Military spending can affect a nation's economy in many ways, such as spurring investments in the private sector, drawing from other public spending, and contributing to national debt.
According to the Stockholm International Peace Research Institute(SIPRI), the five biggest spenders in 2023 were the United States, China, Russia, India, and Saudi Arabia. Together, these countriesmade up60% of global military spending.
In 2023, U.S. military expenditure increased by 2.3% to $916 billion. China increased its military spending by 6%, Russia increased its military spending by 24%, India increased it by 4.2%, and Saudi Arabia increased its military expenditure by 4.3%.
Key Takeaways
- Military spending can have significant ramifications for a nation's economy.
- From a fiscal standpoint, each dollar spent on the military is a dollar not spent on other public resources.
- But military spending can also stimulate an economy, as it directs resources into the private sector for goods and services.
- Military spending can also incentivize the development of civilian technology.
Why Countries Fund Militaries
Adam Smith, a father of free-market economics, identified the defense of society as one of the primary functions of government and a justification for reasonable taxation. After all, the government is acting on behalf of the public to ensure that the military is capable of defending the nation.
Military spending is unique in that it's an area where it is challenging to find a private alternative to public funding. No single corporation or group of citizens is arguably motivated and trustworthy enough to take financial responsibility for maintaining a nation's military.
Costs of Military Spending
Because capital is finite, military spending necessarily means less spending in other sectors. This fact can take on urgency when we consider that any government spending that exceeds revenues results in a deficit, adding to the national debt.
As such, when a country spends heavily on military, it can have significant impacts on its balance sheet. As debt grows, so often does interest and the cost of borrowing. In theory, increased debt can eventually drag on economic growth and drive taxes higher.
Borrowing Costs
The U.S. has historically enjoyed generous debt terms from domestic and international lenders. That tends to reduce political pressure to cut military spending in order to reduce the deficit.
Some advocates for decreased military spending and a decreased national debt often tie the argument to economic consequences caused by a high national debt. These consequences include inflation, slower growth, and a lack of funds in the future for essential spending such as infrastructure. Military spending does sit as a large percentage of discretionary spending.
In other nations, particularly ones that are still developing economically, a focus on military spending often means foregoing other important priorities. Many nations have a standing military but an unreliable public infrastructure, from hospitals to roads to schools.
North Korea is an extreme example of what an unrelenting focus on military spending can do to the standard of living for the general population, as the country grapples with high levels of defense spending relative to GDP.
Benefits of Military Spending
Military spending can not be defined solely by cost. In fact, defense spending can stimulate an economy, create jobs, and drive the development of civilian business sectors. In addition to supporting troops themselves, military spending creates a considerable amount of economic infrastructure in support of active-duty personnel. Private businesses also spring up as a result of the military spending. These can encompass everything from weapons manufacturers to restaurants near military bases.
Technological Developments
Those critical of military spending have argued that it diverts talent and technical skills away from civilian fields and toward military research and development.
However, the interplay between military and civilian sectors is less cut-and-dry. In fact, technology and talent often flow back and forth between military and civilian roles. Military research has been vital to the creation of the microwave, the Internet, and global positioning systems (GPS), among other applications.
For a more recent example, consider that we now have drones capable of taking wedding photos and potentially delivering packages for Amazon.com. Much of the expense of creating basic drone technology was driven by military spending.
Guns and Butter
The guns and butter curve is a classic illustration of the opportunity cost of military spending. The curve graphically represents the tradeoff between defense spending ("guns") and nonmilitary spending ("butter").
The model is often used to depict how limited resources may be allocated within an economy, and the gain or loss of one good in exchange for another.
Though it may be oversimplistic, the model raises a real question is what an “adequate” amount of military spending is, given that every extra dollar spent above the necessary level is a loss to public spending on any other purpose.
In a democracy, that issue is debated by publicly elected officials and changes from year to year. In recent years, military spending in the U.S. as a percentage of the overall budget has been declining as military engagements abroad wind down.
How Much Is U.S. Spending on the Military?
In 2023, the U.S. spent $916 billion on the military. The country with the next highest amount was China, at $296 billion.
What Percent of U.S. GDP Is Spent on the Military?
In 2024, U.S. military spending is approximately 2.9% of GDP. This number is expected to come down to 2.5% as of 2034.
What Does the U.S. Spend Most of Its Money On?
The largest expenditure of the U.S. government is on Social Security; it makes up 22% of the budget, which is $1.21 trillion.
The Bottom Line
Military spending is essential for most countries and represents a significant aspect of the U.S. fiscal budget. The amount spent on the military is often a topic of debate, as it is a challenge for any government to determine where limited resources should be allocated.
More spending on the military means less spending on areas such as infrastructure, healthcare, or social services. However, military spending can also stimulate the economy. The way a government balances its military expenses will vary based on how it prioritizes different aspects of its economy.
