National Security Shocks and Military Buildups

Abstract

Uncertainty about the meaning of events and especially about prospective threats … complicates every policy decision. On a good day, you deal with 60-40 odds. Paul Wolfowitz What drives changes in U.S. military spending? Answering this question is the critical first step toward a deeper understanding of how the military dimension of American hegemony has shaped postwar economic performance. It is such a critical first step because military spending constitutes one of only a handful of government programs with the ability to impart a powerful stimulus to the American economy. Two simple statistics illustrate this point. First, throughout the postwar period, the defense budget has constituted the largest single category of U.S. federal government discretionary spending. In fiscal year 2012, for instance, the Department of Defense accounted for just over half of total discretionary federal government expenditures. Moreover, the gap between first and second place is huge. The Department of Education received $79.1 billion, roughly 12 percent of the amount allocated to the Department of Defense. Second, because the military accounts for such a large share of the federal budget, it constitutes a substantial share of national expenditures. As a share of total national income, military expenditures have averaged roughly 6 percent across the postwar period. Because military spending occupies so much of federal discretionary spending, and because these expenditures constitute an important share of national income, government decisions about military spending have potential consequences for macroeconomic activity that are unparalleled by any other single private or public activity. In spite of the economic importance of postwar military spending, we know relatively little about the political dynamics that have driven its variation. This limited insight is not for lack of attention. Research on U.S. defense spending has focused on two models: a threat-driven approach and a bureaucratic politics approach. Throughout the Cold War era, researchers sought to explain U.S. military spending in terms of an arms race between the United States and the Soviet Union (see, e.g., Lambelet 1973; Mintz 1992; Moll and Luebbert 1980; Ostrom and Marra 1986; Richardson 1960).