The Economic Disaster That Is
Military Keynesianism
Why the US has really gone broke
by Chalmers Johnson, Le Monde
diplomatique
www.zcommunications.org/, February
7, 2008
The military adventurers in the Bush administration have much
in common with the corporate leaders of the defunct energy company
Enron. Both groups thought that they were the "smartest guys
in the room" -- the title of Alex Gibney's prize-winning
film on what went wrong at Enron. The neoconservatives in the
White House and the Pentagon outsmarted themselves. They failed
even to address the problem of how to finance their schemes of
imperialist wars and global domination.
As a result, going into 2008, the United States finds itself in
the anomalous position of being unable to pay for its own elevated
living standards or its wasteful, overly large military establishment.
Its government no longer even attempts to reduce the ruinous expenses
of maintaining huge standing armies, replacing the equipment that
seven years of wars have destroyed or worn out, or preparing for
a war in outer space against unknown adversaries. Instead, the
Bush administration puts off these costs for future generations
to pay or repudiate. This fiscal irresponsibility has been disguised
through many manipulative financial schemes (causing poorer countries
to lend us unprecedented sums of money), but the time of reckoning
is fast approaching.
There are three broad aspects to the US debt crisis. First, in
the current fiscal year (2008) we are spending insane amounts
of money on "defence" projects that bear no relation
to the national security of the US. We are also keeping the income
tax burdens on the richest segment of the population at strikingly
low levels.
Second, we continue to believe that we can compensate for the
accelerating erosion of our base and our loss of jobs to foreign
countries through massive military expenditures -- "military
Keynesianism" (which I discuss in detail in my book Nemesis:
The Last Days of the American Republic). By that, I mean the mistaken
belief that public policies focused on frequent wars, huge expenditures
on weapons and munitions, and large standing armies can indefinitely
sustain a wealthy capitalist economy. The opposite is actually
true.
Third, in our devotion to militarism (despite our limited resources),
we are failing to invest in our social infrastructure and other
requirements for the long-term health of the US. These are what
economists call opportunity costs, things not done because we
spent our money on something else. Our public education system
has deteriorated alarmingly. We have failed to provide health
care to all our citizens and neglected our responsibilities as
the world's number one polluter. Most important, we have lost
our competitiveness as a manufacturer for civilian needs, an infinitely
more efficient use of scarce resources than arms manufacturing.
Fiscal disaster
It is virtually impossible to overstate the profligacy of what
our government spends on the military. The Department of Defense's
planned expenditures for the fiscal year 2008 are larger than
all other nations' military budgets combined. The supplementary
budget to pay for the current wars in Iraq and Afghanistan, not
part of the official defence budget, is itself larger than the
combined military budgets of Russia and China. Defence-related
spending for fiscal 2008 will exceed $1 trillion for the first
time in history. The US has become the largest single seller of
arms and munitions to other nations on Earth. Leaving out President
Bush's two on-going wars, defence spending has doubled since the
mid-1990s. The defence budget for fiscal 2008 is the largest since
the second world war.
Before we try to break down and analyse this gargantuan sum, there
is one important caveat. Figures on defence spending are notoriously
unreliable. The numbers released by the Congressional Reference
Service and the Congressional Budget Office do not agree with
each other. Robert Higgs, senior fellow for political economy
at the Independent Institute, says: "A well-founded rule
of thumb is to take the Pentagon's (always well publicised) basic
budget total and double it" (1). Even a cursory reading of
newspaper articles about the Department of Defense will turn up
major differences in statistics about its expenses. Some 30-40%
of the defence budget is "black"," meaning that
these sections contain hidden expenditures for classified projects.
There is no possible way to know what they include or whether
their total amounts are accurate.
There are many reasons for this budgetary sleight-of-hand -- including
a desire for secrecy on the part of the president, the secretary
of defence, and the military-industrial complex -- but the chief
one is that members of Congress, who profit enormously from defence
jobs and pork-barrel projects in their districts, have a political
interest in supporting the Department of Defense. In 1996, in
an attempt to bring accounting standards within the executive
branch closer to those of the civilian economy, Congress passed
the Federal Financial Management Improvement Act. It required
all federal agencies to hire outside auditors to review their
books and release the results to the public. Neither the Department
of Defense, nor the Department of Homeland Security, has ever
complied. Congress has complained, but not penalised either department
for ignoring the law. All numbers released by the Pentagon should
be regarded as suspect.
In discussing the fiscal 2008 defence budget, as released on 7
February 2007, I have been guided by two experienced and reliable
analysts: William D Hartung of the New America Foundation's Arms
and Security Initiative (2) and Fred Kaplan, defence correspondent
for Slate.org (3). They agree that the Department of Defense requested
$481.4bn for salaries, operations (except in Iraq and Afghanistan),
and equipment. They also agree on a figure of $141.7bn for the
"supplemental" budget to fight the global war on terrorism
-- that is, the two on-going wars that the general public may
think are actually covered by the basic Pentagon budget. The Department
of Defense also asked for an extra $93.4bn to pay for hitherto
unmentioned war costs in the remainder of 2007 and, most creatively,
an additional "allowance" (a new term in defence budget
documents) of $50bn to be charged to fiscal year 2009. This makes
a total spending request by the Department of Defense of $766.5bn.
But there is much more. In an attempt to disguise the true size
of the US military empire, the government has long hidden major
military-related expenditures in departments other than Defense.
For example, $23.4bn for the Department of Energy goes towards
developing and maintaining nuclear warheads; and $25.3bn in the
Department of State budget is spent on foreign military assistance
(primarily for Israel, Saudi Arabia, Bahrain, Kuwait, Oman, Qatar,
the United Arab Republic, Egypt and Pakistan). Another $1.03bn
outside the official Department of Defense budget is now needed
for recruitment and re-enlistment incentives for the overstretched
US military, up from a mere $174m in 2003, when the war in Iraq
began. The Department of Veterans Affairs currently gets at least
$75.7bn, 50% of it for the long-term care of the most seriously
injured among the 28,870 soldiers so far wounded in Iraq and 1,708
in Afghanistan. The amount is universally derided as inadequate.
Another $46.4bn goes to the Department of Homeland Security.
Missing from this compilation is $1.9bn to the Department of Justice
for the paramilitary activities of the FBI; $38.5bn to the Department
of the Treasury for the Military Retirement Fund; $7.6bn for the
military-related activities of the National Aeronautics and Space
Administration; and well over $200bn in interest for past debt-financed
defence outlays. This brings US spending for its military establishment
during the current fiscal year, conservatively calculated, to
at least $1.1 trillion.
Military Keynesianism
Such expenditures are not only morally obscene, they are fiscally
unsustainable. Many neo-conservatives and poorly informed patriotic
Americans believe that, even though our defence budget is huge,
we can afford it because we are the richest country on Earth.
That statement is no longer true. The world's richest political
entity, according to the CIA's World Factbook, is the European
Union. The EU's 2006 GDP was estimated to be slightly larger than
that of the US. Moreover, China's 2006 GDP was only slightly smaller
than that of the US, and Japan was the world's fourth richest
nation.
A more telling comparison that reveals just how much worse we're
doing can be found among the current accounts of various nations.
The current account measures the net trade surplus or deficit
of a country plus cross-border payments of interest, royalties,
dividends, capital gains, foreign aid, and other income. In order
for Japan to manufacture anything, it must import all required
raw materials. Even after this incredible expense is met, it still
has an $88bn per year trade surplus with the US and enjoys the
world's second highest current account balance (China is number
one). The US is number 163 -- last on the list, worse than countries
such as Australia and the UK that also have large trade deficits.
Its 2006 current account deficit was $811.5bn; second worst was
Spain at $106.4bn. This is unsustainable.
It's not just that our tastes for foreign goods, including imported
oil, vastly exceed our ability to pay for them. We are financing
them through massive borrowing. On 7 November 2007, the US Treasury
announced that the national debt had breached _$9 trillion for
the first time. This was just five weeks after Congress raised
the "debt ceiling" to $9.815 trillion. If you begin
in 1789, at the moment the constitution became the supreme law
of the land, the debt accumulated by the federal government did
not top $1 trillion until 1981. When George Bush became president
in January 2001, it stood at approximately $5.7 trillion. Since
then, it has increased by 45%. This huge debt can be largely explained
by our defence expenditures.
The top spenders
The world's top 10 military spenders and the approximate amounts
each currently budgets for its military establishment are:
Rank Country Military budget
1. United States (FY 2008 budget) $623bn
2. China (2004) $65bn
3. Russia $50bn
4. France (2005) $45bn
5. United Kingdom $42.8bn
6. Japan (2007) $41.75bn
7. Germany (2003) $35.1bn
8. Italy (2003) $28.2bn
9. South Korea (2003) $21.1bn
10. India (2005 est.) $19bn
World total military expenditures (2004 est) $1,100bn
World total (minus the US) $500bn
Our excessive military expenditures did not occur over just a
few short years or simply because of the Bush administration's
policies. They have been going on for a very long time in accordance
with a superficially plausible ideology, and have now become so
entrenched in our democratic political system that they are starting
to wreak havoc. This is military Keynesianism -- the determination
to maintain a permanent war economy and to treat military output
as an ordinary economic product, even though it makes no contribution
to either production or consumption.
This ideology goes back to the first years of the cold war. During
the late 1940s, the US was haunted by economic anxieties. The
great depression of the 1930s had been overcome only by the war
production boom of the second world war. With peace and demobilisation,
there was a pervasive fear that the depression would return. During
1949, alarmed by the Soviet Union's detonation of an atomic bomb,
the looming Communist victory in the Chinese civil war, a domestic
recession, and the lowering of the Iron Curtain around the USSR's
European satellites, the US sought to draft basic strategy for
the emerging cold war. The result was the militaristic National
Security Council Report 68 (NSC-68) drafted under the supervision
of Paul Nitze, then head of the Policy Planning Staff in the State
Department. Dated 14 April 1950 and signed by President Harry
S Truman on 30 September 1950, it laid out the basic public economic
policies that the US pursues to the present day.
In its conclusions, NSC-68 asserted: "One of the most significant
lessons of our World War II experience was that the American economy,
when it operates at a level approaching full efficiency, can provide
enormous resources for purposes other than civilian consumption
while simultaneously providing a high standard of living"
(4).
With this understanding, US strategists began to build up a massive
munitions industry, both to counter the military might of the
Soviet Union (which they consistently overstated) and also to
maintain full employment, as well as ward off a possible return
of the depression. The result was that, under Pentagon leadership,
entire new industries were created to manufacture large aircraft,
nuclear-powered submarines, nuclear warheads, intercontinental
ballistic missiles, and surveillance and communications satellites.
This led to what President Eisenhower warned against in his farewell
address of 6 February 1961: "The conjunction of an immense
military establishment and a large arms industry is new in the
American experience" -- the military-industrial complex.
By 1990 the value of the weapons, equipment and factories devoted
to the Department of Defense was 83% of the value of all plants
and equipment in US manufacturing. From 1947 to 1990, the combined
US military budgets amounted to $8.7 trillion. Even though the
Soviet Union no longer exists, US reliance on military Keynesianism
has, if anything, ratcheted up, thanks to the massive vested interests
that have become entrenched around the military establishment.
Over time, a commitment to both guns and butter has proven an
unstable configuration. Military industries crowd out the civilian
economy and lead to severe economic weaknesses. Devotion to military
Keynesianism is a form of slow economic suicide.
Higher spending, fewer jobs
On 1 May 2007, the Center for Economic and Policy Research of
Washington, DC, released a study prepared by the economic and
political forecasting company Global Insight on the long-term
economic impact of increased military spending. Guided by economist
Dean Baker, this research showed that, after an initial demand
stimulus, by about the sixth year the effect of increased military
spending turns negative. The US economy has had to cope with growing
defence spending for more than 60 years. Baker found that, after
10 years of higher defence spending, there would be 464,000 fewer
jobs than in a scenario that involved lower defence spending.
Baker concluded: "It is often believed that wars and military
spending increases are good for the economy. In fact, most economic
models show that military spending diverts resources from productive
uses, such as consumption and investment, and ultimately slows
economic growth and reduces employment" (5).
These are only some of the many deleterious effects of military
Keynesianism.
It was believed that the US could afford both a massive military
establishment and a high standard of living, and that it needed
both to maintain full employment. But it did not work out that
way. By the 1960s it was becoming apparent that turning over the
nation's largest manufacturing enterprises to the Department of
Defense and producing goods without any investment or consumption
value was starting to crowd out civilian economic activities.
The historian Thomas E Woods Jr observes that, during the 1950s
and 1960s, between one-third and two-thirds of all US research
talent was siphoned off into the military sector (6). It is, of
course, impossible to know what innovations never appeared as
a result of this diversion of resources and brainpower into the
service of the military, but it was during the 1960s that we first
began to notice Japan was outpacing us in the design and quality
of a range of consumer goods, including household electronics
and automobiles.
Can we reverse the trend?
Nuclear weapons furnish a striking illustration of these anomalies.
Between the 1940s and 1996, the US spent at least $5.8 trillion
on the development, testing and construction of nuclear bombs.
By 1967, the peak year of its nuclear stockpile, the US possessed
some 32,500 deliverable atomic and hydrogen bombs, none of which,
thankfully, was ever used. They perfectly illustrate the Keynesian
principle that the government can provide make-work jobs to keep
people employed. Nuclear weapons were not just America's secret
weapon, but also its secret economic weapon. As of 2006, we still
had 9,960 of them. There is today no sane use for them, while
the trillions spent on them could have been used to solve the
problems of social security and health care, quality education
and access to higher education for all, not to speak of the retention
of highly-skilled jobs within the economy.
The pioneer in analysing what has been lost as a result of military
Keynesianism was the late Seymour Melman (1917-2004), a professor
of industrial engineering and operations research at Columbia
University. His 1970 book, Pentagon Capitalism: The Political
Economy of War, was a prescient analysis of the unintended consequences
of the US preoccupation with its armed forces and their weaponry
since the onset of the cold war. Melman wrote: "From 1946
to 1969, the United States government spent over $1,000bn on the
military, more than half of this under the Kennedy and Johnson
administrations -- the period during which the [Pentagon-dominated]
state management was established as a formal institution. This
sum of staggering size (try to visualize a billion of something)
does not express the cost of the military establishment to the
nation as a whole. The true cost is measured by what has been
foregone, by the accumulated deterioration in many facets of life,
by the inability to alleviate human wretchedness of long duration."
In an important exegesis on Melman's relevance to the current
American economic situation, Thomas Woods writes: "According
to the US Department of Defense, during the four decades from
1947 through 1987 it used (in 1982 dollars) $7.62 trillion in
capital resources. In 1985, the Department of Commerce estimated
the value of the nation's plant and equipment, and infrastructure,
at just over _$7.29 trillion... The amount spent over that period
could have doubled the American capital stock or modernized and
replaced its existing stock" (7).
The fact that we did not modernise or replace our capital assets
is one of the main reasons why, by the turn of the 21st century,
our manufacturing base had all but evaporated. Machine tools,
an industry on which Melman was an authority, are a particularly
important symptom. In November 1968, a five-year inventory disclosed
"that 64% of the metalworking machine tools used in US industry
were 10 years old or older. The age of this industrial equipment
(drills, lathes, etc.) marks the United States' machine tool stock
as the oldest among all major industrial nations, and it marks
the continuation of a deterioration process that began with the
end of the second world war. This deterioration at the base of
the industrial system certifies to the continuous debilitating
and depleting effect that the military use of capital and research
and development talent has had on American industry."
Nothing has been done since 1968 to reverse these trends and it
shows today in our massive imports of equipment -- from medical
machines like _proton accelerators for radiological therapy (made
primarily in Belgium, Germany, and Japan) to cars and trucks.
Our short tenure as the world's lone superpower has come to an
end. As Harvard economics professor Benjamin Friedman has written:
"Again and again it has always been the world's leading lending
country that has been the premier country in terms of political
influence, diplomatic influence and cultural influence. It's no
accident that we took over the role from the British at the same
time that we took over the job of being the world's leading lending
country. Today we are no longer the world's leading lending country.
In fact we are now the world's biggest debtor country, and we
are continuing to wield influence on the basis of military prowess
alone" (8).
Some of the damage can never be rectified. There are, however,
some steps that the US urgently needs to take. These include reversing
Bush's 2001 and 2003 tax cuts for the wealthy, beginning to liquidate
our global empire of over 800 military bases, cutting from the
defence budget all projects that bear no relationship to national
security and ceasing to use the defence budget as a Keynesian
jobs programme.
If we do these things we have a chance of squeaking by. If we
don't, we face probable national insolvency and a long depression.
_
Chalmers Johnson is the author of Nemesis: The Last Days of the
American, Metropolitan, 2007, just published in paperback (http://www.amazon.com/dp/
080508728...). It is the final volume of his Blowback trilogy,
which also includes Blowback, 2000, and The Sorrows of Empire,
2004. This article was published online by TomDispatch.com
(1) Robert Higgs, "The Trillion-Dollar Defense Budget Is
Already Here" , The Independent Institute, 15 March 2007,
http://www.independent.org/newsroom...
(2) William D Hartung, "Bush Military Budget Highest Since
WWII", 10 February 2007, http://www.commondreams.org/views07...
(3) Fred Kaplan, "It's Time to Sharpen the Scissors",
5 February 2007, http://www.slate.com/id/2159102/pag...
(4) See http://www.encyclopedia.com/doc/1G1...
(5) Center for Economic and Policy Research, 1 May 2007, http://www.cepr.net/content/view/11...
(6) Thomas E Woods, "What the Warfare State Really Costs",
http://www.lewrockwell.com/woods/wo...
(7) Thomas E Woods, Ibid.
(8) John F Ince, "Think the Nation's Debt Doesn't Affect
You? Think Again", 20 March 2007, http://www.alternet.org/story/49418/
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