Is Jon Stewart Wrong or Does America Really Spend More on Defense Than the Next 13 Nations Combined?

By now, you've probably seen this picture that's been floating around the Internet, and most recently floated onto "The Daily Show" with Jon Stewart:

Source: Data from Stockholm International Peace Research Institute, SIPRI Military Expenditure Database, 2013. Compiled by PGPF.

But is it true? Does America really spend more on defense than the next 13 nations combined? Well, yes and no.

Lies, damned lies, and Internet statistics
If America spends $711 billion on defense -- and if the actual defense spending of the next 13 biggest defense spenders in the world adds up to $695 billion -- then yes, America would be spending more than the next 13 nations combined. But there are two crucial caveats here.

First, America is not spending $711 billion.

And second, the other countries aren't spending $695 billion.

As you can see in the chart below, U.S. defense spending actually topped out at $691 billion in fiscal year 2010, with about 23% of that going to finance two wars.

Since then, defense spending has fallen off dramatically. U.S. combat troops left Iraq at the end of 2011 and are heading for the exits in Afghanistan today. This year's defense budget calls for $615 billion in spending (about $100 billion less than reflected in the Technicolor spending chart up above). Fiscal 2015 spending, now in negotiations, will probably be even lower, as operations in Afghanistan wind down.

And as for the base defense spending budget -- not counting Overseas Contingency Operations, or OCO -- it's held steady at about $520 billion and change for the past five years.

What about everybody else?
But what about the other part of the theory? That the "next 13 nations combined" supposedly spend only $695 billion?

Well, there's a bit less than 100% truth in that statement as well.

Take China, for example -- the second-biggest defense spender on the globe. In 2012, China's gross domestic product was $8.23 trillion. According to the CIA, about 1.99% of that GDP was budgeted for defense spending -- $163.8 billion. But in fact, China probably spent quite a bit more.

According to Time magazine, "China's military spending has tripled over the past decade, and is now roughly a third of what the U.S. military spends." (One third of America's latest defense budget would be $205 billion.)

Stars and Stripes backs up Time's math: "China's rising defense outlays might have topped $200 billion for the first time in 2012, even though its declared military spending was around half that much," writes the Pentagon's own newspaper. "Chinese defense spending may have reached as much as $215 billion [in 2013], representing an increase of nearly 20 percent from the Pentagon's upper-range estimate of $180 billion in the previous year's report."

So, any way you cut it, China is spending in the $200 billion-plus range -- and unlike the U.S., China's defense budget is growing. China is building a fleet of four new aircraft carriers, for one thing. That alone will add billions to its budget.

You can't invade Crimea on a shoestring budget
Russia, too, spends a lot on defense. The world's third-biggest spender laid out $90 billion for defense in 2012. Russia's defense ministry just announced a $9 billion spending program to build a force of "drone" aircraft. And the country is adding 40 new warships to its navy this year alone.

Between these two programs, and the cost of invading and occupying Crimea besides, there's a good chance the Kremlin will bust right through its $90 billion defense budget this year.

Pencils down!
So, as we review the facts, it appears to be true that in one single year, a few years ago, the U.S. arguably spent as much as "the next 13 nations combined" -- but that's clearly no longer the case today. Today, it would be more accurate to say that the U.S. spends about twice the $300 billion spent by the next two countries combined.

Don't get me wrong -- that's still a lot of money. But given that China just unilaterally annexed most of the airspace bordering Taiwan, Korea, and Japan, and Russia just invaded one of its neighbors, it may not be an unreasonable amount of money to spend. And in any case, despite America's sizable budget deficit, it does not appear that the Pentagon, or Congress, intends to undertake any significant spending cuts on defense -- not if the trend of the last five years is any indication.

Viewed from the perspective of an investor, though, it can't fail to be noticed that the steep increases in defense spending from 2001 through 2010 have pretty much trailed off. And the limited prospects for future increases in defense spending are reflected in today's modest, single-digit, projected-growth rates of many defense contractors: General Dynamics (NYSE: GD  ) , Lockheed Martin (NYSE: LMT  ) , and especially, Northrop Grumman (NYSE: NOC  ) -- pegged for just 1% annual profits growth over the next five years.

In short, if there are arguments to be made for maintaining defense spending at current levels -- the prospects for a repeat of the kind of rapid-fire growth we saw earlier in this millennium seem vanishingly small.

Consistency is a virtue
Even that isn't such horrible news, though, because if these defense business may not show great growth... at least they still pay great dividends -- 2% at General Dynamics and Northrop Grumman, and a whopping 3.7% at Lockheed Martin. Over time, generous dividend-paying stocks like these can make you rich. While they don't garner the notability of high-flying tech stocks, dividend-paying stocks are also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.


Read/Post Comments (13) | Recommend This Article (2)

Comments from our Foolish Readers

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  • Report this Comment On March 09, 2014, at 8:34 PM, Catweasel wrote:

    Speaking of Lies, damned lies, and Internet truthiness.

    From this we learn

    1). Money spent funding war isn't really defense spending.

    2). That a better way to minimize and counter a statistic is by rephrasing it, i.e it's not 7 but 2 x 3.5.

    3). It very important which arbitrary time periods you choose when contrasting statistics

    It's the same commercial logic that counters $20 with $19.99 or $365 with 'only a dollar a day'.

    Or contrasts US spending not as 6.8 times that of Russia's but only three times that of China's (even though the US population is 1/4 that of the latter).

  • Report this Comment On March 10, 2014, at 3:33 PM, SLTom992 wrote:

    Well, I have to agree with you. And I do not believe that the USA should be supporting every dictatorship in the world that is willing to give the oil moguls access to the juice. And Obama has been one of the worst at this. His entire campaign has been funded by commercial businesses that expected repayment in one for or the other.

  • Report this Comment On March 10, 2014, at 3:51 PM, doraglasberg wrote:

    You would have a lot more credibility if you referenced a NEWS source rather than a comedian.

    The question is WHY anyone feels the need to dispute the FACT our military budget is way out of whack with other nations.

  • Report this Comment On March 10, 2014, at 4:25 PM, nucknucknuck wrote:

    Best point - Stewart on Comedy New central is taken seriously. At least as serious as Faux News.

    If you saw the whole show, you would see that Swewart was essentially ripping Faux news for even worse journalism than Jon's fake news.

  • Report this Comment On March 10, 2014, at 4:32 PM, terradistas wrote:

    On what basis are we accepting TIME Magazine over the CIA?

  • Report this Comment On March 10, 2014, at 4:33 PM, dangibson wrote:

    Mr. Leiboweitz seems -- in a very short time as a comedian -- to have become an authority on any and all world affairs --- Jonathan Leiboweitz -- has not one original thought in his head -- everything said and done is directed by the network owners and the writers -- and yet -- much like the President -- he is quoted as if the words and thoughts were his?

  • Report this Comment On March 10, 2014, at 4:33 PM, CardinHouston wrote:

    Unfortunately the military appropriation budget passed for the current fiscal year passed last July was for 710 million, and not affected by the sequester. development projects are not part of the budget, ie the F-35, and other systems developed on contract to the department of defense. So yes the number is closer to the actual 711 billion. If you want to quote actual numbers please go to the GAO web site, much more accurate than the sources you have quoted. The stars'n'stripes may not be as factual in their reporting as you might want them to be.

  • Report this Comment On March 10, 2014, at 4:35 PM, CardinHouston wrote:

    Excuse me 710 billon for fiscal 2013 passed in July 2013. Still trying to pass a budget for 2014 which ends in September.

  • Report this Comment On March 10, 2014, at 4:58 PM, Bryanokc wrote:

    Do we spend a lot of the military? Yep, we sure do. However, one of the main things the Constitution requires the federal government to do is maintain a military force. Seems a lot of people want the government to cut spending on something which they are required to financially support and to increase spending on things that they were never given the power to create in the first place. Yes, times and needs change but in a world where you have other countries such as China flexing their new found military might, Russia who is slowly trying to rebuild the old Soviet Union and a very unstable Mid-East where a lot of countries don't even pretend to like us, I think it is a safer practice to overspend than underspend on our military. Many other countries spend very little on their military because they know there are other countries that will step in and assist them if needed. Who would step in to help us should the need arise?

  • Report this Comment On March 10, 2014, at 5:05 PM, LTDan wrote:

    A huge portion of defense spending in all countries is how much they pay their military personnel.

    China, India, Russia, etc can get away with paying their soldier/sailors peanuts, we can't.

    "If you want peace, prepare for war"

  • Report this Comment On March 10, 2014, at 6:13 PM, hbk72777 wrote:

    Stewart is embarrassing.

    He hides behind the comedy moniker so he can't get called out for his ineptness

  • Report this Comment On March 10, 2014, at 8:59 PM, bigjohn327 wrote:

    maybe if we were not defending all of europe,,,they would pay for their own military instead of expecting us to do it,,,,,,than add the UN which every time they say troops should go somewhere it usually means us

  • Report this Comment On March 10, 2014, at 9:32 PM, DevonShire123 wrote:

    You're leaving out the US black budget military projects. This nullifies your entire argument. Idiot.

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