Under the Gun: Understanding America’s Defense Spending Paradox

On May 9, 1915, over 11,000 British troops perished or were wounded during a failed attack on a well-fortified German position in Aubers, France. The cause of this disaster was a lack of artillery shells, specifically high-explosive shells crucial for trench warfare. This event, known as the "Shell Crisis of 1915," prompted a significant overhaul of the British government's defense production system. Despite these efforts, Britain's Prime Minister H.H. Asquith lost his position a year later.

This Shell Crisis serves as a reminder of the challenges in preparing for protracted conflicts. As Mark Cancian, a retired Marine Colonel and senior adviser at the Center for Strategic and International Studies (CSIS), points out, "In almost every war, there comes a point when it's clear that the peacetime defense industry, even if it had been ramping up, is inadequate for the demands of war."

The world and warfare have evolved considerably since World War I. However, even now, with advanced technologies like fighter jets, nuclear weapons, satellite communications, drones, and AI, ammunition remains a critical factor. The decline of the British Empire was followed by the rise of the United States as the world's military superpower, the onset and end of the Cold War, and various conflicts in the Middle East. Now, America faces its own ammunition shortage.

Despite spending more on defense than the next seven countries combined, including China and Russia, the U.S. military has reported strategic inventory shortfalls. In August, Reuters reported that the U.S. had exhausted virtually all of its long-range precision weapons during five months of conflict with Iran. The U.S. also reportedly utilized over two-thirds of its Patriot interceptor supplies in the Middle East, leaving Ukrainian cities at risk of Russian strikes.

In response to Trump's certainty about U.S. limited ammunition supplies, the Pentagon's own accounting revealed strategic inventory shortfalls. Senior military commanders' warnings about stockpile conditions led Trump to avoid returning to full-scale combat against Iran. However, given the potential impact of a war with a more formidable opponent like China, this optimism seems misplaced.

The root cause of the current munitions crisis is often attributed to a single evening in 1993. Deputy Secretary of Defense William Perry invited defense industry executives to a secret Pentagon dinner, later known as the "Last Supper," where he warned them about the unsustainable Cold War-era defense budgets. Perry's prediction proved accurate.

Between 1988 and 1997, defense budgets decreased by around 30%, resulting in the consolidation of about a dozen major defense contractors into four. The cuts were largely due to reduced funding for new weapons as the military reduced its Cold War-era stocks.

However, the issue wasn't solely financial. After the 9/11 attacks, U.S. defense spending more than doubled, though it still represents less than half of 1980s budgets. Even with spending nearing a trillion dollars, the division of funds is complex. Operations costs, maintenance, and military personnel expenditures—including pay and retirement benefits—consume a substantial portion of the defense budget. Consequently, new high-budget platforms—aircraft, ships, and planes—often take precedence over munitions supplies.

This prioritization can be traced back to internal defense budget deliberations where finding savings to meet overall targets often led to prioritizing munitions as "bill payers." The decision was further facilitated by the fact that the ongoing wars in Iraq and Afghanistan did not necessitate the same level of missile, shell, and air defense interceptor usage as conflicts against nation-state militaries.

However, this changed with Russia's full-scale invasion of Ukraine in 2022, which led to a war characterized by extensive artillery use and missile barrages on Ukrainian cities, demanding a significant number of interceptors. Consequently, munitions found themselves in high demand. Despite years of declining defense industrial base and manufacturing capabilities, increasing production of artillery shells and advanced missiles and interceptors has been a slow and frustrating process.

The economic principle that supply meets high demand is not always applicable in this context. Defense companies have been reluctant to build out production capacity for potential new wars when the demand may be temporary. In fact, such a strategy might even benefit some defense companies by focusing on a high-demand, low-supply, high-margin business model. The consequence for Americans, however, is that taxpayers continue to bear high costs, even as the military struggles to meet the resource demands of modern combat.