The economic disaster that is military keynesianism
Why the US has really gone
confidence in the US economy has reached zero, as was proved by last months
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 nations economic life
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 Gibneys 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.
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
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 worlds 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
It is virtually
impossible to overstate the profligacy of what our government spends on the
military. The Department of Defenses 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 Bushs two on-going wars, defence spending has doubled since the
mid-1990s. The defence budget for fiscal 2008 is the largest since the second
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 Pentagons (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 Foundations 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.
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.
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 worlds richest
political entity, according to the CIAs World Factbook, is the European Union.
The EUs 2006 GDP was estimated to be slightly larger than that of the US.
Moreover, Chinas 2006 GDP was only slightly smaller than that of the US, and
Japan was the worlds fourth richest nation.
A more telling comparison
that reveals just how much worse were 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 worlds 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
Its 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
The worlds top 10
military spenders and the approximate amounts each currently budgets for its
military establishment are:
1. United States (FY 2008 budget) $623bn
2. China (2004) $65bn
3. Russia $50bn
4. France (2005) $45bn
5. United Kingdom $42.8bn
6. Japan (2007) $41.75bn
7. Germany (2003) $35.1bn
8. Italy (2003)
9. South Korea (2003) $21.1bn
10. India (2005 est.) $19bn
World total military expenditures (2004 est)$1,100bn
World total (minus the US)$500bn
military expenditures did not occur over just a few short years or simply
because of the Bush administrations 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
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 Unions
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
USSRs 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.
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
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.
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
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 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
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 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
nations 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?
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 Americas 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.
important exegesis on Melmans 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 nations plant and equipment, and infrastructure, at just over
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
Our short tenure as the worlds lone superpower has come to an
end. As Harvard economics professor Benjamin Friedman has written: Again and
again it has always been the worlds leading lending country that has been the
premier country in terms of political influence, diplomatic influence and
cultural influence. Its no accident that we took over the role from the British
at the same time that we took over the job of being the worlds leading lending
country. Today we are no longer the worlds leading lending country. In fact we
are now the worlds 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
Bushs 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 dont, we face probable national insolvency and a
Chalmers Johnson is the author of Nemesis: The Last Days
of the American, Metropolitan, 2007, just published in paperback (http://www.amazon.com/dp/ 080508728...). It is the final
volume of his Blowback trilogy, which also includes Blowback, 2000, and The
Sorrows of Empire, 2004. This article was published online by
(1) Robert Higgs, The Trillion-Dollar Defense Budget Is
Already Here , The Independent Institute, 15 March 2007, http://www.independent.org/newsroom ...
D Hartung, Bush Military Budget Highest Since WWII, 10 February 2007, http://www.commondreams.org/views07 ...
Kaplan, Its Time to Sharpen the Scissors, 5 February 2007, http://www.slate.com/id/2159102/pag ...
(4) See http://www.encyclopedia.com/doc/1G1 ...
for Economic and Policy Research, 1 May 2007, http://www.cepr.net/content/view/11 ...
(6) Thomas E
Woods, What the Warfare State Really Costs, http://www.lewrockwell.com/woods/wo ...
(7) Thomas E
(8) John F Ince, Think the Nations Debt Doesnt Affect
You? Think Again, 20 March 2007, http://www.alternet.org/story/49418 /