Guns or Butter: Health Spending versus Defence Spending

Introduction

The phrase “guns or butter” originated during the early 20th century, particularly around the time of World War I. The concept was likely first articulated by William Jennings Bryan, Secretary of State under President Woodrow Wilson. Bryan resigned in protest over Wilson’s decision to prioritize military production over civilian goods (Guns Before Butter  Political Dictionary.) Others claim that the term came from the National Défense Act of 1916, which aimed to produce nitrates for both munitions and fertilizers. The media referred to this dual-purpose production as “guns and butter,” highlighting the trade-off between military and civilian spending. The phrase was further popularized by economist Paul Samuelson in his widely-used textbook, where he explained the finite nature of resources and the need for budgetary trade-offs.

Economics revolves around the concept of absolute or relative resource scarcity versus multiple alternate uses which invariably leads to trade-offs. These trade-offs are fundamental aspect of economic theory, highlighting the opportunity costs associated with different policy decisions. The balance between these two priorities can significantly impact a nation’s economic health, social welfare, and international standing., This blog note examines the trade-off between guns (defence spending as a percentage of GDP) and percentage expenditure on health (representing butter) to see if the relative importance of one to a nations budget translates into the relative unimportance of the other. Clearly the spending of a nation is not a dichotomous choice between the two and many other factors will determine the actual budgetary allocations, but as a first step it is interesting to see if leadership  in one appears to detract from the other.

Table 1 Countries with the highest percentage spending on defence 2022-2024

Source: Various Year books 2022-2024

Understandably, Ukraine currently devotes a high percentage of GDP to defence spending because of the Ukraine War. However, also, because of the war, it also devotes a relatively high percentage to expenditure on health.  However, apart from this country, Table 1 shows considerable spending diversity in spending choices. Finland has a relatively high percentage expenditure on defence (2.4%) but spends over 10%  on health related expenditure, Poland and  Greece also favour health spending while Algeria and Saudi Arabia spend considerably more on health. This may be more governed by circumstance rather than by policy preference. Saudi Arabia, lives in a volatile area and has much natural resource to protect. However, Table 2, which examines the top spenders on health, seems to imply a more deliberate shift into “Butter” and away from Guns.

Table 2 Countries with the highest expenditure on Health

Source Country specific health data

These data suggest that the US Government has a strong case for their belief that some NATO countries underspend on defence. Germany that spends nearly 13% on Health can only find 1.5% of GDP for defence. Austria spends less than one percent on defence but 11% on health. Large disparities favouring health also exist for Italy, Denmark, Finland, Spain and Sweden. In fact, all the high health spending nations have low defence budgets.

The results in Table 1 are driven by circumstance, with some of the respective countries forced  into high budgets, whereas the results in Table 2 tend to reflect a more conscious choice to prefer Butter to Guns. For example,  a nation such as France spending only 2.1 percent of GDP on defence

An initial Test of Trade off

There are two data behaviours that would give an indication if consistent trade-offs were taking place in the choice between defence spending and health spending. The first would be consistent ranking, so that the highest spender on defence would be the lowest spender on health. In that case a non-parametric test, such as a Spearman rank test would yield a coefficient of -1 and be highly significant. However, any policy choices are unlikely to be so structured. If there is a guns or butter trade-off it is likely to be internal to the circumstances of that nation. Two initial non parametric tests were used to examine the data in Table 2, a Wilcoxon test of association (https://www.statisticssolutions.com/free-resources) and Spearman rank correlation test

Table 3 – Some Initial Tests of Trade-offs

P values in parentheses

As might be expected with a small sample size, neither of the tests were significant at the 5% level. The negative sign on the Spearman Rank confirms an inverse or trade-off relationship does occur in those countries listed in Table 2 and the Wilcoxon test suggests a modest association or consistency of the trade-off between those nations that have high health expenditure; that is they are prepared  to consistently trade defence spending for health spending

Conclusions

Economics as a discipline recognises that overall scarcity of resources necessitates trade-offs in sending priorities. Nations annually signify their trade off decisions within the budget where decisions on spending priorities are made This was recognised early on with the generation of the phrase Guns or Butter; in essence a trade-off between consumption items or investment/capital items. This set of choices is often illustrated by a nation’s consistent choice to prioritise health over defence spending. There are reasons for this. Health is  a consistent and growing need whereas defence spending may be circumstantial. Ukraine currently spends a large percentage  of GDP on defence as they are in a war economy. The countries listed in Table 2 are not war economies, they are peaceful democracies. France, Sweden, Finland, Germany, Austria, Greece, Norway Spain and Italy have all chosen to devote significantly more resources to health than defence. This a definite trade off. All are European countries with an aging population and benefitting from the US, and to a lesser extent, the UK presence in NATO which provides them with a discounted defence protection level.  The incoming Trump administration has definite opinions on what they see as free riding on US defence spending by these countries and it is notable that Sweden has begun a military build-up since the Ukraine war. The Guns or Butter  argument could be examined further by including social security spending into health spending, which in a combined sense would dwarf defence spending for most nations. Trade-offs are the nature of economics, making the optimum trade-offs is much more difficult.