A Survey of US Military Spending: Normalizing Output by Fully Burdened Cost

Key Narrative

The US spends more on defense than the next ten countries combined—but what does it actually buy? This post attempts to answer that question by examining military spending through the lens of fully burdened unit costs: what does it really cost to field a soldier, operate an aircraft carrier, or maintain nuclear deterrence?

The argument: headline budget figures obscure more than they reveal. When you account for personnel costs (including healthcare and retirement), acquisition inefficiencies, and overhead, the “output” per dollar looks different than naive comparisons suggest. This isn’t an argument for more or less spending—it’s an argument for clearer thinking about what we’re buying.

Outline

I. Introduction: The $886 Billion Question

• FY2024 defense budget in context
• What does this number include? (And exclude?)
• The problem with international comparisons

II. Decomposing the Defense Budget

1. Personnel (~25%)
   • Active duty, reserve, civilian workforce
   • Compensation trends over time
   • Healthcare and retirement (hidden costs)
2. Operations & Maintenance (~28%)
   • Readiness spending
   • Infrastructure and logistics
3. Procurement (~22%)
   • Major weapons systems
   • The acquisition death spiral
4. Research & Development (~15%)
   • Basic research to prototyping
   • The innovation pipeline
5. Military Construction & Other (~10%)

III. Fully Burdened Cost Methodology

• What is “fully burdened” cost?
• Allocating overhead and support
• Lifecycle vs. annual costs
• The Army’s Fully Burdened Cost of Fuel concept

IV. Case Studies in Unit Economics

A. The Cost of a Soldier

• Base pay, BAH, healthcare, training
• Support tail per combat soldier
• Comparison: US vs. peer competitors
• The all-volunteer force premium

B. The Cost of an Aircraft Carrier

• Acquisition: $13B+ (Ford class)
• Annual operating cost: ~$1B
• Air wing costs (separate line item)
• Full strike group cost
• What capability does this buy?

C. The Cost of Air Superiority

• F-35 program costs (development + unit)
• Cost per flight hour
• Comparison to F-16, legacy systems
• What does “5th generation” buy?

D. The Cost of Nuclear Deterrence

• Triad modernization programs
• Annual sustainment
• Is this the “cheap” option?

V. What Does the Data Reveal?

1. Personnel costs are rising faster than budgets

   • Implications for force structure
   • The compensation-readiness tradeoff

2. Acquisition programs consistently overrun

   • Major programs by cost growth
   • Root causes: requirements, oversight, industrial base

3. Overhead absorbs significant resources

   • Tooth-to-tail ratio over time
   • Defense agency growth

4. Purchasing power is declining

   • Defense inflation vs. general inflation
   • What the same budget buys today vs. 2000

VI. International Comparisons (Adjusted)

• PPP adjustments for China, Russia
• What adversary spending actually buys
• The asymmetry problem

VII. Implications

• Are we spending enough? Wrong question.
• Better questions: On what? How efficiently?
• Reforms that might improve output per dollar
• The politics of defense efficiency

VIII. Conclusion

• Honest accounting is the first step
• Efficiency gains won’t solve strategy problems
• But strategy requires understanding costs

Suggested Sources

Official Data

• DOD Comptroller budget documents (Green Book)
• GAO weapons systems assessments
• CBO long-term defense spending projections
• Selected Acquisition Reports (SARs)

Research Organizations

• CSIS Defense Budget Analysis
• RAND force costing studies
• Center for a New American Security
• Stimson Center defense budget work

Academic

• Cindy Williams (MIT), defense budget analysis
• Todd Harrison (CSIS), budget breakdowns
• Travis Sharp, acquisition reform research

Historical Context

• Eisenhower’s “Chance for Peace” speech (1953)
• Robert Gates’ efficiency initiatives (2010-2011)
• Defense Business Board reports

Methodology

• IDA cost estimating handbooks
• CAPE (Cost Assessment and Program Evaluation) guides
• Fully Burdened Cost of Fuel studies