Just About Nothin’

Around the world, governments are pouring money into national security. This can take many forms. Governments, for instance, might spend their tax revenues on militaries, cyber security, or defense against terrorism. These outlays not only have an accounting cost which holds spending at bay for other areas of investment, but governments often rely on financing such outlays at a growing rate which crowds out other potential borrowers in capital markets.

The globe is facing unprecedented debt levels while military budgets of nations are growing. Global government debt is closing in on becoming equal to the world’s gross domestic product according to the International Monetary Fund (IMF). The IMF predicts global debt will reach 100% of the world’s output by 2029. If this materializes, public debt would be at the highest level relative to output since 1948, and the IMF even assigns a 5% chance that it could reach 124% by 2029.

Money spent on things like wars, security, and interest payments may be necessary at any given moment, but they can come at the expense of other outlays which may improve long-term prosperity (e.g., education, infrastructure, or private research). One study cited here by the Peace Science Digest indicates that increased military spending leads to lower economic growth. They suggest a 1% increase in military spending slows a country’s growth by 9.0%.

During the Vietnam War, Edwinn Starr’s hit “War” asked a poignant question and offered a response. “War, huh, what is it good for? Absolutely nothin’.” Unfortunately, it might be argued that it is good for increasing debt levels and slowing down economic growth, two things the world seems to have plenty of currently.