Tompkins County Against War & Occupation

Le Monde Diplomatique

Global confidence in the US economy has reached zero, as was proved by last
month’s stock market meltdown. But there is an enormous anomaly in the US
economy above and beyond the subprime mortgage crisis, the housing bubble
and the prospect of recession: 60 years of misallocation of resources, and
borrowings, to the establishment and maintenance of a military-industrial
complex as the basis of the nation’s economic life. By Chalmers Johnson

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” .

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” .

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”.

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” .

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.