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WHY THE U.S. HAS REALLY GONE BROKE

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    WHY THE U.S. HAS REALLY GONE BROKE CHALMERS JOHNSON February 4, 2008 http://mondediplo.com/2008/02/05militaryhttp://axisoflogic.com/artman/
    Message 1 of 1 , Mar 7, 2008
      WHY THE U.S. HAS REALLY GONE BROKE
      CHALMERS JOHNSON
      February 4, 2008
      http://mondediplo.com/2008/02/05militaryhttp://axisoflogic.com/artman/
      publish/article_25997.shtml


      The economic disaster that is military keynesianism 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 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 disasterIt 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

      1. United States (Fiscal Year 2008 Budget) $62 3 billion

      2. China (2004) $65 billion

      3. Russia $50 billion

      4. France (2005) $45 billion

      5. United Kingdom $45 billion

      6. Japan (2007) $41.75 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 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" (4).

      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 jobsOn 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" (5).

      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"
      (7).

      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" (8).

      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.

      *********************************************************************
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