The REAL threat to America: George Bush's debt crisis

Going Bankrupt: Why the Debt Crisis Is America's Greatest Threat

By Chalmers Johnson, Tomdispatch.com

Posted on January 23, 2008, Printed on January 23, 2008

http://www.alternet.org/story/74620/

Within the next month, the Pentagon will submit its 2009 budget to

Congress and it's a fair bet that it will be even larger than the

staggering 2008 one. Like the Army and the Marines, the Pentagon

itself is overstretched and under strain -- and like the two services,

which are expected to add 92,000 new troops over the next five years

(at an estimated cost of $1.2 billion per 10,000), the Pentagon's

response is never to cut back, but always to expand, always to demand

more.

After all, there are those disastrous Afghan and Iraqi wars still

eating taxpayer dollars as if there were no tomorrow. Then there's

what enthusiasts like to call "the next war" to think about, which

means all those big-ticket weapons, all those jets, ships, and armored

vehicles for the future. And don't forget the still-popular, Rumsfeld-

style "netcentric warfare" systems (robots, drones, communications

satellites, and the like), not to speak of the killer space toys being

developed; and then there's all that ruined equipment out of Iraq and

Afghanistan to be massively replaced -- and all those ruined human

beings to take care of.

You'll get the gist of this from a recent editorial in the trade

magazine Aviation Week & Space Technology:

"The fact Washington must face is that nearly five years of war have

left U.S. forces worse off than they have been in a generation, yes,

since Vietnam, and restoring them will take budget-building unlike any

in the past."

Even on the rare occasion when -- as in the case of Boeing's C-17

cargo plane -- the Pentagon decides to cancel a project, there's

Congress to remember. Contracts and subcontracts for weapons systems,

carefully doled out to as many states as possible, mean jobs, and so

Congress often balks at such cuts. (Fifty-five House members recently

warned the Pentagon of a "strong negative response" if funding for the

C-17 is excised from the 2009 budget.) All in all, it adds up to a

defense menu for a glutton.

Already, Secretary of Defense Robert Gates has said that 2009 funding

is "largely locked into place." The giant military-industrial combines

-- Lockheed Martin, Northrop Grumman, Boeing, Raytheon -- have been

watching their stocks rise in otherwise treacherous times. They are

hopeful. As Ronald Sugar, Northrop CEO, put it: "A great global power

like the United States needs a great navy and a great navy needs an

adequate number of ships, and they have to be modern and capable" --

and guess which company is the Navy's largest shipbuilder?

There should be nothing surprising in all this, especially for those

of us who have read Chalmers Johnson's Nemesis, The Last Days of the

American Republic, the final volume of his Blowback Trilogy. Published

in 2007, it is already a classic on what imperial overstretch means

for the rest of us. The paperback of Nemesis is officially out today,

just as global stock markets tumble. It is simply a must-read (and if

you've already read it, then get a copy for a friend). In the

meantime, hunker in for Johnson's latest magisterial account of how

the mightiest guns the Pentagon can muster threaten to sink our own

country. (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.) -- Introduction by Tom

Englehardt, editor of TomDispatch.

Going Bankrupt

Why the Debt Crisis Is Now the Greatest Threat to the American

Republic

By Chalmers Johnson

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

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.

[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."]

Chalmers Johnson is the author of Nemesis: The Last Days of the

American Republic, just published in paperback.