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How Does Defense Spending Affect Economic Growth?


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In recent years, there has been a growing debate about the U.S. role in the world, or U.S. grand strategy. A grand strategy guides choices about how to manage relations with allies and adversaries, where to forward deploy U.S. forces, and how much to spend on defense. Some analysts argue that the United States remains incredibly powerful and geographically distant from its adversaries, allowing it to remain secure with a reduced global footprint and without spending as much on defense as in previous years.1 Others argue that the threats to the United States are plentiful and must be countered with policies that require the current or an even higher level of defense spending.2 Those responsible for making decisions about grand strategy and levels of defense spending must consider a number of economic and securitytrade-offs, which the RAND Center for Analysis of U.S. Grand Strategy is considering in a series of reports. This first report in the series focuses on one dimension: possible trade-offs between defense spending and U.S. economic growth. Compared with other aspects of the debate about U.S. grand strategy, there has been less focus on the economic trade-offs associated with U.S. strategic choices and defense spending specifically. Yet these trade-offs might be of greater public interest in coming years. In early 2021, as the United States remains in a recession amid an ongoing pandemic, questions about how different budget choices affect economic performance might become more salient.In fact, some politicians are calling for reductions in defense spending, and analysts note that pressure for cuts might increase as demands grow for domestic spending to respond to the coronavirus disease 2019 (COVID-19) pandemic and the associated recession.3 Once the immediate crisis has passed, the country will have an even larger public debt than before and might also have to grapple with the question of what level of defense spending is sustainable in the long run.4



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