Strategic Insolvency on Defense

Does it make sense to continue borrowing money from China so we can subsidize the defense of our wealthy allies?

In his October 3 debate with Barack Obama, Mitt Romney established a fascinating test for determining whether a spending program is worthwhile. Is the program important enough, Romney asked, to borrow money from China to fund it?

It is an intriguing and pertinent standard. China already holds more than $1.2 trillion in U.S. Treasury debt, and that amount is growing rapidly as the U.S. federal budget continues to hemorrhage red ink at a rate of $1 trillion a year, with China being a large purchaser of that new debt. It is not merely the overall fiscal recklessness that is troubling, although that should bother all Americans. Equally worrisome is the potential leverage that such profligacy gives to a strategic competitor. And China is a strategic competitor, not an ally or even a “friend” of the United States. No American should want the U.S. government to be in a position where it must defer to Beijing on an important issue merely because it is imprudent to annoy one’s banker.

Unfortunately, Romney does not apply his own standard to a crucial part of the federal budget: military spending. That is not a trivial matter, since military spending makes up some 20 percent of federal spending. Indeed, not only does Romney exempt Pentagon programs from the “China borrowing test” that he would apply to other expenditures, he wants to lavish even more money on the Department of Defense.

That is bad policy for several reasons.

First, the United States already spends nearly as much on the military as the rest of the world combined—and spends more than the countries with the next ten largest defense budgets combined. It’s a bit much to argue that the Pentagon is cash starved, but that is what Romney asserts. He excoriates the Obama administration for its allegedly brutal cuts to the defense budget and pledges to reverse that trend.

Second, current levels of U.S. military spending are higher in inflation-adjusted terms than the peak levels during the Cold War. Again, it is a bit much to argue that the current global threat environment is worse than it was when the Soviet Union and China were in close alliance, the Red Army occupied Eastern Europe and communism seemed to be on the march through much of the Third World. Yet Romney’s case for higher military spending rests on that premise.

Third, U.S. allies in both Europe and East Asia shamelessly free ride on America’s security exertions. Their overall defense-spending levels are anemic, at best. Figures from the International Institute for Strategic Studies publication The Military Balancedemonstrate that point. While the United States spends 4.7 percent of its GDP on the military, longtime NATO allies allocate far less. In 2010, Britain devoted barely 2.5 percent; France, 2.0; Germany 1.3; and Italy 1.1 to defense. And the newer NATO members, who were so eager to join the alliance, are no better. Poland spends a mere 1.8 percent of GDP; the Czech Republic, 1.4; and Hungary, 1.0. The trend in spending is even more depressing. As a percentage of GDP, European defense-spending levels (except for Great Britain) have plunged since 2000. France is down 21.92 percent; Germany, down 10.7 percent; Italy, down a whopping 49 percent. Again, the new, supposedly more dedicated, NATO members exhibit the same pattern. Poland’s defense spending is down 11.5 percent; the Czech Republic’s down 39.7 percent; and Hungary’s down 38.8 percent.

At least the Europeans might claim that the region’s threat environment is now benign, making such meager defense expenditures justifiable (although NATO governments oppose even modest cuts in U.S. expenditures). The East Asian allies, however, don’t have even that justification. With a rising China and a hostile, volatile North Korea, the threat environment in East Asia is hardly benign. Yet Japan continues to spend only 1 percent of GDP on defense. South Korea, Pyongyang’s main target, devotes a mere 2.5 percent and Taiwan, which Beijing still claims to be part of China, only 2.1 percent. Moreover, in the cases of Taiwan and South Korea, the percentage of GDP allocated to defense has declined markedly since 2000.

The willingness of a Romney administration to boost U.S. military outlays would not only encourage European and East Asian countries to continue their free riding, it also would create an incentive for them to intensify it. If Uncle Sam is willing to take care of their security needs, why should they burden their own taxpayers with a more serious effort?

It is not just Romney’s willingness to lavish more money on the Pentagon, though, that deserves the label of strategic insolvency. Worse is his apparent unwillingness to prune even the most unnecessary or unwise U.S. global missions. That point became all too evident in his recent foreign-policy address at the Virginia Military Institute. As my Cato Institute colleague Gene Healy points out in the DC Examiner:

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