Defense and the Long-Term Budget Outlook

Paul Krugman writes about the long term deficit:

What I read from this is that between the slightly unsustainable deficit in 2019 and the demography to follow, we’ll eventually have to find 3.5% — call it 4 — in fiscal consolidation even if health reform ends excess cost growth.

That’s a big but not disastrous number. We could raise that much in taxes alone without inflicting huge economic damage. We could make up some of the number if health reform does more than end excess cost growth, and rolls spending as a percent of GDP part way back toward European levels. We could cut Social Security benefits — although if you look at the numbers, it would take draconian cuts to make a major dent that way.

Actually reducing health spending as a percent of GDP strikes me as very unlikely to happen. The politics of just getting cost growth under control are very difficult. But one thing I’m surprised Krugman didn’t mention is the Department of Defense. The Pentagon’s budget has, in percent of GDP terms, varied a lot over the years:

The Heritage Foundation purports to think it’s strange that defense spending is lower (as a percent of GDP) than during its Cold War averages “despite the War on Terror.” One might respond to this by trying to compare the budget of al-Qaeda to the budget of the Soviet Union. For that matter, you could try to compare the budget of al-Qaeda to the budget of Czechoslovakia or East Germany or whatever other random Warsaw Pact member you choose.

Maintaining a level of defense spending well above anything that seems to meet a strict self-defense test has a lot of advantages for the country. But those are advantages that need to be weighed against the costs in terms of higher taxes or lower spending on things like Social Security.