At the end of the 1980s, lagging innovation, low productivity, spiralling public and private debt, crumbling infrastructure and competitiveness problems indicated to many observers that the US economy was in decline. For some, such as Yale historian Paul Kennedy, these problems were linked to high levels of defence spending.The argument that there is a link between defence spending and economic ills is not new. Since the beginning of the Cold War there has been recurrent concern that defence spending systematically hampers economic growth by draining the economy of capital and human resources critical to growth and by weakening the civilian economy's capacity for innovation and productivity. The proof of the pudding, according to this argument, is that major international competitors such as Japan and West Germany, who do not devote as large a proportion of their resources to defence, have outcompeted the United States on international markets.This article systematically reviews research and evidence on these issues and concludes that it is far from clear that defence spending can explain either the peaks and valleys of US economic performance or the change in its economic position relative to other countries. Statistical data do not convincingly prove a connection between defence spending and capital formation. Productivity problems cannot be traced to defence R&D spending or defence industry management practices. There is little evidence of a “depletion” of fiscal or human resources by defence spending. Japanese and West German economic performance is determined by a number of factors with little evidence that low defence spending is particularly important. Finally, comparisons of economic performance over time do not suggest that low defence spending ensures high overall economic growth, but rather that a narrowing of historical gaps in economic performance is a result of the international transfer of technology and skills.Fundamentally, ingredients of economic growth other than defence spending may be more direct and more significant causes of the ebb and flow of economic performance in the United States and elsewhere. Whatever link may exist between defence and overall economic activity needs to be explored with more sophisticated research tools and greater caution and subtlety in interpretation than has been used heretofore.