The Trump administration has failed so far to deliver on its affordability promises. Yet, in a recent Department of Defense video on X, Secretary Hegseth boasted that the administration’s $1.5 trillion proposed defense budget would “supercharge” the American economy. It’s not exactly a novel plan.
The secretary’s statement echoes a long-standing argument since the publishing of NSC-68 in 1950: More defense spending is good for the economy. Of course, as with all federal spending, defense budgets certainly do affect Americans—just not in the way Secretary Hegseth thinks.
Instead of boosting economic growth, increased defense spending stunts the US economy, wastes money, and raises costs for Americans.
True enough, defense spending can create jobs and contribute to the economy. But this misses a more fundamental question: Which type of federal spending is most beneficial for the economy? The federal government can spend and borrow only so much money, and there are only so many resources and workers to go around. Should scientists be hired for defense research or domestic manufacturing? Should land be used for missile production or building a school? With limited resources and people, policymakers need to know how to spend federal dollars efficiently to limit waste and bloat.
Herein lies the central problem with Hegseth’s argument: Of all federal outlays, defense spending creates the least number of jobs. And the reasoning is simple—it is a “parasitic output.” The finished products from defense spending—tanks, missiles, bullets, and so on—leave the market once they are made. When that $4 million Patriot missile is built, that’s it. That $4 million either sits in storage or explodes in combat. Parasitic output is accounted for as part of a country’s gross domestic product, which is why, among other reasons, measuring defense spending as a contribution to GDP is misleading.
Increased defense spending also weakens America’s manufacturing industry, an economic sector in rough shape these days. The workers, research, and capital that could’ve been used to strengthen domestic manufacturing are being used to make weapons. Yes, building new weapons may increase employment rates. But such an obsessive focus on defense production means missing out on the wider employment and economic benefits of manufacturing other products with higher returns on investment.
Additionally, increased defense spending puts upward pressure on inflation. As the federal government pumps more money into the economy with little return, inflation rises. To offset this, governments have three primary options: increase interest rates, raise taxes, or reduce spending in other sectors. All three options are politically unpopular.
Reducing defense spending is the logical position for policymakers to take. Reforming the weapon acquisition process and walking back US military commitments abroad, for instance, are compelling policy options. But bolder action is needed. A spending cap should be placed on the defense budget, which is in fact how these budgets were made prior to the 1960s. Such a cap would force the military to make use of set funds, laying down an imperative to spend efficiently.
Matching the defense budget to America’s national interests makes sense in theory. And indeed, this is what the current Planning, Programming, Budgeting, and Execution process aims to do. Yet, threat inflation regularly goads Congress into paying any price to safeguard against exaggerated threats.
Proponents of hiking the defense budget argue that proposals to reduce defense spending put money before national security and that less spending in a world characterized by risk is radical. But what is truly radical is the notion that the United States can sustain its exorbitant defense spending indefinitely. It’s also radical to suppose that there are no trade-offs with federal spending. And it is radical to separate economic conditions from national security.
If the Trump administration is serious about lowering costs for American families, it cannot pretend that defense spending is somehow exempt from basic economic realities. A larger Pentagon budget does not create prosperity out of thin air. Lawmakers will need to scrutinize defense spending more heavily if they hope to fix the country’s economic woes.
