The U.S. Gets Less for Its Military Dollar

In absolute terms, the U.S. defense budget accounts for over a third of the world’s total defense spending, more than the combined expenditures of China, India, and Russia. But not all dollars are spent equally. When economists compare countries’ GDP or standard of living, their common practice is to recognize local price differences. These fluctuations also apply to military spending. For example, labor costs for soldiers are far cheaper in China and India. Failing to account for these differences can lead to false confidence in American power.

Professor of economics and dean of the University of Western Australia Business School Peter Robertson addressed the differences in defense budgets by constructing a military purchasing power parity (MPPP) exchange rate based on each country’s relative unit cost ratio.

The MPPP figures make America look far less dominant. On a nominal basis, China’s spending is roughly $252 billion, only a third of America’s. However, at MPPP it jumps to two-thirds of the U.S. budget. And this doesn’t account for the asymmetric nature of modern warfare, where cyber capabilities and special operations of all kinds can have an outsized impact. In sum, military dollars can buy more in places where soldiers and equipment are cheaper.

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Military Spending

Source: Professor Peter Robertson, University of Western Australia.