In the aftermath of the collapse of the Soviet Union, a concept termed the “peace dividend” gained traction, spearheaded by George Bush Senior and Margaret Thatcher. This notion encapsulated the economic benefits variously anticipated from reduced defense spending. While some foresaw tax reductions, a predominant belief was that savings from defense cuts would bolster social programs. After the fall of the Berlin wall, Western nations allocated smaller and smaller portions of their GDP to defense, directing expenses instead towards healthcare, education, and housing.

The origins of the “peace dividend” trace back to Norman Angell's 1910 work, “The Great Illusion,” which sold over a million copies and captivated global leaders. Angell's book argued that economic interdependence among nations rendered war economically futile. Despite its initial reception and Angell's Nobel Peace Prize in 1933, history proved otherwise.

Over the past three decades, Western democracies have often operated under the assumption that global confrontations were a thing of the past. However, this perception was jolted by Russia's invasion of Ukraine, a direct threat to the idea of ours being an era in which trade and economic growth is prioritized over security. The contemporary landscape is further complicated by the growing challenges posed by China, as identified in the latest U.S. National Defense Strategy, along with escalating conflicts in Israel, Gaza, West Africa, and elsewhere.

Fluctuating defense budgets of European NATO members and Canada, which hit a nadir in 2014, have since escalated, particularly after Russia's annexation of Crimea. These increases in military expenditure coincide with significant domestic economic pressures in the west, such as those related to aging populations, environmental initiatives, and foreign aid spending.

The end of the Cold War fostered a sense of a unipolar world, with expectations of political liberalization in China and Russia. However, as Germany’s minimal defense investment and recent strategic assessments reveal, past presumptions about global peace and security require a second look.

Recent military exercises in preparation for a potential defense of Taiwan have shown the United States’ vulnerability in terms of weapons supplies, particularly in long-range, precision-guided munitions. These stocks could be depleted within a week. This situation parallels Europe's need to bolster defenses after the Russian invasion of Ukraine, compelling European leaders to make tough budgetary choices that will inevitably impact their citizens’ daily lives.

The dilemma facing Western nations is whether to fund increased military expenditures through higher taxes, more borrowing, or both. The full impact of these budgetary decisions has yet to be felt at the household level. Currently, European households are more affected by rising energy costs and inflation. But the crunch will come sooner or later. 

A senior NATO official recently expressed concern about the long-term implications of this “generational shift in defense policy,” highlighting the expensive nature of modern warfare. The conflict in Ukraine has demonstrated that traditional military resources such as tanks and artillery remain crucial, necessitating a dual approach of advanced technology and conventional warfare capabilities.

Western governments have not made the costs and implications of this military expansion fully clear. German Defense Minister Boris Pistorius has emphasized the need for a fundamental mindset shift around defense spending. Defense experts argue that investing in deterrence is more cost-effective than managing conflict, yet there is a risk that such rearmament could be perceived as provocative.

Despite NATO’s guideline for members to spend 2% of GDP on defense, only a few currently meet this target. President Emmanuel Macron’s commitment to increase French military spending by 40% through 2030, despite France’s high government spending and debt, exemplifies this trend. Similarly, British Prime Minister Rishi Sunak’s pledge to boost military funding contrasts with domestic challenges, evidenced by strikes over pay and working conditions.

The US, UK, and Australia’s plans for a joint nuclear-powered submarine fleet in the Pacific, along with investments in advanced technologies, further illustrate the global shift towards heightened military readiness. Germany, traditionally a lower spender on defense, has made a significant move with a special $112 billion defense fund, signaling a major shift in its defense strategy.

In Asia, Japan’s defense ministry is seeking a record $53 billion for 2024, aiming to double its defense spending in response to threats from China and North Korea.

In Europe, new NATO member Sweden plans to increase defense spending by almost 30%. The sense of urgency grows closer to Russia, with Poland committing to spend 4% of its GDP on defense. Conversely, Russia's 2024 budget shows a 68% hike in defense spending, reaching 6% of GDP, while freezing education and health budgets at 2023 levels, effectively reducing them when adjusted for inflation.

Taiwan's defense budget for 2023, amounting to about $25 billion (2.6% of GDP), reflects a 10% increase from the previous year. The unveiling of its first domestically built submarine highlights the island nation’s resolve against China's military pressure.

China's defense expenditure, estimated by US intelligence and the Stockholm International Peace Research Institute (SIPRI) to be around $700 billion annually, approaches the US budget of $900 billion. 

In 2023, Saudi Arabia’s defense budget saw a 5.7% increase, reaching $69.1 billion. The kingdom’s defense expenditure is projected to rise to $72.5 billion in 2024 and to $86.4 billion by 2028 amid escalating regional tensions. North Korea allocates a staggering 26% of its GDP to military spending.

US defense spending grew marginally this year but is expected to accelerate in 2024. Despite this, national security ranks low among Americans’ concerns, with Washington’s military budget already double that of all other NATO members combined. The US faces budget deficits and escalating federal debt, raising questions about its ongoing military involvement around the globe.

In a recent Foreign Affairs article Michael Brenes of Yale University pointed out how the war in Ukraine has revealed the shortcomings of  US defense manufacturing capabilities. The conflict has strained the US’s defense industrial base, echoing past complaints from soldiers in Afghanistan and Iraq about inadequate supplies. The bottom line is that modern conflict requires huge industrial operations to keep it afloat. The Pentagon’s plan to ramp up artillery shell production by 500% within two years, the largest expansion since the Korean War, reflects this fact.

Nations worldwide face difficult financial trade-offs, balancing increased military spending with social spending. The last 30 years have seen reduced defense spending enabling social program enhancement without significant tax or debt hikes. However, Western governments have yet to fully come clean to their citizens about the implications of current geopolitical tensions and the accompanying impending rise in military expenditures.

Norman Angell’s 1910 assertion about the futility of war remains relevant, due to the massive economic and social costs of armed conflict. As history shows however, rational decision-making is far from a given in the realms of international relations and defense policy.