How To Restore Fiscal Sanity: Lessons From The Eisenhower Years, Part 1

Upon taking office in 1953, President Eisenhower inherited a Korean War swollen budget that badly needed fiscal repair. In today’s dollars of purchasing power (FY 2023 $), spending totaled $947 billion and weighed in a nearly 20% of GDP.

At that point, revenues of $865 billion (FY 2023 $) were also on the high-side by historic standards, amounting to 18.2% of GDP. But that wasn’t nearly enough to fund the Pentagon’s exertions on the Korean peninsula, nor the incipient Warfare State that had been built around it under what became the two-and-one-half war doctrine embodied in NSC-68.

The latter was a 66-page top secret national security policy paper that had been drafted by the State and Defense Departments, and presented to President Truman in April 1950. In the words of scholar Ernest R. May, NSC 68 was the crucial document crystalizing Washington’s cold war policy:

“…..provided the blueprint for the militarization of the Cold War from 1950 to the collapse of the Soviet Union at the beginning of the 1990s.”

NSC 68 and its subsequent amplifications advocated a large expansion in the military budget, the development of the H-bomb and increased security assistance to allies. It made the rollback of global Communist expansion a high priority and rejected the alternative policies of detente and containment of the Soviet Union.

Needless to say, Ike spent the next eight years struggling to contain the Warfare State monster unleashed by Truman’s cadre of warhawks and Wall Street-based adventurers (Dean Acheson and Paul Nitze, especially). At length, he did succeed in shrinking the defense budget by 30% in real terms by the end of his term in 1961 when he delivered his famous warning about the dangers of the military-industrial complex. This rollback included shrinking the Army by 40%, a sizeable reduction in the Navy and an overall cut in military personnel from 3.5 million under arms in early 1953 to 2.5 million by December 1960.

Equally important, the military log-rolling under which each military service had gotten exactly one-third of the funds in the post-war defense budgets was decisively abandoned. Instead, under the New Look doctrine of “massive retaliation” the Air Force was allocated 47% of DOD funding, while the Army got only 22% for its now sharply circumscribed missions.

Needless to say, Ike’s drastic change in the national security doctrine of NSC-68 and the related downsizing of the conventional force structure sharply curtailed Washington’s ability to wage wars of  intervention, invasion and occupation. And it also caused an explosion of outrage in the Army.