables, Budget of the United States Government, Fiscal Year 1996, available from the Government Printing Office.

Among the facts they will find there are that in the 1950s, defense reached the level of 69.5 percent of federal outlays; that in the 1960s, the lowest level for defense was 42.8 percent of total outlays; and that at the peak of the Reagan defense recovery, defense accounted for 28.1 percent of federal outlays. By the current projection, the defense share of total outlays in Fiscal Year 2000 will be 14.1 percent. Those who cannot see the peace dividend are not looking very hard.