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‘Investment’ Means Defense Spending

Monday, February 25, 2013

Our politicians seem more focused on winning the next election or reducing the budget deficit than on preventing the next war. The result may be a disinvestment in defense that ends up costing more than it saved.

In ongoing budget battles, Democrats continue to describe their favored programs as “investments.” Among other things, they say that includes bullet trains, smart grids, Head Start, electric cars, bridges, dams, retraining, and subsidies for windmills. Republicans, on the other hand, have been pointing out that “investment” is just a codeword for spending. According to one pundit, calling something an investment is merely a nonsensical rhetorical device — a term of art allegedly invented by Bill Clinton and used by every subsequent president because it seems to work well for justifying more government spending.

Both sides have a major problem in this rhetorical battle, however. To make the case for or against “investment” by government, each side must ignore the elephant in the room: defense spending. Not only was Clinton not the first to use the term “investment” to describe some government expenditures, the word was an accurate one (not merely a rhetorical device) frequently chosen by earlier presidents to describe defense spending. Those facts muddy the rhetorical waters for both Republicans and Democrats.

To “invest” means to commit resources such as money, time, expertise, or political capital, with the intent of producing benefits in the future, not in the present. Presidents long before Clinton understood that government can and does invest in the nation’s future.

Presidents long before Clinton understood that government can and does invest in the nation’s future.

In 1796, George Washington verified that effective defense spending is the very essence of investment, but instead of using the word “investment,” he spelled out its definition: “Timely disbursements to prepare for danger frequently prevent much greater disbursements to repel it.”

Seven years later, Thomas Jefferson made a significant investment in national security: the Louisiana Purchase. As he explained for posterity: “It is the case of a guardian, investing the money of his ward in purchasing an important adjacent territory; and saying to him when of age, I did this for your good.”

Fast-forward to 1986, when Ronald Reagan explicitly called defense spending an investment:

Barely 6 percent of our nation's gross national product — that's all we invest to keep America free, secure, and at peace. ... But now strip away spending on salaries, housing, dependents, and the like and compare. The United States invests on actual weapons and research only 2.6 percent of our gross national product, while the Soviet Union invests 11 percent on weapons, more than four times as much. This is the hard, cold reality of our defense deficit.

In short, presidents going all the way back to George Washington have noted that effective spending for national security tops the list of proper investments by government.

Figure 1 shows the history of defense spending as a share of the economy, going back to 1902. For obvious reasons, every time we had to fight a war, spending spiked. Not so obvious: if Reagan’s defense buildup serves as an example, then Washington was correct — preparing for danger can prevent the much larger cost of repelling it. (Imagine the outcome had World War III not been prevented by some combination of Reagan’s policies, Gorbachev’s reforms, and historical inevitability.)

Figure 1

conover_defense spending2

Data source: usgovernmentspending.com.

Clinton, contrary to the claim that he invented the use of “investment” as a rhetorical device, was in fact a latecomer in the use of the word. However, he was otherwise aligned with contemporary Democrats regarding their preference for a starve-the-beast strategy toward defense spending, a strategy that succeeded during Clinton’s tenure in the mid-1990s, when the Democrats seized on the Republicans’ desire to reduce big government. The so-called peace dividend, instead of being reinvested as George Washington had advised, was redirected away from the defense budget. That disinvestment was a major contributor to the still popular late-1990s budget surpluses — as temporary as those surpluses (and defense spending reductions) turned out to be. As Figure 1 clearly shows, defense spending has been a stark example of “pay me now, or pay me a lot more later.”

As Washington said in his farewell address: wars are expensive; preventing them is far less costly in the long run. As Jefferson and Reagan demonstrated during their respective tenures, security initiatives and peace-through-strength policies are investments, because they bestow future benefits — albeit intangible ones that are sometimes easy to overlook. But the political class today shows every sign of being less focused on preventing the next war than on winning the next election or reducing the budget deficit.

The rhetoric both sides have chosen in today’s budget battle has oversimplified the debate: defense spending is out of favor with one side, investment is out of favor with the other. Both sides have identified a beast they want to starve. Because of the prevailing atmosphere, we shouldn’t be surprised if and when the result is a repeat of the mid-1990s: a disinvestment in national defense that ends up costing more than it saved.

Steve Conover retired recently from a 35-year career in corporate America. He has a BS in engineering, an MBA in finance, and a PhD in political economy.

FURTHER READING: Conover also writes “A Business Perspective on the Federal Debt,” “A Winning Strategy on the Debt Ceiling (Courtesy of Warren Buffett),” and “Grand Old Party Poopers.” Thomas Donnelly, Gary J. Schmitt, and Mackenzie Eaglen contribute “Defense Spending 101: The Truth about U.S. Military Spending.” Eaglen also asks “Should the United States Increase or Decrease Its Spending for Defense?” Jonah Goldberg discusses how the “Blame Game Rages On over Looming Sequester.”

Image by Fred Wollenberg / Bergman Group

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