The Surprising Political Economy of Defense Spending

Defense Secretary Chuck Hagel walks with Gen. Philip Breedlove at Ramstein Air Base, Germany, on March 11, 2013.

Photo by Jason Reed/AFP/Getty Images

One of the big political stories of 2013 is the genuinely surprising way in which Republicans have been shrugging off sequestration. As of six months ago I thought—and the Democrats on the Hill and in the White House who I discussed it with agreed—that sequestration was going to create big problems for the GOP coalition. Half the cuts come from the military budget, and since the military budget is less than half the total budget, that means it gets hit unusually hard. And some nonzero portion of the nonmilitary budget goes to things conservatives like and value, whether that’s federal law enforcement agencies or random subsidy schemes for rural areas. Could they really hold the tide against pressure to raise taxes on the rich in the face of that kind of alternative? The answer turns out to be yes they can.

Someone who’s not surprised is Kevin Narizny, author of an excellent academic study called “Both Guns and Butter, or Neither: Class Interests in the Political Economy of Rearmament” (PDF). He looked at historical episodes where democracies faced a perceived need to respond to an external security threat and finds that left-of-center governments are typically more enthusiastic about spending on rearmament than right-of-center governments.

The reason, he posits, will be familiar to veterans of the sequestration battle. The money’s got to come from somewhere! Cutting big welfare state programs for the middle and working classes (in the U.S. context: Social Security, Medicare, and Medicaid) is unpopular. So are broad-based tax increases. Taxing the rich, by contrast, is popular. So if you’re going to have a big increase in military spending, it’s the rich who’ll disproportionately pay. Center-right governments end up with very mixed feelings, while center-left governments respond with gusto. Further support for this view can be found from research revealing that the historical origins of estate taxes is the need to pay for wars (rather than the need to fight inequality), which in America at least is also where the progressive income tax and innovations like tax withholding come from. Randolph Bourne wrote that “war is the health of the state” and at a minimum, wars are a huge boon to the development of state fiscal capacity—capacity that can later be used to finance center-left parties domestic spending schemes.

At first blush, the George W. Bush administration looked to me like a counterexample to this. But Narizny pointed out to me that if anything it’s a confirming case. Al Gore ran on a platform of higher military spending than Bush did. Democrats’ proposed alternative to the 2001 Bush tax cuts involved higher military spending. The mainstream Democratic Party complaint about the Bush administration’s Iraq policy in 2003-2005 was that he hadn’t sent enough troops there. In 2004, John Kerry proposed to expand the size of the regular military and to send additional forces to Iraq. All this extra military spending was to be paid for with—of course—the repeal of Bush’s tax cuts for the rich. And here we are in 2013 with Barack Obama proposing to increase spending on (among other things) the military and pay for it with higher taxes on the rich.