A Century of Defense Spending

There were two major peaks of defense spending in the 20th century: World War I and World War II.

Chart 2.31: Defense Spending in 20th Century

At the start of the 20th century, defense spending averaged about one percent of GDP. Then it spiked to 22 percent at the end of World War I. Defense spending in the 1920s ran at about 1 to 2 percent of GDP and in the 1930s, 2 to 3 percent of GDP.

In World War II defense spending peaked at 42 percent of GDP, and then declined to about 10 percent during the height of the Cold War. Thereafter it declined to 3 to 5 percent of GDP, with surges during the 1980s and the 2000s.

Recent Defense Spending

Defense spending declined in the 1990s after the end of the Cold War and increased in the 2000s during the War on Terror.

Chart 2.32: Recent Defense Spending

Defense spending stood at 7 percent of GDP at the height of the Reagan defense buildup. But, beginning even before the breakup of the Soviet Union, it began a decline, reaching below 6 percent in 1990, below 5 percent in 1994 and bottoming out at 3.6 percent of GDP in 2001, about half the level of 1985.

But 9/11, the terrorist attack on iconic US buildings in 2001, changed that, and defense spending began a substantial increase in two stages. First, it increased to 4.7 percent by 2005 for the invasion of Iraq, and then to 5.1 percent in 2008 for the the “surge” in Iraq.

Spending increased further to 6.0 percent in 2011 with the stepped up effort in Afghanistan. Defense spending is expected to decline to 4.7 percent of GDP by 2015.

Big War Spikes

There have been four major spikes in US defense spending since the 1790s.

Chart 2.33: Big Spikes in Defense Spending

Viewed across the two centuries of US power, defense spending shows four spikes. It spiked at 12 percent of GDP in the Civil War of the 1860s (not including spending by the rebels). It spiked at 22 percent in World War I. It spiked at 42 percent in World War II, and again at 15 percent of GDP during the Korean War.

Defense spending exceeded 10 percent of GDP for one year in the 19th century and 21 years in the 20th century. The last year in which defense spending exceeded 10 percent of GDP was 1968 at the height of the Vietnam War.

Defense Spending Since World War II

For 20 years after World War II, defense spending ran at about 10 percent of GDP. Then it began a steady decline.

Chart 2.34: US Defense Spending Since WWII

After World War II, the US stablized defense spending at 8 to 9 percent of GDP, boosting it to 15 percent during the Korean War. During the height of the Cold War with the Soviet Union US defense spending fluctuated at around 10 percent of GDP.

At the height of the Vietnam War in 1968 defense spending was 10 percent of GDP. But then it began a rapid decline to 7 percent of GDP in the mid 1970s and hit a low of 5.6 percent of GDP in 1979 before beginning a large increase to 7.0 percent in 1985.

Starting in 1986 defense spending resumed its decline, bottoming out at 3.6 percent of GDP in 2001. After 2001, the US increased defense spending to a peak of 6 percent of GDP and is expected to reduce spending to 4.7 percent of GDP by 2015.

Spending on Veterans

How the US looks after its veterans.

Chart 2.35: US Veterans Spending

At the start of the 20th century the US spent about 0.6 percent of GDP on its veterans. By the start of World War I veterans spending had declined to 0.5 percent of GDP and to 0.3 percent by the end of the war.

After World War I veterans spending climbed back to 0.6 percent of GDP and hit 1.6 percent of GDP in the Bonus March year of 1932. In 1936 veterans spending peaked at 2 percent of GDP before declining steadily to 0.27 percent of GDP in the middle of World War II.

Immediately after World War II the US ramped up spending on veterans, peaking at 2 percent of GDP in 1950. Thereafter veterans spending declined slowly to 0.66 percent in 1966, before rising to one percent of GDP by the mid-1970s in the aftermath of the Vietnam War.

Veterans spending declined slowly in the 1980s and 1990s and reached 0.5 percent of GDP in the early 2000s. But veterans spending has increased in the late 2000s, hit 0.85 percent of GDP in 2011, and is expected to continue at that level in the 2010s.