Common assessment of the American military and its adversaries seems to place the United States vastly ahead of other nations. The measure that’s typically used as a sort of superiority heuristic is defense spending, a metric where the U.S. is so overwhelmingly dominant you’d wonder why anyone would bother opposing us in the first place. The U.S. spends $750 billion per year on defense, more than every other country combined in the top 10 of defense-spending nations ($750 billion vs. $653.2 billion). China comes in second at $237 billion, and our other staunch adversary Russia clocks in at eighth ($48 billion).
This evokes a strong connotation of overwhelming American power. While our military capabilities certainly are hegemonic, these spending numbers are deceptive. If you’re truly trying to compare how many resources countries put into their militaries and want to use spending as your touchstone, this data must be adjusted.
All of these countries have their own currencies, and what they can buy for each unit of currency can vary greatly. Comparing defense capacity across nations is a more complex analysis than simply converting spending to U.S. dollars and seeing whose is biggest. For conventional warfare, Russia would seem like an adversary with only the means of France ($41.5 billion) or South Korea ($44 billion), both of which have similar spending. Yet an honest observation of Russia’s million-man army and how concerned NATO always seems to be about them should make you very suspicious of this framing.
How much does Russia actually get for each ruble? Its weapons procurement is massive, exceeding most European powers combined, including cutting-edge technology such as hypersonic weaponry and missile defense systems. How do Germany and the United Kingdom spend more than Russia and not carry the same capacity? Clearly Russia must be able to get more for its money than those nominal dollar figures would suggest.
To get a better idea, we need to analyze this spending using what’s called purchasing power parity. It’s a much more insightful way to understand what is being spent relative to how much that money actually buys in a given country. For example: $10,000 in New York is much different than $10,000 in Oklahoma. If goods and services cost half as much in one place, your $10,000 can effectively buy twice as much even though it would still only show up as $10,000 spent in both places. This is what purchasing power parity adjusts for, and will help clarify what countries are actually able to buy for each unit of currency in an apples-to-apples way.
Nominal USD-converted defense spending materially understates the wherewithal of China and Russia. Adjusted for purchasing power parity, Russia’s annual military expenditure was conservatively between $150 billion and $180 billion over the previous five years and could be as high as $200 billion. This means that comforting 15-1 ratio the U.S. purportedly has over Russia could actually be less than 4-1 in real buying power.
Beijing’s technological abilities are analogous to Russia’s, replete with anti-satellite, hypersonic, and anti-carrier abilities. It maintains a 2-million man army, and its Navy is able to commission some 14 ships per year (the U.S. creates only about five per year). How does China afford this?
Using purchasing power parity to clarify China’s defense spending, we get a value that’s 87% that of the U.S., or roughly $652.5 billion. China does not include research and development in its military accounting, so this figure may be on the conservative side. This would mean China only spends around $100 billion less than the U.S. per year, not $500 billion less like the headline figure suggests.
Consolidating the purchasing power parity-adjusted spend of China and Russia comes out to around $850 billion, handily outpacing America’s $750 billion. America supposedly spending more than the next 10 countries combined isn’t quite the bragging point it would seem.
So when you see how much we budget toward defense, compare it with other nations, and wonder why in the world we keep spending more, this is why. These realities are not lost on the Pentagon when it determines U.S. defense resources. We still maintain the premier military, allies, and technology in the world but cannot rest on those laurels with adversaries that aren’t as far behind as hoped.
Jason Orestes (@market_noises) is a former Wall Street financial analyst who focuses on contemporary political developments affecting economics, markets, and culture.
