US MILITARY SPENDING AND CIVILIAN GUN SALES

Many think high levels of US military spending will avert a great power war through deterrence. That said, high levels of military spending (where you have contracts with hundreds if not thousands of contractors, utilizing thousands of different appropriations bills and agreements, etc...) can hurt a country if a great power war breaks out. Locked-into high, per-existing industrial/manufacturing processes, and industrial mobilization, its very hard and expensive for countries to re-tool and/or change course when conflict arises. History shows us that Great Powers with high military spending often find it hard to upgrade to more modern equipment suitable for new strategic/tactical situations midway through conflict. Sometimes, a country that enters a conflict and builds up its forces from scratch has far more dynamism and flexibility in terms of what they produce and how much. Alot of this, too, has to do with the cumulative effect of debt and the perils of military financing during an arms build-up.
 
WW2 provides many examples of this. In 1939, Germany spent 38% of its GDP on the military. By 1941, this had increased to 47% of GDP. In 1939 the US spent less than 1% of GDP on the military. We went up to 2% by 1941. Pearl Harbor was attacked in December/41. By Mid-1942 the percentage of US GDP spent on military was 42%.
 
What's interesting is that by 1942, the US was spending all of its money on mostly brand-new stuff. By 1942, the Germans (and Japanese) were spending more than 40% of their budgets on maintaining pre-war weapons and platforms that had become a liability by 1942. One of the reasons they had to spend more and more was because so much was being wasted on older stuff that couldn't be updated. By 1943, the Germans were spending 61% of GDP on their military, much of it to maintain older, obsolete stuff that couldn't be replaced with new stuff, due to economic pressures. Furthermore, the Germans had overextended their credit lines and were finding it harder and harder to finance war, especially as it dragged on.
 
The US, however, only started deficit spending (and financing massive armament production) in 1941/1942 Because we started at a baseline of zero, we could "rapidly run up our credit cards" so to speak, and use it to buy brand new stuff.
 
Today, the US spends less than 3% of our GDP on the military. As a percentage of GDP, as of 2018 we only spend slightly higher amounts than we did in the 1930s. We spend far more than other countries, in absolute terms. That said, we are also far, far richer than other countries.
 
According to the World Bank, as of 2016, Oman spends the most money, as a percentage of GDP, on their military, coming in at 13.7%. They are closely followed by Saudi Arabia which comes in at 9.8%. The US only spends 3.5% of GDP on the military.
 
During the early Cold War (Korea to the end of Vietnam), the US spend between 10% and 15% of GDP on the military. And here's where it gets interesting. From 1968 to 2016, the US starts to gradually (but significantly) reduce the percentage of its GDP spent on the military, by more than 1/2. This hurt US and global weapons contractors, who didn't profit from Detente and later Glastnost/Perestroika and went looking for alternate markets. Its during this time when American (and later Russian) weapons manufacturers start looking for alternative markets in the developing world, and flooding South America and Africa with arms. Concomitant with same, Russia and the US also start waging proxy wars at the same time, where they can flip governments with very small cost, and "help" the arms industry at the same time (without really increasing domestic military spending).
 
One other relevant issue seems to have emerged during this time-- the American gun lobby and NRA starts to advertise the 2nd Amendment as a constitutional guarantee for international weapons sales in our domestic market. German/Swiss/Austrian gun manufacturers (Sig Sauer, Glock, H&K) and American (Colt, Remington, Smith & Wesson) suddenly started to flood the market with military and police-grade small arms.
What's interesting here is the economics. The US can spend MORE money in a given year on weapons (in absolute terms), and a given weapons company can have more revenue in a given year from the sale of weapons (in absolute terms), but the actual profitability of the company declines, due to the gradual inflation in the price of key resources, labor, living expenses and the like.
It is true that the US is spending, each year, almost as much as we did each year during our involvement in WW2, in terms of absolute amounts of money. From 1943-1945, we spend about $900 Billion (in 2005 US dollars) per year on the military. Today, spend about $600 billion per year. That said, the United States has far more people and is far, far richer than it was in WW2. Furthermore, we've had massive inflation since then. That's why a comic book cost a penny in 1941, but costs $6 today. (It was 75 cents when I was a kid in the late1980s----there has been a much more rapid inflationary pressure on comics, as with other goods, since the 1980s).
What's the purpose of all this? First, the US military budget is clearly enormous in terms of absolute numbers. But relative to our GDP, its actually the smallest its been since the 1930s during the height of the Depression.
Second, that the same holds true for all the other Great Powers from WW2---Germany, Britain, France, Russia, China, Japan.
Third, that many old armament industries, facing a dramatic but gradual de-escalation in military spending since the end of the Cold War (look at % of GDP, not absolute dollars, so we can control for the influence of monetary, as well as cost-push inflation), have looked to alternative markets to maintain their economic competitiveness. Their revenue is up in absolute terms, but so are their costs. As such they faced ever shrinking margins after 1968.
Fourth, that our current gun-control issue in the United States is actually related to these overall international, geopolitical trends. The giant armament industries we propped up during WW2 and the Cold War basically see domestic arms sales (as well as international arm sales to developing nations) as a key way to remain economically viable.
In a sense, the NRA has been transformed into a lobbying group for military contractors seeking to pass military surplus, and civilian modified weaponry onto civilian markets, because the US doesn't rely as much on large bodies of infantry in order to pursue the national interest. (increasing spending is increasingly geared toward robotics, computers, drones, etc....) And those infantry that remain, are far more deadly, man for man, than their counterparts 100 years ago. Due to tech advancements, a single US Marine today has the firepower of an entire WW1 infantry regiment. That means you need fewer men per mile, and it costs less (in relative terms), because you get more bang for your buck per soldier. Defense contractors hate these market efficiencies, because much profit is still based on volume.
Many pacifists on the left can't see this problem, because they wish to radically reduce US military spending, and reinvest it on domestic programs. That's a legitimate and noble political position, but in advancing said position, they focus almost entirely on the US Defense Budget in absolute terms, failing to take into consideration that we currently spend far, far less on the military, relative to GDP, than we have in 70 years, irrespective of Reagan's boost in defense spending.
The reason we have so many mass shootings in the US, and why there is such increasing instability in many regions of the developing world, is due to the fact that the Cold War ended and all the Great Powers have reduced military spending to between roughly 3% and 5% of GDP, even as those GDPs have consistently risen. This means less profit for arms companies. And hence they are dumping their product in the US and throughout the world, in order to continue being profitable.
All these issues are interconnected. The reason we don't see it is due to our poor state of mathematical education.
Because the U.S. GDP has grown over time, the military budget can rise in absolute terms while shrinking as a percentage of the GDP. And an arms company can have triple the revenue it had in 1945, and have far more profits, but still be less profitable, due to their margins. The margins are key.

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Comment by koshersalaami on April 2, 2018 at 4:36pm

Hadn't thought of the NRA being related to military contractors in that way. And I didn't know about proportion of GDP shrinking.

Comment by Steel Breeze on April 3, 2018 at 6:09am

R&L...one the biggest problems nowadays is that posts like this won't get any traction because it's based on facts instead of emotions....

Comment by Ben Sen on April 3, 2018 at 7:21am

Your numbers don't coincide with others I've seen, not just at present, but at least since Viet Nam.  My understanding is that "defense" remains the nations highest expense by far.  You make too few references to your sources in this regard.  As to whether it's the "left" who is against military spending, I'm not sure such ideological posturing serves the nation as a whole.  Libertarians, for instance, are more anti-military.

   

Comment by Rob Wittmann on April 3, 2018 at 7:36am

Ben--I will get the sources and add them. You are correct as to their importance. Luckily for me, that will be easy.

You are also correct about the budget, in a way. In terms of absolute numbers, the military budget is the largest its ever been in terms of absolute expenditures. But remember, revenue is also the largest its ever been, too. The US GDP increases every year, the US gets richer every year (generally) and expenditures keep pace with this.

For example, Americans are currently spending more money on bread and water than at any other time in American history. In a single day, Americans spend more money on water than Americans did during an entire year in 1950. That said, this is because water is more expensive today. People didn't spend money on water in 1950. And prices have inflated. Further, water has been commodified, in a way it wasnt in 1950.

The US does spend, based on what I analyzed, more money on the military than it did in 1968. On the other hand, its a smaller portion of GDP. Again, US GDP has increased, the budget has increased.

Another thing to take into account is costs. If you have 100 steel foundries and have to create a ship hull for a destroyer, you will have a lower price, because the 100 foundries compete to get the contract. If you only have 2 foundries, the price goes up because the producer has less competition and can bump up prices. Its a scarcity principle. This is something we've run into with de-industrialization.

Another issue is relative cost. If China has price controls, fewer regulations, and low labor costs, and low costs for raw materials, it is cheaper for them to build xyz. One of the things we see in China is that they are able to produce widgets (an abstract economic term) at far lower cost than the US. As such, they don't need as big of a budget as the US in order to achieve military parity with the US. Also, since the cost of living, health care, medicine and the like is lower, manpower costs are lower. an MRE is cheaper to produce in China. Logistics are cheaper.

You are 100% correct in terms of absolute spending. It is higher, I believe. I will add charts and sources to this, now that I know there's an interest. I think this is an important discussion to be having. I may be wrong. And if I am, I want to be shown that. Its far more important for me to know "truth" than egotistically cling to an idea based on a hunch or my ego.

Comment by Ben Sen on April 3, 2018 at 8:19am

My understanding, broadly disseminated since Trump passed his budget, is that the national debt is about to increase to an unprecedented level and it's due to the fact that military spending is the vast, vast majority of that expense.  According to you, I've got that all wrong.  We are apparently about to spend millions on military parades to display our armed might, and now have a head of the NSA who proposes preemptive strikes on our enemies.  We have entered an age of direct confrontation that has not seen its like since WWII. 

Comment by Rob Wittmann on April 3, 2018 at 8:30am
Comment by Rob Wittmann on April 3, 2018 at 8:35am
Comment by Rob Wittmann on April 3, 2018 at 8:50am

Ben: to understand the national debt, you need to look at taxation revenues as a percentage of GDP (which are decreasing), as well as  discretionary vs non-discretionary spending. Many people conflate the two, but you need to know the difference in terms of understanding the accounting games being played.

Even though US pulls in more revenue, that revenue (too) is a smaller % of our GDP than in previous years. This is due to a smaller share of taxes coming from the top brackets and capital gains taxes, as well as millions of middle class people falling out of the middle tax brackets, due to the recession.

Its also important to understand the difference between % of GDP vs. % of overall federal budget. Military spending is roughly 15% of the entire federal budget. Far more money, both in terms of share of federal budget, and absolute dollar amount, is spent on unemployment/social security/labor.

Unemployment/Social Security/Labor is about 33% of federal budget.

Medicare/health is about 27%.

https://www.nationalpriorities.org/budget-basics/federal-budget-101...

Comment by Rob Wittmann on April 3, 2018 at 9:18am

In terms of national debt, we've been running an ongoing balance since the 1970s. The government often plays games with this, in terms of minimizing its importance, by making cuts on discretionary spending, such that you end up with a temporary budget surplus. Democrats like Clinton did this.

Republicans, on the other hand, seem to enjoy tax-cuts without really cutting spending. When tax revenue isn't high enough to cover expenses, the government borrows $ (often from major corporations and financial firms).

In ancient Rome, during the late Republic, the Senate often cut taxes but raised expenses. To meet the deficit, they would borrow from the Senators and their families. In this way, the Roman State itself slowly became privatized, directly serving the pecuniary interests of the leading Patrician families. Legions, navies, aqueducts, streets----they all slowly started becoming privatized and the power of the Roman state gradually declined. This led to the Roman Civil War between Caesar and Pompey, as each of them were the largest private shareholders in the Roman State and military establishment. Pompey and his faction were responsible for 40% of all the money used by the Roman Senate (given to them through loans).

I would say that the major source of our national debt is the fact that we are having tax cuts on the super rich, elimination of capital gains taxes, and a hollowing-out middle class. Military spending is not that big a share of our national budget.

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