The ratchet that 9/11 built: security spending, 25 years on

The commemoration of the 25th anniversary of 11 September 2001 will dwell on the dead; investors might profitably dwell on the budget. In the quarter-century since the towers fell, a national-security apparatus that barely existed before the attacks hardened into a permanent and still-rising layer of federal spending — a ratchet that no peace has undone. For anyone holding a defence stock, or weighing one, the anniversary is a lesson in fiscal mechanics, not memorial rhetoric.

The size of the step was extraordinary. In the decade after the attacks, American military spending rose just over 50% in inflation-adjusted terms, while every other non-military programme — education, health care, transit — grew only 13.5%. An entire department, Homeland Security, that had no statutory father before 2002 came into being, along with the TSA and a standing counter-terrorism apparatus. The point is not that the money was misspent. It is that the emergency outlays, as Steve Moore, a former White House economic adviser, puts it, never went away.

What made them permanent is revealing. The wars were financed almost entirely by borrowing rather than by taxes or war bonds, shifting the cost onto future generations; voters never felt the price of the conflict, so no political force ever demanded that it end. That is the mechanism of a ratchet: a shock raises spending by a step, and because the bill is paid invisibly, the step never comes back down.

The step also built a constituency to defend it. The Pentagon spent roughly $14 trillion on the post-9/11 wars, and up to half of it went to for-profit contractors — weapons makers, logistics firms, private security. The business was concentrated: at their peak, five suppliers took as much as a third of Pentagon contracts, and in the last fiscal year Lockheed Martin alone received contract amounts equivalent to one and a half times the combined budgets of the State Department and USAID. A small band of primes acquired both the revenue and the political pull to keep the elevated baseline funded. This is not a conspiracy; it is the ordinary logic of a concentrated industry bidding on a single, politically protected customer.

The conventional objection — that defence is cyclical and a "peace dividend" would soon arrive — has been refuted by events. After the Afghan withdrawal the build-up did not pause; its justification simply changed, from counter-terrorism to great-power competition with China. The ratchet kept clicking. For fiscal 2026 the United States has budgeted more than $1 trillion in discretionary national defence, up more than 17% in a single year. For fiscal 2027 the administration has proposed $1.5 trillion, a 44% jump, which the White House itself bills as exceeding the Reagan-era build-up and approaching historic increases last seen before the second world war.

The scale says something useful about how defence shares are best understood. A Lockheed, a Northrop Grumman or an RTX is not chiefly a bet on any single threat — on al-Qaeda twenty-five years ago, on Russia today, on China tomorrow. It is a structural bet on a debt-financed federal baseline that a concentrated, well-connected industry defends, and that the state keeps raising rather than trimming. That is why the "peace dividend" calls have repeatedly failed, and why the sector keeps trading as a defensive form of growth: its customer is the one spender in the economy with a ratchet built in.

The danger is that the mechanism which made the ratchet painless is precisely what now threatens it. A build-up justified by borrowing runs into a fiscal reality in which the federal deficit sits near $2 trillion and consolidation is on the table. The proposed fiscal-2027 defence surge is openly paid for by a 10% cut to other domestic programmes — the trade-off is no longer invisible. If a debt crisis forces the state to choose, the losers already have names: domestic programmes today, or taxpayers tomorrow through interest. Defence shareholders would be the last to be told.

The anniversary's real investment lesson is narrower and more transferable than any eulogy. A security shock becomes durable corporate revenue only when it is financed invisibly and concentrated narrowly; the same design that makes the revenue reliable also hides its cost and delays the reckoning. Investors who treat the sector as a serene, ratchet-adjacent income stream are betting that America will keep paying its biggest bill to its most concentrated industry without ever flinching. Twenty-five years of evidence says it will not flinch soon. The next quarter-century will test whether a ratchet financed by debt can survive the moment its bill stops being invisible.