Saturday, May 08, 2004

Military Spending, Percent of GDP

David Levy writes me in response to my May 7, 2004 blog entry "Topping the Cost of World War I" that comparison of war costs ought to be made in terms of relative proportions of GDPs. It is true that the Washington Post article quoted in the blog entry mentions only comparison of absolute costs adjusted for inflation. William D. Nordhaus himself, however, includes a table ("Table 2. American Costs of Major Wars") that lists each major war's per capita cost and total cost as percentage of the GDP, from the Revolutionary War (1775–1783) to the Firs Persian Gulf War (1990-1991) in his essay "The Economic Consequences
of a War with Iraq" (War with Iraq: Costs, Consequences, and Alternatives, American Academy of Arts and Sciences, 2002, p. 55).

According to the Bureau of Economic Analysis, the real GDP of the United States today is $11.4 trillion ($11,447.8 billion) in current dollars ("Gross Domestic Product: First Quarter 2004 (Advance)," April 29, 2004). Congress approved emergency war spending of $166 billion, and the cost of emergency war spending for FY 2005 is estimated to $65-75 billion, which will bring the total to $231-241 billion. That's roughly 2% of the GDP, in the same league as the costs of Mexican War (1846–1848) and Spanish American War (1898), each of which cost 3% of the GDP. However, the total military budget has been going up at the same time, suggesting the hidden costs of war: "Pentagon documents say the total military budget of $401.7 billion for fiscal year 2005 is 7 percent more than 2004’s budget of $375.3 billion, which didn’t include the $87 billion supplemental later sought -- $20 billion for Iraq reconstruction and about $67 billion for military operations in Iraq and Afghanistan" (Pauline Jelinek,"Pentagon Seeks Big Hike for Missile Defense in $401 Billion Budget Request," Detroit News, January 31, 2004). Altogether, the total military expenditures for FY 2004 and 2005 will amount to roughly $938 billion -- each fiscal year's total military expenditure, approximately 4% of the GDP today. In comparison, the Vietnam War consumed 12% of the GDP. Will the proportion of growing military expenditure eventually rise to the level of the Vietnam War?

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