The Pentagon has Strangled the American Economy:
Why the U.S. Has Gone Broke
By Chalmers Johnson, author of "BLOWBACK"
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.
Posted on April 26, 2008, Printed on April 26, 2008
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
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
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.
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
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
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
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
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.
© 2008 Le Monde diplomatique All rights reserved.
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