Rethinking Military Spending

I have always wondered why the U.S. spends so aggressively on military construction and research compared to other developed nations.  Could those funds be used for a greater social good within the country?  War seemed so distant to me, even with the Middle Eastern conflicts beginning in 2001.  However, the spread of disruption due to the so-called Arab Spring, the conflict in Ukraine, and the recent rise of the Islamic State have me rethinking that position.  In this edition of Financially Speaking, I will take a closer look at this topic.  As always, comments and opposing views are welcome.

U.S. Military Spending History

The U.S. military is by far the most powerful in the world.  Often, the term hegemon is used when describing it.  Part of the reason for that hegemony is geographic.  The U.S. enjoys a relatively isolated geography with substantial coastal access to two of the world’s primary oceans.  The remaining driver of the dominance is the high level of military spending.  As of 2013, the U.S. military accounted for over 36 of all global military spending.  That level of spending, and the title of global military spending leader, has been consistent for many years.  For 2013, that percentage of global spending equates to $640 billion, the second most costly budget item behind social security.  For comparison, the second largest global spender is China at $188 billion and just over 10 of global military spending.  In fact, looking at 2013 global data, the U.S. spent more than the combined total of the next nine highest ranked global military spenders.  For many, these are staggering amounts of money.  And they are.

Looking historically, U.S. military spending dropped during the 1970’s at a time when social spending was a greater focus.  Military spending increased in the 1980’s during the Reagan years, then fell again in the 1990’s during a time of relative global peace.  After the attacks on the U.S. on September 11, 2001, spending again ramped up.  However, even during those years of reduced spending the U.S. still retained the #1 spot with over 30 of total global military spending.  Where that money goes might surprise you.  Recently, the largest component has been current military operations at nearly 40 of the total budget.  The next 40 comprises personnel pay and weapons procurement.  Research and development (R&D), and construction make the remaining 20.  The R&D component is about 10.

Do We Need It?

As a possible answer to that question, I started looking at the military personnel size of potential U.S. adversaries.  Given our level of spending you might think we also have the largest military personnel, but that is not the case.  The U.S. military is #8 on the list with 2.2 million in service.  Russia has 3.2 million in service and China has 3.9 million.  When considering how large those potential opposing armies are, the U.S. must either recruit (or draft) more service people, build substantial materiel reserves as a deterrent and/or develop technologies that render those larger armies less effective.  Our military spending has focused on the latter two solutions.  Focusing on technologies it is clear that the U.S. military has developed key technologies such as limited detection (a.k.a. stealth), unmanned aircraft (a.k.a. drones) and robotic exploration.  Technologies currently in development are autonomous robots, space lasers and stealth tanks.  Although these technologies are still years away, the mere thought of them can act as a deterrent.  But thinking beyond technology, I can’t help but wonder how the world might react without such a powerful U.S. military.  This thought occurred to me during the Russian incursion in Ukraine where, I believe, Russia stopped short of a full-blown occupation due to the threat from the U.S. via NATO.  Without an overwhelming U.S. military presence, would Russia be more apt invade Ukraine to protect its buffer zone?  Going further, would another country engage the Islamic State terror group, even with aircraft only, to deter them from obtaining more substantial territory and war supplies?  Is the U.S. naval dominance what prevents China from directly taking disputed territory in the South China Sea?  We can’t know the answer to these questions, but the idea has me reconsidering my previous position of reducing our military spending

Barron Financial Group, LLP is a fee-only Registered Investment Advisor regulated by the Connecticut Department of Banking.

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