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 had about 1.36 million active-duty personnel and 801,000 reservists as of June 2020. It also employed about 761,000 civilians. There were about 224,000 combined personnel overseas in over 170 countries. About 3 million military and permanently assigned civilians receive income from DoD.

In addition to those serving in the National Guard and Reserve forces, 1.46 million veteran retirees from active duty received income in 2019 from their past service. Because of the enormous number of past and present personnel, the DoD is also one of the nation's largest healthcare providers, serving 9.6 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. As of 2018, it maintained more than 568,000 facilities at almost 4,800 sites on 27.2 million acres. It had over $4.6 billion in non-cancelable land and building leases, mostly for office space. It maintained about 5,500 Air Force aircraft and 296 Navy ships in FY 2020. 

What's in the FY 2021 Budget

The Department of Defense base budget for Fiscal Year 2021 is about $636 billion. That makes it larger than ExxonMobil’s or Walmart’s budgets. It dwarfs the next two largest government agencies: Health and Human Services with a 2021 budget request of $94.5 billion and the Department of Veteran Affairs with $105 billion.

The budget funds the creation of the U.S. Space Force, the U.S. Space Command, and the Space Development Agency. It spends $9.8 billion on cyberspace strategy and expansion of artificial intelligence. 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%.

In the FY 2021 Defense Budget base requests, the Air Force receives about 29% of total budget, the Navy receives about 30%, and the Army receives about 24%. Defense-wide allocations comprise the balance.

Much of the defense budget goes to contractors. A 2018 Congressional Research Service study found that defense contracts accounted for $320 billion of the federal government's total $507 billion contract obligations for FY 2017.

A 2019 department-wide audit reported that the DoD had $2.9 trillion in assets and $2.8 trillion in liabilities. About one-fourth of its assets consisted of plant, equipment, and inventory. In 2017, the National Defense Authorization Act stated 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 FY 2019, the Department had 94% of its liabilities dedicated to retirement and employment benefits. It had $607.6 billion in Treasury securities and $1.19 trillion in other investments. That's not enough to cover the $2.76 trillion in future retirement and medical benefits for veterans. Retirement benefits cost $206 billion in 2019.

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 2021, this is budgeted at $69 billion.

There are $215.3 billion in FY 2021 budget requests for the other departments that support the DoD and its defense mission. These include the Department of Veterans Affairs ($105 billion discretionary), the State Department ($40.8 billion), Homeland Security ($49.7 billion), and the National Nuclear Security Administration ($19.8 billion). 

Upon adding all of these together, total spending to keep America secure totals about $1.13 trillion. That's more than any other expense except Social Security. The U.S. military budget is one of the two most expensive components 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: 

  • Eleven Unified Combatant Commands, the armed forces leaders for each geographical area or functional mission.
  • The DoD Inspector General's Office, which reports on waste and fraud.
  • Nineteen Defense Agencies, and eight DoD Field Activities, which provide administrative and logistic support.

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