In Defense of Defense: Keep the Money Coming

Last week, the Biden administration asked Congress for a $40 billion supplemental spending package to fund disaster relief, border security, and more aid to Ukraine.

Disaster relief and border security are unlikely to spur much resistance, but a small cadre of Republicans will almost certainly balk at the $13 billion in military aid earmarked for Ukraine.

I think that’s pretty crazy — especially when you consider that $9.5 billion of that $13 billion will go toward backfilling the American weapons, equipment, and ammunition that have already been dispatched to the embattled country. 

I know I’m biased. 

It won’t surprise anyone that the guy with a portfolio full of defense contractors and war-fighting technology stocks thinks America should continue to pour money into the Pentagon.

But besides fretting about the sheer volume of America’s debt burden, which hypocritical politicians and doomsday preppers have been doing for decades, can anyone give me a good reason why we shouldn’t? 

Because I can give you numerous reasons as to why we should support defense, now more than ever.

Just to name a few:

1. It’s a vital pillar of the economy.
2. It leads to life-changing technological advances.
3. It safeguards U.S. sovereignty and interests. 
4. It puts pressure on our adversaries. 
5. It increases global stability. 
6. We’ve got the money.

I could write entire essays on each one of those points, but I don’t think either of us has time for that, so let me just hit the main points.

First, the Congressional Research Service estimates the U.S. defense industrial base currently includes over 200,000 companies. 

It employs more than 2 million people, representing approximately 1.4% of the nation’s total employment base.

And those jobs pay well, with an average salary of over $106,700, which is 40% above the national average. 

In 2021, the industry paid out $224 billion in compensation, or roughly 1.8% of total U.S. labor income.

It’s not all about weapons, either. On the contrary, the aerospace and defense sector encompasses a sprawling supply chain composed of thousands of small and medium-size businesses.

All told, it accounts for roughly 1.7% of U.S. GDP with $391 billion of total economic value. 

This economic impact is broad too, spilling across every state in the union.

For example, Alabama received $12.2 billion in defense contract awards in 2021, the most recent year for which data is available. That equated to 5% of the state’s total economy.

In the same year, Connecticut received $18.4 billion in contract awards, also equal to 5% of its GDP. (That’s why I say things like this.)

And that’s to say nothing of government jobs in the defense department or millions of soldier and civilian employees at hundreds of military bases and research labs around the country. 

Indeed, the persistent effort to generate advanced military technology to gain an advantage over our adversaries has resulted in some of the most important, valuable, and marvelous technological advancements of the past 100 years. 

Everything from GPS to fiber optics to the internet itself has sprung from military research. 

And as far as the adversaries we’re competing with, they now pose the biggest threat since the Soviet Union. 

For more than a decade now, Russia and China have been working as hard as they possibly can to undermine the United States. 

They’re hacking our biggest companies to steal trade secrets and advanced research… 

They’ve got massive troll farms flooding us with propaganda via social media and other avenues… 

They’re bribing government officials, television personalities, and politicians for political cover and policy favors…

They’re developing advanced weapons platforms like hypersonic missiles and space lasers…

And they’re constantly threatening us with nuclear annihilation if we continue to stand in their way. 

Russia’s invasion of Ukraine has to be a wake-up call in terms of how far these tyrants are willing to go, and we can’t make the mistake of thinking that China and its autocratic despot are any different than Russia and its autocratic despot.

Both want the same thing, which is the end of America and a collapse of the Western order, which we guarantee with military force — the same Western order that has resulted in one of the longest, most prosperous, and stable periods in human history. 

They want that so they can run amok and impose their tyranny on their neighbors. 

Make no mistake: If Russia had succeeded in steamrolling Ukraine, it would have moved on to other former Soviet states. And China has very obvious designs not just on Taiwan and the South China Sea but the entire Pacific region.

So if we’re going to start playing hardball with the budget, the defense sector makes the least amount of sense to target... 

Especially when the fiscal year 2024 budget request for the State Department and the United States Agency for International Development solicited $63.1 billion for foreign assistance and diplomatic engagement... only a fraction of which is intended for Ukraine. 

Indeed, the United States dispatches tens of billions of dollars in foreign aid every year, and, up until last year, the vast majority of that money was going to countries that weren’t at war, much less being invaded by one of America’s principal adversaries.

For example, the U.S. government has sent nearly $80 billion in military aid to Afghanistan over the past two decades, including $4 billion in 2021. 

We’ve sent more than $100 billion to Africa in that time, including $8.5 billion in 2021.

And Israel has received the largest cumulative amount of U.S. foreign aid, having secured more than $260 billion total, with another $3 billion–$4 billion coming in each year.

Zoom out further to encompass a defense budget that’s fast approaching $1 trillion annually, a $6.27 trillion federal government budget, and America’s $23.3 trillion GDP, and it’s pretty absurd that another $13 billion for Ukraine is any kind of sticking point. 

Any investor who wants to reap the rewards of that spending should check out my latest report for Secret Stock Files, an investment trading service focused exclusively on cutting-edge military technology. You can find out more about that here.

Fight on,

Jason Simpkins

@OCSimpkins on Twitter

Jason Simpkins is Assistant Managing Editor of the Outsider Club and Investment Director of Wall Street's Proving Ground, a financial advisory focused on security companies and defense contractors. For more on Jason, check out his editor's page. 

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