Washington’s fiscal failure is an exercise in overlooking the obvious. Entitlements are bankrupting the country, yet what’s currently facing the biggest budget ax is the area that has actually shrunk relative to the economy over the last 40 years: defense.
To understand how misplaced Washington’s budget-cutting is, you first have to understand the federal budget itself. It is divided into two broad categories of spending.
The first is “discretionary spending,” which is funded on an annual basis and is what all federal spending used to be. The second is “mandatory spending” — which operates on a permanent basis — and is what has become the federal budget’s auto-pilot accelerator.
Discretionary spending is composed of defense and nondefense spending, while mandatory spending is composed of entitlements — of which Social Security, Medicare and Medicaid are the three largest.
Forty years ago, discretionary spending was larger than mandatory — 10.9% of GDP vs. 7.4% today. And within discretionary spending, defense was bigger than nondefense — 6.7% of GDP vs. 4.2%.