Defence Spending: Guns vs Butter

How countries decide how much to spend on defence, the trade-off with other spending, and how global military spending has changed.

Economists use a famous phrase to describe the choice between military and civilian spending: guns versus butter. Every dollar spent on the military is a dollar not spent on schools, hospitals, roads or left with taxpayers. This is a classic example of opportunity cost.

How much the world spends

The Stockholm International Peace Research Institute, known as SIPRI, tracks military spending worldwide. It reported that global military spending reached about 2.7 trillion dollars in 2024, the highest level it had recorded, after rising for ten years in a row. The United States spends by far the most, followed by China and Russia. India is also among the world’s largest military spenders.

Measuring the burden

Defence spending is often compared with the size of the economy. Many countries spend between 1 and 3 percent of GDP on defence. Members of NATO, the Western military alliance, agreed in 2014 to aim to spend at least 2 percent of GDP on defence. In 2025, NATO members agreed a new, higher target of 5 percent of GDP by 2035, including 3.5 percent for core defence and the rest for related security spending.

Why countries spend

Defence is a classic public good: everyone in a country benefits from security, and no one can be excluded. Markets would not provide it on their own, so governments pay for it through taxes. How much to spend depends on perceived threats, alliances, geography and domestic priorities.

A budget choice

A government with a fixed budget is choosing between buying new fighter jets and building new hospitals. If it buys the jets, the opportunity cost is the hospitals not built. If security threats are rising, the jets may be judged essential. If threats are low, the hospitals may do more good. The guns versus butter trade-off forces governments to weigh very different kinds of benefits.

Economic effects

Economists debate whether defence spending helps or harms growth. It can support high-tech industries and jobs, and military research has produced technologies like the internet and GPS. But much spending is on equipment and personnel that do not raise productivity, and it can crowd out more productive investment. Most research suggests that high defence spending tends to weigh on long-run growth, though security itself is essential for any economy to function.

Thinking defence spending is pure waste

Military spending has real opportunity costs, but security is a precondition for economic life. The economic question is not whether to spend on defence but how much, and how efficiently.

Key takeaways

Guns versus butter describes the trade-off between military and civilian spending.
SIPRI reported global military spending of about 2.7 trillion dollars in 2024.
NATO members raised their spending target in 2025 to 5 percent of GDP by 2035.
Defence is a public good, but high spending can crowd out more productive investment.