So Far, Trump's Proposed Budget Is a Zero Sum Game

The following three charts are based on date from the Congressional Budget Office. All three show various metrics of U.S. defense spending.

The top chart shows the absolute dollar amount of spending. There were two periods of sharp increases: the 1980s Reagan build-up, when defense spending rose approximately 200%, from $100 billion to $300 billion. The second period was the post 9/11 and Iraq war increase, when spending increased a bit more than 100%. The second chart shows the relationship between defense and non-defense spending. Defense spending has fluctuated around the 50% level since the early 1990s. The bottom chart shows defense spending as a percent of GDP. Using that measure, defense spending is near a 50 year low.

According to the Financial Times, the Trump administration is asking for a $54 billion increase in defense spending. This represents an increase in demand at the macro-level, which would move the aggregate demand curve to the right, increasing income and prices. Furthermore, military spending provides a large bang for the buck: not only do the armed forces purchase a disproportionate amount of durable goods but long ago the Pentagon spread their suppliers out across the nation, creating a larger economic footprint. On the other hand, the White House is requesting a cut of a similar amount in other areas. After considering the multipliers involved, it’s possible that the total stimulus from military spending will be larger than the cut spending. But, I don't think it's that meaningful.

Also note what's not in the budget: any mention of infrastructure spending. On the campaign trail, Trump regularly talking about increasing infrastructure spending by $1 trillion. Not only is this spending desperately needed, but it would also provide a large boost to economic growth. But the budget is silent on this.

But on the surface, this is looking like a zero sum economic policy.