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Dollar and helicopter
9.03.04
Politics and Economy:
Election 2004
More on This Story:
Defense Dollars

Security, defense and even the Vietnam War have emerged as major issues in the 2004 election. But there's another side of the relationship of defense and politics — the money. On July 12, 2004 President Bush signed a nearly $417 billion defense spending bill, 12 percent higher than the average budget of the Cold War years. Pentagon projections stand at nearly $490 billion for 2009. The news sent the shares of Standard & Poor's aerospace and defense index up 25 percent. On August 29, 2004 the PHILADELPHIA INQUIRER reported that former Defense Secretary William Cohen is forming a merchant banking firm expressly to invest in the defense industry. Five days later, the industry publication FORECAST INTERNATIONAL DEFENSE INTELLIGENCE NEWSLETTERS featured a headline "Kerry Would Cut Missile Defense Budget."

Defense spending is unarguably an important element of the U.S. economy. According to recent federal figures, although U.S. GDP growth slowed in the second quarter, federal spending rose 2.7 percent more than two-thirds of which (1.9 percent) was defense spending. None of this is new; in their year-end wrap up coverage of 2003, Reuters led its business news coverage with the headline "Defense Spending Driving U.S. Economy." But defense spending also adds to the federal deficit — a worry for the fiscal conservatives in President Bush's party. In January 1961 President Dwight D. Eisenhower issued a warning about this symbiotic relationship between government defense spending and the economy in his farewell address to the nation. Indeed, Department of Defense and related defense spending accounts for the majority of federal spending in nearly every state. And the U.S. accounts for 43 percent of world military spending. What are the actual numbers? Click to find out.



CHART: Defense Dollars: Most Bang for the Buck?      

This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence — economic, political, even spiritual — is felt in every city, every state house, every office of the Federal government. --President Dwight D. Eisenhower's Farewell Address to the Nation


Eisenhower's words of warning undoubtedly hold extra weight, coming from an ex-General who had witnessed World War II defense spending restore a depression economy, and a president who presided over crucial years of the Cold War.

The current U.S. defense budget one of the largest in American history. The defense budget has not reached the high percentage of discretionary spending that it held during the Reagan administration. (Discretionary spending is the portion of the federal budget that Congress can disperse — in 1982 defense spending accounted for 61.1 percent of the total discretionary budget.) However, the 2003 and 2004 budget numbers do not include the costs of the war in Iraq or peacekeeping and reconstruction efforts. Pentagon estimates run to $3.9 billion a month to keep nearly 150,000 American troops in Iraq. White House budget director Joshua B. Bolten puts the total reconstruction costs for 2003 at about $7.3 billion.

*NOTE ABOUT THE FIGURES:

U.S. Spending: As noted above, discretionary spending is the part of the budget over which Congress has control (the numbers exclude entitlements such as Social Security, Veterans Benefits and other mandated programs). The figures for the 2003 budget come from the most recent House Budget Committee documents as the full spending package has yet to be passed. These numbers are rendered in constant 1996 dollars for easier comparison. [Numbers were put into constant (1996) dollars by using the deflators 'total defense' and 'total nondefense' as presented in Table 10.1, Budget of the United States government, FY2004, Historical Tables.]

U.S. Budget Breakdown: The White House's Citizen's Tax Guide 2002 provides information on spending by agency and by function. The figures of spending by function reflect the discretionary budget. The figures by agency reflect the total federal outlay. Figures by function reflect interest payments on the national debt.

Sources: Forecast International Defense Intelligence Report, August 17, 2004; The Hill.com; THE VIRGINIAN PILOT, August 31, 2004; THE PHILADELPHIA INQUIRER, August 29, 2004; PORTLAND PRESS HERALD, August 26, 2004; Agence France Press, August 26, 2004; THE NEW YORK TIMES, July 31, 2003; Reuters: Defense Spending Driving U.S. Economy; Budget of the United States Government, 2004; Congressional Budget Office; Office of Management and Budget;
National Priorities Project

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