The price tag for defense.

Photographer: Jeff J Mitchell/Getty Images

America's in Danger of Imperial Overstretch

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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Twenty-nine years ago, historian Paul Kennedy coined the term "imperial overstretch" to describe what happens to great powers when their global commitments become too expensive to sustain. He also suggested that the U.S., which at the time was in the midst of a defense-spending boom under Ronald Reagan, might be overstretching things a bit.

A lot of the points Kennedy made in the forward-looking final chapter of "The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000" seem prescient today: The Soviet Union suffered from a much more extreme case of overstretch than the U.S., he argued. Check. The focus of global economic activity was going to shift toward Asia, with China becoming one of the world's leading economies. Check. The U.S. would continue to be beset by fiscal deficits, disappearing blue-collar jobs and declining relative economic power. Check.

Kennedy, a professor at Yale University, also seemed convinced, though, that defense spending was going to represent an ever-growing burden for the U.S. He wrote:

Great Powers in relative decline instinctively respond by spending more on "security," and thereby divert potential resources from "investment" and compound their long-term dilemma.

Hasn't happened. Since Kennedy published those words in 1987, the share of U.S. gross domestic product going to the military has declined from 6.1 percent to 3.3 percent.

The amount of spending was almost exactly the same, in constant dollars, in 2015 as in 1987; the shrinking of the military's share of GDP was due entirely to economic growth. Still, military spending didn't rise. It didn't rise because the collapse of the Soviet Union brought an end to the Cold War, which led to outright declines in military spending in the 1990s in the U.S. and around the world (all these numbers are from the military expenditure database maintained by the Stockholm International Peace Research Institute):

As you can see, spending stopped declining in the late 1990s, then rose strongly over the first decade of the new millennium. That was partly because the world's biggest military spender, the U.S., got involved in wars in Afghanistan and Iraq, and because other post-Cold War conflicts flared up in the Middle East and Africa. You can see evidence of those wars in the list of countries that devote the highest share of GDP to defense.

But global defense spending also rose in the 2000s because global economic growth was strong outside the U.S., allowing nations on the rise to invest in their militaries without overburdening their economies. The most dramatic example of this was China, where military spending rose more than tenfold, in constant-dollar terms, from 1989 to 2015, even as the percentage of GDP going to defense actually fell from 2.5 percent in 1989 to 1.9 percent in 2015. In the process, China rose to second place in global military spending, with more than twice the expenditures of No. 3 Saudi Arabia.

This is consistent with Kennedy's rise-and-fall story. Countries with faster-growing economies -- in this case China and India, mainly  -- are beginning to catch up with the dominant great power. They're still miles behind, India is increasingly looking like a U.S. ally and China doesn't seem to have anything like the global military ambitions that the Soviet Union did. But it is nonetheless possible to envision a near future in which U.S. military spending as a share of GDP starts rising steadily as perceived threats to the country's security grow faster than the economy.

Defense spending isn't all bad, in economic terms. Because the U.S. makes its own weapons, buying more of them can have a stimulative effect -- although some economists argue that this effect disappears if the purchases are made with borrowed money. There's a long history of positive spillovers into the rest of the economy from military research and development. And sometimes spending more money on defense is essential to, you know, defend yourself.

Still, Kennedy's "security" vs. "investment" tradeoff has to come into play at some point. Is the U.S. anywhere near it? Probably not yet. But I can't see any reason why we should be immune from imperial overstretch forever. 

(Corrects U.S. military spending total in final chart accompanying article published July 13.)
  1. There's no data available for North Korea, which one suspects might make it onto this list. Also, there's no data for Syria since 2010. Military spending was 4.1 percent of GDP then, but is surely much higher now.

  2. I reported this as 2 percent in a column on Tuesday. That was from the World Bank's database, which relies on the same SIPRI military spending data I use here. I'm guessing the percentages aren't the same because they used a slightly different measure of GDP.

  3. Saudi Arabia's economy has generally been growing faster than that of the U.S., too, but its military spending is already so high as a share of GDP that it seems more likely to suffer from overstretch of its own than to keep rising up the ranks.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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