product—all goods and services produced domestically) was estimated to be slightly larger than that of the United States. However, China’s 2006 GDP was only slightly smaller than that of the United States, 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. 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 percent. This huge debt can be largely explained by our defense expenditures in comparison with the rest of the world.
The world’s top ten 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. United Kingdom, $42.8 billion
6. Japan (2007), $41.75 billion
7. Germany (2003), $35.1 billion
8. Italy (2003), $28.2 billion
9. South Korea (2003), $21.1 billion
10. India (2005 est.), $19 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 United States 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 United States 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 percent 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 in 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 sixty years. He found that after ten 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
