A few more thoughts on the view from 1957. Relative to the size of the U.S. economy (which is to say, as a share of GDP) we have cut military spending to barely a third of what it was in 1957, from 9.8 percent of GDP then to 3.3 percent of GDP now. Even though we were spending three times as much on national defense in 1957—and even though we had lower taxes (17.2 percent of GDP then vs. 17.7 percent of GDP today) we ran a budget surplus. It’s usually described as a “modest” surplus, but at 3.4 percent of GDP, the budget surplus of 1957 was proportionally larger than military spending is in 2015.
So, where’d the money go?
Feel free to consult the historical data yourself, but the short answer is: welfare spending.
The broadest budget categories are national defense, human resources, physical resources, net interest, other functions, and undistributed offsetting receipts. National defense, net interest, other functions, and undistributed receipts are pretty self-explanatory; human resources includes welfare and health-care programs, entitlements such as Medicare and Social Security, and education spending. Physical resources means things like energy development, transportation, natural resources maintenance, environmental conservation, and community- and regional-development programs, the “infrastructure” we’re always going on about.
Interest on the debt today is almost exactly the same as it was in 1957; it is exactly the same as what it was in 1953: 1.3 percent of GDP. In 1957, we spent 1 percent of GDP on physical resources; today, we spend a bit less, 0.8 percent of GDP. Other functions constituted 1.6 percent of GDP in 1957, today down to 1.1 percent of GDP. Undistributed receipts is nearly unchanged, up 0.1 percent of GDP.
That leaves us with the welfare category, the only area of federal spending that has grown significantly relative to the size of the U.S. economy. In 1957, it was 3.9 percent of GDP—not insignificant, to be sure; that’s a slightly larger figure than our present-day military spending. But welfare entitlement spending in 2015 is 15.2 percent of GDP. Which is to say, broadly defined welfare spending alone is equal to 86 percent of all the federal taxes that are going to be collected this year. Most of that is Social Security, health-care spending, traditional welfare, and federal education spending, which has grown substantially despite the fact that most education spending happens at the state and local level.
Recap: In GDP terms, we spend about a third on the military today compared to what we spent in the late 1950s. We spend almost exactly the same on interest on the debt. We spend 20 percent less on energy, transportation, the environment, and natural resources. And we spend almost four times as much on welfare. Again, that is in GDP terms, and our economy is a heck of a lot bigger than it was in 1957. As a share of all federal spending, welfare has gone from 23 percent of spending to 73 percent of federal spending. In constant-dollar terms, we spend 17.5 times as much. In nominal-dollar terms, we spend 150 times as much.
We could probably stand to trim the Pentagon budget a bit and reform defense procurement. But the real problem is the welfare state. The numbers don’t lie.