From “Guns to Caviar,” an Economic Indicator of Military and Wealth
This unusual index compares just two numbers, worldwide spending on fighter jets to business jets, and tells a tale of two choices in the global economy.
The “Guns-to-Caviar Index” is a economic indicator of sorts that paints an interesting, albeit limited picture: that of global military uncertainty versus high-end wealth creation.
The index compares worldwide spending on fighter jets (guns) to business jets (caviar), a reference to the “guns and butter” economic concept that says nations face a competing trade-off between devoting resources to either the military or civilian sector. The index has remained at a value of less than one since 2005, meaning the private sector spends more money on business jets than governments spend on fighter jets. But the index’s creator believes that number could soon climb, a sign of increased worldwide military spending and economic uncertainty in developing countries.
“The good news is we’re not above one yet,” said Richard Aboulafia, creator of the index and vice president of the Teal Group Corporation, which researches the aerospace and defense industry. “The bad news is that wonderful trend where people didn’t need to spend a lot on defense, and there was tons of high-end wealth creation, that appears to have hit a plateau and may even be backsliding a bit.”
Unlike the “guns and butter” concept, which references a government’s priorities, the “Guns-to-Caviar Index” compares the power of wealthy individuals and private enterprise relative to the power of governments. Aboulafia created the index to show an “interesting” story to his clients in the airplane industry.
In 2016, the index rose to .85, meaning for every $1 USD spent on business jets, $.85 was spent on fighter jets. That’s higher than recent years but far below the 8.1 in 1989, during the Cold War when Aboulafia first started tracking the numbers. The data comes from the Teal Group’s research on the global outputs of airplane companies, and are adjusted to 2016 U.S. dollars. Business jets typically range in price between $2 and $90 million, fighter jets between $30 and $120 million.
The two numbers that make up the index have seen different trends.
Fighter jet spending initially dropped after the Cold War, Aboulafia said, but then increased in the last decade due to the Iraq and Afghanistan wars and recent geopolitical instability.
This trend matches worldwide military defense spending. According to the Stockholm International Peace Research Institute’s military expenditure database, worldwide military spending dropped through the 1990s before returning to Cold War levels by 2007, the height of the Iraq war.
The second number, increased spending on business jets, is a proxy for high-end wealth creation, Aboulafia said. Private wealth grew, especially between 2003 and 2008, and more businesses and wealthy individuals bought business jets for personal transportation, he said. The market for business jets took a hit after the 2008 financial crisis, but demand for the most expensive jets, those more than $26 million, continued growing, thanks largely to oil-producing countries and the BRIC countries — Brazil, Russia, India and China.
More recently, the world’s hunger for business jets dropped off. Aboulafia attributed this to struggling economies in BRIC, as well as in oil-producing countries due to low oil prices. Coupled with the increase in military spending, he believes the index could soon surpass one again.
“That long-run trend is fantastic, but the past decade or so has been less encouraging,” Aboulafia said.
