Market makers

Should we cut our defense spending in half?

To politically balance my previous suggestion to cut US medical spending in half, let me now suggest we cut US military spending in half. I haven't researched this subject anywhere near as much as medicine, so I can't argue as strongly. But the simple argument seems compelling: The US with 27% of world product has about 46% of world military spending (up from 40% in 2000). Yet our "defense" needs are few, as we are rich, isolated, have friendly neighbors, and haven't been invaded for centuries. And it is hard to see how "offense" spending at this level could possibly be cost-effective.

Well, there's one way: the US could be like Alcoa. That is, we are huge, and rich, and this makes us the low-cost provider of military services to the world. We are so cost-effective that no one else even bothers trying to enter the market to compete against us. We've achieved this position in part just by being huge and rich, but also in part through path dependence: over the last fifty years, we've gained a lot of relevant expertise at having a giant high-tech military.

If we cut our military spending in half, however, it might be worthwhile entering the market to compete against us. At 1-2% of GDP, other countries probably could field an army against us. Yes, we're isolated, but that also makes us vulnerable to things like interdiction of shipping, which is why we ended up in both World Wars last century. Plus, the invention of the intercontinental ballistic missile renders discussion of our isolation somewhat moot.

Imagine Europe if the US were not a global hegemon. I imagine Russia engaging in a rapid military buildup, taking back some of its lost territories, and wielding a great deal of influence over the ones on its new borders that it did not formally control. Europe would have to rapidly build up military strength, but this would be exceedingly difficult, because they've lost the knack. No European country can currently project force much beyond its own borders, several can't project it even within their own borders, and all of them have high levels of government spending that would get in the way of military buildups. Who will train new soldiers? What companies will design and build their military equipment? Who will secure their supply chain of critical resources while they do so? Industries do not spring full-grown from the head of Zeus; they rely on a lot of prior art. Once you've lost that prior art, you are at a severe disadvantage in the market, whether the market is for widgets or a powerful military.