Did Bush Spend the Peace Dividend?

I'm no fan of Bush, but I find myself arguing against certain misconceptions about his fiscal performance which continue to persist. One such misconception is that he spent an insane amount of money on the military. Nominally (that is, in raw dollar amounts) this appears to be true, but while he did increase funding relative to the Clinton administration it was still very low by historical standards.

So let's start with a picture. Here is a graph of defense spending as a percentage of GDP from 1940 to 2003.So the end of the cold war did result in a peace dividend (lower defense spending) and this situation persisted through 2003. Bush did increase funding from the low point in 2000 but only to circa 1994 levels.

After 2003 the picture is more complicated because the Iraq war spending is not reported. I took Iraq war spending numbers and combined them with reported military outlays and then divided by nominal GDP. The result is summarized in the following graphic, where I include the levels from corresponding years in previous decades for reference.

Here we can see that even in 2006 with the Iraq war in full swing we spent less on total military expenditures relative to GDP than during 1976 (with the Vietnam war fully wound down) or 1986 (at the height of the cold war). The 1990s were definitely a period of relative low military expenditures but in historical perspective Bush's spending on defense was not very high even with Iraq war expenditures accounted for (and by the way, the entire practice of keeping things off the budget is very distasteful, shame on the Bush administration for that).

In particular we can still claim a peace dividend during the 2000s relative to the cold war.

On the Record

The RIAA has released 2008 Year-End Shipment Statistics which allows us to appreciate graphically just how screwed the record industry is. Compact Disc sales are plummeting, legal digital downloads are growing and the net impact is (significantly) negative. Here are the results (adjusted for inflation, which makes the story even worse!):

One popular theory is that, like newspapers, record labels have lost pricing power because they can no longer bundle (in particular, putting one good song per album and charging $13 is a thing of the past). The RIAA (implicitly) dismisses this line of reasoning in the associated notes:

If digital singles are converted into an album equivalent (divided by ten) and added to both CDs and digital albums, the overall album unit decline in 2008 was 14 percent (635 million to 545 million).

See ... less overall units means people must be stealing music, because their demand for quality product has not decreased! Quick, pass some laws ...

However we have established that an album is not equivalent to ten good singles. Let's be generous and say an album is equivalent to 3 good singles. In this case the picture is rosier:


Viewed this way demand for music is about the same, with the difference being attributable to the economic climate. Furthermore, if two singles are considered equivalent to one good album, then demand has actually gone up.

Finally, it's amusing to note that a greatest hits album from the early 1970s is the 2nd highest selling album of all time, selling 48 million copies and therefore roughly valued at $500 million dollars. Clearly the media consumer had less capabilities in the past if they were willing to collectively pay $500 million for someone to assemble a set of previously released tracks into a single physical format.