U.S. defense spending has increased 75 percent since 2000, to $513 billion a year. But about half that was for fighting the war on terror (especially Iraq and Afghanistan). Without the war spending, defense spending, as a percentage of GDP, might have been under two percent during this period, instead of the current 4 percent. Without the war spending, the military-industrial complex lobbyists might still have gotten increases. The post-Cold War budget cuts were pretty much gone by the end of the 1990s (when defense spending was about 3 percent of GDP), and many special interest groups were hustling to get pet military projects funded.
Meanwhile, in the real world, while most of the additional spending went for combat operations, a lot of it basically upgraded army (and to a lesser extent marine) equipment and training. The air force and navy actually lost budget share because of the war, which was mainly fought by the army.
U.S. military operations in Iraq, Afghanistan and elsewhere have, since September 11, 2001, cost about a trillion dollars. That seems like a lot, and it is. But it's not a lot like it used to be. For example, World War II cost, at the time (in current dollars) over four trillion dollars. That amounted to over 33 percent of U.S. GDP. The current war on terror is costing about one percent of GDP. So while war may appear to be getting more expensive, relative to the amount of money available, it's actually getting cheaper.
The initial cost of World War II, and most wars that came after it, will eventually double because of the cost of taking care of the veterans. There were over a million casualties in World War II, many of them serious, with long range effects. The long range health problems were not anticipated, nor were the more expensive treatments. You have to pay. The vets are owned a debt that cannot be avoided.
As a percentage of GDP, military spending continues a decline that has been going on since the 1960s (when, because of the $686 billion cost of the Vietnam war, defense spending was 10.7 percent of GDP). That went down to 5.9 percent of GDP in the 1970s and, despite a much heralded defense buildup in the 1980s, still declined in the 1980s (to 5.8 percent.) With the end of the Cold War, spending dropped sharply again in the 1990s, to 4.1 percent. For the first decade of the 21st century, defense spending is expected to average 3.5 percent of GDP. Most of the current defense budget is being spent on personnel (payroll and benefits), and buying new equipment to replace the Cold War era stuff that is wearing out and to pay for operations in Iraq and Afghanistan.
This trend is all because of the industrial revolution of the 19th century, which created a lot more money, much of which nations promptly squandered on wars they could not have afforded earlier. The American Revolution, for example, cost the United States less than $2 billion. The main reason for the low cost, compared to later wars, was that there simply was not a lot of wealth (money or goods) to scrounge up for the war.
The United States has always been enthusiastic about spending enormous amounts on weapons, ammunition, supplies and equipment for the troops, with the idea of keeping U.S. casualties down while still winning the war. Thus during World War II, U.S. combat deaths were 300,000 (plus 100,000 non-combat dead). The Soviet Union, on the other end of this scale, lost 10.7 million dead in combat (including 4.4 million captured and missing), and nearly 20 million civilians killed as well. Of all the major combatants in World War II, the U.S. had the lowest casualty rate (about 2 percent). Russia lost about 15 percent of its entire population during the war.
The U.S. kept its losses down partly because of the amount of money spent per person in the military (over $250,000). The current casualty rate is a third of what it was during World War II, and the amount spent per person has more than tripled (exact comparison is tricky, as all military expenses were counted during World War II, while the current war is being fought with only a small portion of American military might, and the navy and air force continue to take care of many non-war-on-terror responsibilities.) While the dollar cost of war is good for a hot headline on a slow news day, the fact that the money saved lots of American lives, never seems to make it to the front page.
All dollar figures mentioned above are in terms of 2009 (inflation adjusted) dollars.