Department of Defense and Its Effect on the Economy

a soldier aiming a firearm

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The U.S. Department of Defense is the nation's largest employer. It has over 1.4 million active duty personnel and 1.1 million reservists. It also employs 861,000 civilians. There are 450,000 employees stationed overseas in 163 countries. An additional 3 million Americans receive income from DoD.

There are also 1.1 million people serving in the National Guard and Reserve forces, and two million veterans and their families who rely on this income from their past service. Because of the enormous number of past and present personnel, the DoD is also the nation's largest healthcare provider, serving 9.5 million military members, retirees, and their families.

The DoD's Function

The U.S. Department of Defense provides the military power needed to protect the United States. It maintains 561,975 facilities at 4,800 sites on 25 million acres. It has more office space than Manhattan. It maintains 250,000 vehicles, more than 5,285 aircraft, and 293 ships. It's in charge of a multi-billion dollar global supply chain.

What's in the FY 2021 Budget

The Department of Defense base budget for Fiscal Year 2021 is $633 billion. That makes it larger than ExxonMobil’s budget of $482 billion or that of Wal-Mart’s $443 billion. It dwarfs the next two largest government agencies: Health and Human Services with an allocation of $106 billion and the Department of Veteran Affairs with $93 billion.

The budget funds the creation of the U.S. Space Force, the U.S. Space Command, and the Space Development Agency. It spends $9.6 billion on cyberstrategy and expansion of artifical intellligence. It will build a new missile field at Fort Greely, Alaska, with 20 silos and 20 additional Ground-Based Interceptors. This is to defend against North Korean and other ballistic missile threats. It will increase military pay by 3.1%.

The Air Force gets 30% of the budget, the Navy and Marine Corps between 30 and 35% and the Army receives 25%. The Army might receive an even smaller percentage as wars end, creating less need for a large ground force.

Much of the defense budget goes to contractors. A 2018 Congressional Research Service study found that $380 billion of its $605 billion budget went to contractors.

The DoD has $2.3 trillion in assets and $2.4 trillion in liabilities. Almost 40% of its assets consist of plant, equipment, and inventory. In 2017, the U.S. Department of Defense reported that climate change is a “direct threat” to these assets. Extreme weather, rising sea levels, and flooding caused by global warming endanger 128 military bases. In response, Congress asked DoD to identify the 10 most vulnerable sites and recommend solution strategies.

In January 2019, the DoD reported on the 79 installations most at risk. It cited recurrent flooding at 53 bases, drought at 43 installations, and threat of wildfires at 36 sites. The department has developed coping solutions to address the problems.

In 2105, the Department had 95% of its liabilities dedicated to retirement and employment benefits. It has $1.312 billion in investments and Treasury securities. That's not enough to cover the $2.3 trillion in future retirement and medical benefits for veterans. Retirement benefits cost $66.8 billion each year. 

Other Military Spending

These are only the direct expenditures to support the department's day-to-day operations. War costs are paid out of an Overseas Contingency Operations fund. In FY 2020, this is budgeted at $71 billion.

There is $216 billion budgeted for the other departments that support the DoD and its defense mission. These include the Veterans Administration ($93 billion), the State Department ($48 billion), Homeland Security ($48 billion), and the National Nuclear Security Administration ($17 billion). These departments also have an emergency fund totaling $8 billion. 

Upon adding all of these together, total spending to keep America secure totals about $989 billion. That's more than any other expense except Social Security. The U.S. military budget is the second largest component of the federal budget.

How It Affects You

Much of how the DoD affects you is implied. It protects you from something that hasn't happened, such as attacks on the United States.

The DoD budget stimulates the economy in the short term. It provides income to the 5.2 million employees or beneficiaries, not to mention the employees of its contractors. 

On the negative side, defense spending threatens the economy in the long term by increasing the budget deficit, and thereby the U.S. debt. It also crowds out funding for all other government services.

History and Structure

In 1775, the Continental Congress established the Army, Navy, and Marine Corps to fight the American Revolution. The Army is the main ground force. The Navy protects American interests on the seas. The Marine Corps is a small rapid-deployment unit.

In 1789, Congress created the War Department to manage these divisions. In 1947, Congress created the Air Force to coordinate air power. Congress created today's Department of Defense in 1949. 

In 1790, Congress created the Coast Guard to enforce laws on the seas. In 2002, the Coast Guard was transferred to the Department of Homeland Security. The president can transfer the Coast Guard to the Navy in times of war.

The president is the Commander-in-Chief. Reporting to him is the Secretary of Defense. The Secretary manages these direct reports: 

  • Nine Unified Combatant Commands, the armed forces leaders for each geographical area.
  • The DoD Inspector General's Office, which reports on waste and fraud.
  • Fifteen Defense Agencies, and seven DoD Field Activities, which provide administrative and logistic support.

The Seven-Member Joint Chiefs of Staff advises the president and the secretary.