[v911t] The Pentagon Strangles Our Economy:  Why the U.S. Has Gone Broke
 
Resent-Date: Sat, 26 Apr 2008 10:42:13 -0500 (CDT)


The Pentagon Strangles Our Economy: Why the U.S. Has Gone Broke By
Chalmers Johnson, Le Monde diplomatique Posted on April 26, 2008,
Printed on April 26, 2008 http://www.alternet.org/story/83555/ 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 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.

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 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 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
defense outlays. This brings U.S. 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 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 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 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 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 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 employment."

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 all U.S. 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
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
"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 the U.S. 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
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.

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