Tyler notes that defence inflation is higher than normal inflation.
Defence prices rise faster than general inflation both because the earnings of personnel rise faster, and because the price of defence equipment rises much faster.
Addressing just the first of this.
Earnings do, generally, rise faster than inflation. That\’s what it means that we\’re getting richer. The average chappie is getting better off over time as wages rise faster than other prices.
But as William Baumol pointed out, this causes a problem. The wage rises are general but it\’s not true that productivity rises in all sectors equally. It\’s much easier to increase labour productivity in manufacturing than it is in services.
Thus services will tend to rise in price relative to manufactures over time. Because the cost of the labour which we cannot substitute for in services rises at the same speed as the cost of the labour in manufacturing which we can substitute for.
And the military is, of course, very much a service. Whatever the Air Forces of the world have been telling everyone for a century, that air power alone will win wars, just ain\’t true: boots on the ground are required.
So, defence spending will, as wages rise but our ability to cut the number of troops required is constrained, take an ever larger portion of the national economy. In exactly the same way that health care, something similarly constrained, does.
However, we\’ve also one get out with defence which we don\’t with health care. Defence is comparative: there\’s no specific number of troops, set of equipment, which is required. What is required is \”enough to beat the other guy\”. And if he\’s also facing the same cost problems, the same rising share of GDP devoted to hard men who will do violence in the night, then as he economises then so can we.
Which is why we\’re not spending 10% of GDP on defence but are on health care. Despite both of them having faced exactly the same cost pressures over the past half a century.