Going Bankrupt
Why the Debt Crisis Is Now
the Greatest Threat to the American Republic
By Chalmers Johnson
23/01/08 "ICH'
-- -- The military adventurers of the 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 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 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 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 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
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 $93.4 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 U.S. 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 FBI; $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 U.S. 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
neoconservatives 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
CIA'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 U.S. However, 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. For
example, 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 $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 U.S.
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 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 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
U.S. 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 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 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 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
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,
in fact, a form of slow economic suicide.
On May 1, 2007, the Center
for Economic and Policy Research of Washington, D.C.,
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 U.S. 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
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 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 United States 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 (pp. 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 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. 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 twenty-first 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 (p. 186)
"that 64 percent of the metalworking machine tools used in
U.S. industry were ten 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 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).
[Note: For those
interested,
click
here to view a clip from a new film, "Chalmers Johnson
on American Hegemony," in
Cinema Libre
Studios' Speaking Freely series in which he discusses
"military Keynesianism" and imperial bankruptcy. For sources
on global military spending, please see: (1) Global Security
Organization,
"World Wide Military Expenditures" as well as Glenn
Greenwald,
"The bipartisan consensus on U.S. military spending";
(2) Stockholm International Peace Research Institute,
"Report: China biggest Asian military spender."]
This article was first
published at Tom Dispatch:
http://www.tomdispatch.com/post/174884/Tomgram:%20%20Chalmers%20Johnson,%20How%20to%20Sink%20America
