Assessing the growing gap between U.S. fiscal solvency and defense resources is something of a pastime for budget nerds. Numerous think tanks and policy analysts continue to argue, even after six years of budget sequestration, that Washington has not aligned its ambitions with the nation’s wallet. Former Secretary of State George Shultz is one amongst many former policy makers concluding that U.S. defense spending levels are low and inadequate. Kori Schake of the International Institute for Strategic Studies assesses U.S. defense as overcommitted and underfunded. Despite the fact that U.S. defense spending is again declining relative to economic potential, and that total security spending is declining as a share of federal budget, many still think that it’s too high. Some of these voices argue that giving the Pentagon more money does not improve U.S. security. Chris Preble from the Cato Institute argues that increased defense spending makes America less prosperous. Who is right? Ever since RAND program analysts Alain Enthoven and K. Wayne Smith wrote their famous book, How Much is Enough?, this has been the perennial question.

It is long past time to put this conversation into a strategic context and apply an ends-means correlation to put U.S. defense resources into better context. This paper puts our spending into a regional context that shows that we do not have nearly the resource overmatch many presume.

U.S. Defense Spending in Context

Defense spending levels should be examined from the proper historical perspective. The United States is measurably better off economically (especially since 2008-2009), yet defense spending declined as a percentage of U.S. national and federal incomes over the past few years. While resources for defense have been flat or declining, threats to international order arose even more significantly since 2014, as evidenced by the Russian incursions in Crimea, Ukraine and Syria. China’s more assertive presence in the South China Sea and its dismissal of The Hague’s legal findings also underscore an eroding international order. The persistence of the Islamic State and its estimated 30,000 remaining fighters in Iraq and Syria reflect a challenging security context that belies claims of strategic victory.

The 2018–2019 budget agreement recognized the growing gap between U.S. defense resourcing and rising security requirements. The short-term agreement provided significant funding boosts to depleted Pentagon accounts but it did not alleviate all gaps. Improvements in matching constrained resources with defined interests will remain a necessary strategic function for the Pentagon for some time to come.

The Limits of Aggregate Comparisons

While national budgets are a crude and misleading measure of defense output, it is important to properly evaluate and compare U.S. defense spending with other major powers. A year ago, U.S. national security spending was equal to that of the next 16 countries combined. More recently, others have noted that U.S spending now only equals the combined total of the next eight countries. Shown below, Figure 1 depicts the most recent of such comparisons with the implication that the United States is overstretching itself. However accurate this may be, it also lacks any context. As argued by the Heritage Foundation, these aggregate level of comparisons are shallow and largely meaningless for a few reasons.

Figure 1.

The most obvious reason is that different countries are following various policy objectives and have unique strategies in place. Furthermore, countries differ in the scope and prioritization of their security goals, and thus employ varying methods to achieve their objectives. The United States is a global power with interests in preserving regional balances of power in several critical regions in addition to securing its own economic prosperity, maintaining treaty obligations to friends, and ensuring access to markets and resources. As other countries are more regionally focused it is a more reasonable generalization to equate their entire defense budget with their regional defense needs.

Second, the comparison is complicated by an apples-to-apples problem. Not every country reports defense spending the same way or with the same level of transparency. Some countries place their research and development costs outside their defense accounts while also accounting for security, intelligence, space or nuclear programs separately from defense. In others, state-owned enterprises supply defense capabilities and are subsidized out of the defense budget. Finally, some countries still have a conscripted military with vastly different manpower and health care costs. States with large conscripted military forces do not have to pay the same level of personnel costs that the rest of the developed world does for volunteer and professional forces.

One way of escaping the shortfalls in comparison is to employ the purchasing power parity (PPP) method to support the analysis. This technique is often used to compare economies, though there are disagreements on its use. In general, the method is best employed when comparing activities purchased internally within a state, which seems especially relevant to defense resources, which most countries desire to retain organically. This self-reliance is especially true for some potential U.S. adversaries who do not buy their weaponry from foreign sources.

Graham Allison argued strenuously in Destined for War? that examinations of the varying trends in China and the United States are skewed by the use of market exchange rates. He stresses the utility of the PPP method in his assessments of the Sino-American geopolitical competition, and more recently defense analysts at the Heritage Foundation have done the same. We concur with their methodology and seek to take it one step further to place U.S. defense spending within a strategic context with greater granularity.

Another technique, represented in Figure 2, that may provide a more relevant presentation for comparison is the reallocation of U.S. defense spending into regional totals which reflect U.S. global interests and strategy. This initial analysis allocates U.S. spending aligned with major strategic priorities. The heuristic framework behind this figure assumes that 50 percent of U.S. resources, $301.39 billion, are allocated to its priority region in Asia. Figure 2 represents our initial analysis in trying to allocate U.S. spending aligned with major strategic priorities.

Figure 2: Regional Defense Spending Comparison [2017]. Sources: data from IISS and SIPRI.

This framework assumes that U.S. defense resources are prioritized and allocated across different regions and challenges: to Asia, Europe, the Middle East and homeland security per recent strategic planning documents. This methodology allocates U.S. defense spending in accordance with security priorities assigned in the Pentagon’s strategy. In our analysis, we allocated half of the Defense Department’s base budget to the Indo-Pacific theater to address security challenges in that region, while a quarter is allocated to Europe.

The remaining 25 percent of the Defense Department’s budget, $150.7 billion, is assigned to support allies and partners in the Middle East, combating terrorism and violent extremist organizations, and defending the U.S. homeland, including strategic forces and missile defense. The long-deferred modernization of the U.S. strategic deterrent, the triad and its related infrastructure, will be part of the bow wave and appreciably impact defense spending levels. The costs for upgrading U.S. capabilities can be managed smartly, but as the Center for Strategic and Budgetary Center has noted, they cannot be ignored.

On the right-hand side, the figure depicts combined U.S. and major ally budget resources compared to those of China. We convert China’s defense spending from market exchange rate terms to PPP to provide a more meaningful analysis of the relative inputs. We found a wide variance in reported spending by the Stockholm International Peace Research Institute (SIPRI) and the International Institute for Strategic Studies (IISS), so we illustrated both in our assessment to get a range of risk in our analysis. We found that the allocated U.S. defense spending does match China’s total spending, but only by using the lower figure for Chinese spending from IISS, the dark red $301 billion. When we depict the higher figure calculated by SIPRI, $456.46 billion shown in light red, we only achieve a rough balance after adding in the inputs of major U.S. regional allies (South Korea, Japan, and Australia), totaling $417.36 billion. The bottom line is that the United States could be seen as allocating roughly what China is spending for its security, not drastically more.

As previously mentioned, the balance of power appears unfavorable even with the assistance of regional allies according to the SIPRI data. Nevertheless, this comparison may be deceptive as the IISS data projects a nearly 1:1 balance of power. The data discrepancies arise from variations in what is considered defense spending, as discussed earlier. As the allocated U.S. spending alone does not provide a favorable balance in either case, it is essential to rely on regional allies for defense inputs. The combined defense budgets of South Korea, Japan, and Australia significantly improve or tip the regional power dynamics. This presentation depicts that the total Chinese defense budget is allocated towards Asia; however, over time this analysis will need to be adapted as more Chinese security is expended in an expanded global reach.

The portion of defense spending that the United States assigns to the region must also address grave concerns from North Korea. The regional balance of power, depicted in this manner, suggests the United States has a far lower margin of error. There is even less error or reason for complacency if one considers North Korea’s intercontinental ballistic missile programs and its nuclear weapons.

With spending broken down in this way, we can envision how the inputs of U.S. and allied spending correlate to a desired favorable regional balance of power in Asia. Even when considering the contributions of U.S. regional allies, the comparisons offered by budget critics do not suggest that the United States is inordinately over-investing. Of course, in a crisis, one can swing resources from other regions to address incipient aggression; however, this increases the risk in the other regions. While this is not a remarkable insight, in a long-term global competition, our methodology offers a perspective worth considering.

In July, we examined the U.S. contribution to NATO and its shared burdens and assessed Europe’s balance of power. We assumed that 25 percent of U.S. budget, and by implication combat power, is assigned to Europe as a second strategic priority. Shown on the left-hand side of Figure 2, we found that U.S. defense spending does not match Russia’s announced spending (in PPP terms) alone. With the inputs of the major European powers (Germany, the United Kingdom, and France), now totaling $450.7 billion, though, a favorable regional balance of power is feasible against Russia’s $153 billion.

Using the PPP method to illustrate U.S. strategic priorities and anticipate resource allocations provides a different insight. This depiction suggests that U.S. spending contributes a significant share of the resources that sustain a favorable balance of power vis à vis major security competitors. In this assessment, we can better envision needs and gain a better appreciation for the necessary scale and regional allocation of U.S. power. Just as critical, the importance of ally contributions can be better understood and more clearly communicated to the domestic populations of U.S. friends.

Overall, it is the U.S. alliance system’s collective capacity that provides the margin that makes the balance of power favorable and stable. That margin was declining since 2008, but it was not evident except to key legislative leaders like the late Sen. John McCain who called for substantial increases in defense spending. Those efforts have given temporary respite in FY2019 and FY20 that will help restore readiness and begin critical modernization needs. The administration’s efforts to increase defense spending will be useful in enhancing the regional balance as China’s economy grows and its military modernization proceeds apace. The new increases, admittedly sizable, will also reduce risk in other key investment requirements, like missile defense, homeland security, and modernization of the strategic deterrent.

The solvency gap between U.S. strategy ambition and resources places it on the true horns of a dilemma. In today’s dangerous era, an ambitious strategy with constrained resources puts a premium on the need for trade-offs. Our analysis suggests that Asia is not the region where the United States can accept more risk.

Modernization may be another place to not accept further risk, if the United States is to posture the force more competitively against great powers. As noted by defense strategists, the new defense strategy indicates distinctive shifts. Modernization is one of these shifts, although the president’s FY19 defense budget proposal adds just $37 billion to the Defense Department’s procurement and research funding. The iron triangle of painful trade-offs remains. The United States cannot simultaneously restore readiness, modernize across many domains, and build a much larger force.

Big Spender?

Perpetual American military primacy in an era of great-power competition is an ambitious goal that may overextend the support of the American public. Moreover, the United States will not restore America’s competitive edge just by throwing money at the problem. It must focus resources on key competitors and husband resources to resolve the key challenges to U.S. core interests. We agree that the longstanding U.S. monopoly in many domains is eroding, but across-the-board increases in both capacity and modernized capabilities are neither affordable nor necessary. Renewing the armed services and obtaining a favorable balance of power in key regions should be the goal. This is what Secretary of Defense Jim Mattis’ National Defense Strategy, to which one of us contributed as a member of the task force that helped formulate the strategy with the Pentagon’s leadership, outlines in some detail.

Closing the most important gaps will require careful analysis and strategic triage. As noted a year ago, the need for strategic discipline has never been higher. Yet, restoring America’s competitive edge and preserving its core interests will require resources that need to be properly understood, in line with regional priorities. But it will also require that U.S. security investments be carefully managed. Strategic discipline, including urgent defense reforms, will be needed to tightly align desired security ends to finite means.

F. G. Hoffman, Ph.D., serves at the National Defense University’s Institute for National Strategic Studies (INSS). He has worked in the Department of Defense, as a Marine infantry officer, defense program analyst, and policy official for over 40 years. Molly Dinneen is a research intern at INSS and a senior at the College of William and Mary, Williamsburg, Va. This paper reflects their own views and not those of the U.S. government, Department of Defense, or National Defense University.

Image: U.S. Air Force/Staff Sgt. Ryan Callaghan