DISPATCHES FROM AMERICA Going bankrupt: The US's greatest threat
By Chalmers Johnson
The military adventurers of the George W 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
neo-conservatives 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
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 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
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 terror" - 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 US
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 Federal Bureau of Investigation;
$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 US spending for its
military establishment during the current fiscal year (2008), 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.
Unfortunately, that statement is no longer true. The world's richest political
entity, according to the Central Intelligence Agency'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 US However, 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
For example, 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 US 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 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 US 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
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 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 Dwight D 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
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 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, in
fact, a form of slow economic suicide.
On May 1, 2007, the Center for Economic and Policy Research of Washington, DC,
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 US 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.
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 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.
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 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 American
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 (pages. 2-3):
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.
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. 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 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 (page 186) "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 World War II. 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 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.
(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.)