Going
Bankrupt: The US's
Greatest Threat
By Chalmers Johnson
08 February,
2008
Asia
Times
The military adventurers of the George W Bush administration have much in common with the corporate leaders of the defunct energy company Enron. Both groups of men 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 neo-conservatives 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 utter fiscal irresponsibility has been
disguised through many manipulative financial schemes (such as causing
poorer countries to lend us unprecedented sums of money), but the
time of reckoning is fast approaching.
There are three broad aspects to our debt crisis. First, in the current
fiscal year (2008) we are spending insane amounts of money on "defense"
projects that bear no relationship to the national security of the
United States. Simultaneously, we are keeping the income tax burdens
on the richest segments of the American population at strikingly low
levels.
Second, we continue to believe that we can compensate for the accelerating
erosion of our manufacturing base and our loss of jobs to foreign
countries through massive military expenditures - so-called "military
Keynesianism", which I discuss in detail in my book Nemesis:
The Last Days of the American Republic. By military Keynesianism,
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 our country. 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. Let me discuss each of these.
The current 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 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 defense
budget, is itself larger than the combined military budgets of Russia
and China. Defense-related spending for fiscal 2008 will exceed $1
trillion for the first time in history. The United States has become
the largest single salesman of arms and munitions to other nations
on Earth. Leaving out of account Bush's two on-going wars, defense
spending has doubled since the mid-1990s. The defense budget for fiscal
2008 is the largest since World War II.
Before we try to break down and analyze this gargantuan sum, there
is one important caveat. Figures on defense 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 publicized) basic budget total and double
it."
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 defense 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
defense and the military-industrial complex - but the chief one is
that members of Congress, who profit enormously from defense 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 somewhat 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 penalized either department for ignoring the
law. The result is that all numbers released by the Pentagon should
be regarded as suspect.
In discussing the fiscal 2008 defense budget, as released to the press
on February 7, 2007, I have been guided by two experienced and reliable
analysts: William D Hartung of the New America Foundation's Arms and
Security Initiative and Fred Kaplan, defense correspondent for Slate.org.
They agree that the Department of Defense requested $481.4 billion
for salaries, operations (except in Iraq and Afghanistan), and equipment.
They also agree on a figure of $141.7 billion for the "supplemental"
budget to fight the global "war on terror" - 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 $93.4 billion to pay for hitherto unmentioned war costs
in the remainder of 2007 and, most creatively, an additional "allowance"
(a new term in defense budget documents) of $50 billion to be charged
to fiscal year 2009. This comes to a total spending request by the
Department of Defense of $766.5 billion.
But there is much more. In an attempt to disguise the true size of
the American military empire, the government has long hidden major
military-related expenditures in departments other than Defense. For
example, $23.4 billion for the Department of Energy goes toward developing
and maintaining nuclear warheads; and $25.3 billion 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 $1.03 billion outside the official Department of Defense budget
is now needed for recruitment and reenlistment incentives for the
overstretched US military itself, up from a mere $174 million in 2003,
the year the war in Iraq began. The Department of Veterans Affairs
currently gets at least $75.7 billion, 50% of which goes for the long-term
care of the grievously injured among the at least 28,870 soldiers
so far wounded in Iraq and another 1,708 in Afghanistan. The amount
is universally derided as inadequate. Another $46.4 billion goes to
the Department of Homeland Security.
Missing as well from this compilation is $1.9 billion to the Department
of Justice for the paramilitary activities of the Federal Bureau of
Investigation; $38.5 billion to the Department of the Treasury for
the Military Retirement Fund; $7.6 billion for the military-related
activities of the National Aeronautics and Space Administration; and
well over $200 billion in interest for past debt-financed defense
outlays. This brings US spending for its military establishment during
the current fiscal year (2008), 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 defense budget is huge, we
can afford it because we are the richest country on Earth.
Unfortunately, that statement is no longer true. The world's richest
political entity, according to the Central Intelligence Agency's World
Factbook, is the European Union. The EU's 2006 GDP (gross domestic
product - all goods and services produced domestically) was estimated
to be slightly larger than that of the US However, 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.
For example, for Japan to manufacture anything, it must import all
required raw materials. Even after this incredible expense is met,
it still has an $88 billion per year trade surplus with the United
States and enjoys the world's second-highest current account balance.
(China is number one.) The United States, by contrast, is number 163
- dead last on the list, worse than countries like Australia and the
United Kingdom that also have large trade deficits. Its 2006 current
account deficit was $811.5 billion; second worst was Spain at $106.4
billion. This is what 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 November 7, 2007, the US Treasury announced
that the national debt had breached $9 trillion for the first time
ever. This was just five weeks after Congress raised the so-called
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
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 defense expenditures in comparison with
the rest of the world.
The world's top 10 military spenders and the approximate amounts each
country currently budgets for its military establishment are:
1. United States (FY08 budget), $623 billion
2. China (2004), $65 billion
3. Russia, $50 billion
4. France (2005), $45 billion
5. Japan (2007), $41.75 billion
6. Germany (2003), $35.1 billion
7. Italy (2003), $28.2 billion
8. South Korea (2003), $21.1 billion
9. India (2005 est.), $19 billion
10. Saudi Arabia (2005 est.), $18 billion
World total military expenditures (2004 est.), $1,100 billion
World total (minus the United States), $500 billion.
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 entrenched in
our democratic political system where they are starting to wreak havoc.
This ideology I call "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 World War II. With peace and demobilization, 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
April 14, 1950, and signed by president Harry S Truman on September
30, 1950, it laid out the basic public economic policies that the
United States 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."
With this understanding, American 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
Dwight D Eisenhower warned against in his farewell address of February
6, 1961: "The conjunction of an immense military establishment
and a large arms industry is new in the American experience."
That is, 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 American 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, in fact, a form of slow economic suicide.
On May 1, 2007, the Center for Economic and Policy Research of Washington,
DC, released a study prepared by the global 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. Needless to say, the US economy
has had to cope with growing defense spending for more than 60 years.
He found that, after 10 years of higher defense spending, there would
be 464,000 fewer jobs than in a baseline scenario that involved lower
defense 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.
These are only some of the many deleterious effects of military Keynesianism.
Hollowing out the American economy
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.
Historian Thomas E Woods Jr observes that, during the 1950s and 1960s,
between one-third and two-thirds of all American research talent was
siphoned off into the military sector. 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.
Nuclear weapons furnish a striking illustration of these anomalies.
Between the 1940s and 1996, the United States 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 American economy.
The pioneer in analyzing 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 American
preoccupation with its armed forces and their weaponry since the onset
of the Cold War. Melman wrote (pages. 2-3):
From 1946 to 1969, the United States government spent over $1,000
billion 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. In other words, the amount spent over that
period could have doubled the American capital stock or modernized
and replaced its existing stock.
The fact that we did not modernize 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 (page 186) "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 World War II.
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 in the period 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.
Some of the damage done can never be rectified. There are, however,
some steps that this country 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 defense budget all projects that bear no relationship to
the national security of the United States, and ceasing to use the
defense budget as a Keynesian jobs program. 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 Republic, just published in paperback. It is
the final volume of his Blowback Trilogy, which also includes Blowback
(2000) and The Sorrows of Empire (2004).
