How Cost Effective Is the Department of Defense?

January 27, 2020

In global development, we spend a lot of time thinking about cost effectiveness—is money better spent on free or reduced price bed nets, through bilaterals or multilaterals, by IDA or the IFC? That’s important—aid is too precious to waste.

But what if we step back and look at the broader picture when it comes to the effectiveness of different tools of foreign policy and engagement including diplomacy and defense? What are our most effective approaches to deliver on US national security and future prosperity? My new book, Close the Pentagon: Rethinking National Security for a Positive Sum World, is an attempt to answer that question. The title gives away the conclusion.

In the US, we spend approximately ten times more on defense than diplomacy and development combined. The budget of America’s flagship aid effort, PEPFAR, which keeps 11.5 million HIV positive people healthy worldwide by providing antiretroviral drugs, is $6.8 billion. That’s about the same as the operations and maintenance budget of the Air National Guard. And for all of the waste and inefficiency we see in aid programs, it is dwarfed by orders of magnitude by the resources we waste on military spending. Most aid (broadly) works. Most US defense spending (broadly) doesn’t.

The return the United States gets from its military expenditure is abysmal. This is in part because of the good news that traditional battlefield warfare is largely extinct and so the fighters, bombers, tanks, and capital ships that dominate military spending are increasingly unnecessary. The last major naval engagement worldwide was in 1944, the last large air battle, was in 1972, and the last major tank engagement was in the early 1990s.

But the return is also low because the Department of Defense is a nightmare of bureaucratic and politically driven inefficiency. The Center for a New American Security has suggested up to $49 billion in annual savings simply from reducing waste in the defense budget without any cuts to force structure readiness and modernization. That is close to the total amount the US spends annually on aid, diplomacy, the United Nations, and other international organizations and peacekeeping operations combined.

On top of that, the national security threats that America faces are increasingly dominated by challenges for which war is not the answer—climate change, financial crises, pandemics, cyberattacks, and (even) terrorism. We need the non-kinetic tools of US foreign policy more than ever to deal with these challenges, but those tools remain underfunded and disempowered.

We still need a strong US military as well. But we don’t need a lot of the military we have. It is time for reform and downsizing, with some of the savings flowing to other foreign policy tools. I note in the book that we could raise US aid spending to 0.7 percent of GDP using savings from the defense budget that would amount to only a 15 percent cut.

Perhaps in the longer term we could reduce the defense budget to the current global median of 1.5 percent of GDP—around one half its current share. The additional savings could triple the size of the Earned Income Tax Credit, with money left over. And at that point, perhaps we could shutter the Pentagon—famed as the world’s largest office building and home to its most sprawling bureaucracy.


CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.