Strangles Our Economy:
Why the U.S. Has Gone
By Chalmers Johnson
26/04/08 " Le Monde " -- 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
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
There are three broad aspects to the U.S. debt
crisis. First, in the current fiscal year (2008) we are spending insane amounts
of money on "defense" projects that bear no relation to the national
security of the U.S.
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 U.S. 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.
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 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 U.S. has become
the largest single seller of arms and munitions to other nations on Earth.
Leaving out President Bush's two on-going wars, defense spending has doubled
since the mid-1990s. The defense budget for fiscal 2008 is the largest since
the second world war.
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 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. All numbers released by the
Pentagon should be regarded as suspect.
In discussing the fiscal 2008 defense 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
and Fred Kaplan, defense correspondent for Slate.org. 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 defense 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 U.S.
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 U.S. 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
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 defense
outlays. This brings U.S.
spending for its military establishment during the current fiscal year,
conservatively calculated, to at least $1.1 trillion.
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. That statement is no longer
true. The world's richest political entity, according to the CIA's World
Factbook, is the European Union. The E.U.'s 2006 GDP was estimated to be
slightly larger than that of the U.S. Moreover, China's 2006 GDP was only slightly smaller than
that of the U.S., 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 U.S. and enjoys the world's second highest
current account balance (China
is number one). The U.S. is
number 163 -- last on the list, worse than countries such as Australia and the U.K. 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 U.S. 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 defense expenditures.
The top spenders
The world's top 10 military spenders and the approximate
amounts each currently budgets for its military establishment are
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 U.S.
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 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 U.S. 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 U.S. 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, U.S.
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
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 U.S.
manufacturing. From 1947 to 1990, the combined U.S. military budgets amounted to
$8.7 trillion. Even though the Soviet Union no longer exists, U.S. 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
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 U.S.
economy has had to cope with growing defense spending for more than 60 years.
Baker found that, after 10 years of higher defense spending, there would be
464,000 fewer jobs than in a 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
These are only some of the many deleterious effects of military Keynesianism.
It was believed that the U.S.
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
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.
Can we reverse the trend?
Nuclear weapons furnish a striking illustration of these anomalies. Between the
1940s and 1996, the U.S.
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 U.S. 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 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 U.S.
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 U.S. 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
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 "that 64% of the metalworking machine tools used in U.S. 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."
Some of the damage can never be rectified. There are, however, some steps that
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 national security and ceasing to use the defense budget as a Keynesian jobs
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.