Eight Things Everyone Should Know About Defense Spending and Inflation

A new issue brief from the Costs of War Project at Brown University's Watson Institute looks at the relationship between the defense budget and inflation, in light of recent calls by some lawmakers to increase defense spending even above the historically high level requested by the Biden administration, citing current high rates of inflation.

"Eight Things You Should Know About Defense Spending and Inflation" provides essential background information on inflation and military spending that shows there is no reason to increase the FY 2023 defense budget to account for current high prices for consumer goods and energy.

"If you look at how defense budgets have historically worked, and the relationship between military spending and inflation, you can quickly see that these calls to raise the budget well beyond inflation rates are misguided," says Heidi Peltier, Director of Programs at the Costs of War project and author of the analysis. "The DoD already appropriately accounts for rising costs for its sector, and increasing its spending to match the current levels of inflation for consumer prices is inappropriate."

Over the past 60 years, defense spending grew significantly during the Cold War era. It also increased in the decade following the 9/11 attacks, as well as in the spending surge starting in 2014. Large spikes and falls in inflation over the same periods had little to no correlation with the level of defense spending.

Nevertheless, the current defense budget already factors in 4 percent inflation for its projected budget FY2023-2027, based on defense-specific price indexes, according to Defense Secretary Austin at a recent defense hearing. Additionally, the analysis notes that inflation doesn't impact each portion of the defense budget equally because an economy-wide inflation rate does not accurately capture how prices change for defense-specific purchases.

The analysis also advises that volatile fuel costs can be managed by decreasing operations or abandoning outdated platforms. "It is a strategic mistake to raise budgets in line with current high fuel costs," said Peltier. "Especially given that the U.S. military is the single highest institutional emitter of greenhouse gases, and climate change is helping to drive inflation. It's a vicious loop. The conversation we should be having is how we must urgently reduce the military's fuel consumption, not accommodate for higher fuel prices."

"This narrative that inflation merits a higher military budget is what we've come to expect from the military industrial complex, which benefits handsomely from Pentagon spending," says Stephanie Savell, co-director of the Costs of War Project. "U.S. taxpayers have paid and obligated over $8 trillion for the 20 years of war post-9/11. During the same time, nearly half of the money spent by the Pentagon has gone to military contractors that in turn spent billions on lobbying. The sky-high spending for warmaking is not sustainable, nor will a bigger military budget address the true security threats of the day."