[THS] !!!! Chalmers Johnson: Why the U.S. Has Gone Broke

[Peter Webster]

http://www.informationclearinghouse.info/article19817.htm

The Pentagon Strangles Our Economy:

Why the U.S. Has Gone Broke

By Chalmers Johnson


26/04/08 "Le Monde diplomatique" -- 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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