Nemesis: The Last Days of the American Republic

the 1960s, the Vietnam War sustained it at around 9 percent, but in the 1970s, strong economic competition from the free riders, Japan and Germany, forced a significant decline in military spending with a consequent U.S. decline into “stagflation” (a combination of stagnation and inflation).

The American response was a classic example of military Keynesianism—namely, Reaganomics. In the 1980s, President Reagan carried out a policy of large tax cuts combined with massive increases in defense spending allegedly to combat a new threat from communism. It turned out that there was no threat, only a campaign of fear-mongering from the White House bolstered by the CIA, which consistently overstated the size and growth of the Soviet armed forces during this period. The USSR was in fact starting to come apart internally because of serious economic imbalances and the deep contradictions of Stalinism. Reagan’s policies drove American military expenditures to 6.2 percent of GDP, which in 1984 produced a growth rate for the economy as a whole of 7 percent and helped re-elect Reagan by a landslide.⁸¹ During the Clinton years, military spending fell to about 2 percent of GDP, but the economy rallied strongly in Clinton’s second term due to the boom in information technologies, weakness in the previously competitive Japanese economy, the government’s more nationalistic support of the economy internationally, and serious efforts to reduce the national debt.

With the coming to power of George W. Bush and the launching of his Global War on Terror, military Keynesianism returned with a vengeance. According to Andrew Gumbel, a regular contributor to the Independent newspaper of London, during the second quarter of 2003, when the Iraq war was in full swing, some 60 percent of the 3.3 percent GDP growth rate was attributable to military spending.⁸² In the U.S. budgets for the years between 2003 and 2007, defense occupied just over 50 percent of all discretionary spending by the government. This is money the president and Congress can actually appropriate, as distinct from mandatory spending in compliance with existing laws (for social security payments, medicare, interest on the national debt, and so on).

The official 2007 Pentagon budget is $439.3 billion—not including the costs of America’s current wars. It essentially covers salaries and weapons—the funds for missile defense and other operations in outer space (between $7.4 billion and $9 billion a year since fiscal year 2002), new ships and submarines for the navy, and aircraft that were designed to fight the former Soviet Union’s air force but that have been kept as active projects because of industry and air force lobbying. As Jonathan Karp of the Wall Street Journal observes, “Weapons spending has swelled faster than the overall Pentagon budget, soaring 43 percent in the past five years to $147 billion, with the majority of the funding going to programs conceived before 9/11. The estimated lifetime cost of the Pentagons five biggest weapons systems is $550 billion, 89 percent more than the top-five programs were projected to cost in 2001.”⁸³

One of the absurdities of the Bush administration’s defense appropriations is that the official defense budget has nothing to do with actual combat in Afghanistan and Iraq. We have built a fantastically high-tech military, but in order to use it, Congress has to appropriate separate annual “supplements” of around $120 billion a year. In the fiscal 2007 budget, the Congressional Research Service estimates that Pentagon spending will be about $9.8 billion per month for Operation Enduring Freedom and Operation Iraqi Freedom, or an extra $117.6 billion for the year.⁸⁴ As of 2006, the overall cost of the wars in Iraq and Afghanistan since their inception stood at about $450 billion.

To understand the real weight of military Keynesianism in the American economy, one must approach official defense statistics with great care. They are compiled and published in such a way as to minimize the actual size of the official “defense budget.” The Pentagon does this to try to conceal from the public the real costs of the military establishment and its overall weight within the economy. There are numerous military activities not carried out by the Department of Defense and that are therefore not part of the Pentagon’s annual budgets. These include the Department of Energy’s spending on nuclear weapons ($16.4 billion in fiscal 2005), the Department of Homeland Security’s outlays for the actual “defense” of the United States against terrorism ($41 billion), the Department of Veterans Affairs’ responsibilities for the lifetime care of the seriously wounded ($68 billion), the Treasury Department’s payments of pensions to military retirees and widows and their families (an amount not fully disclosed by official statistics), and the Department of State’s financing of foreign arms sales and militarily related developmental assistance ($23 billion).

In addition to these amounts, there is something called the “Military Construction Appropriations Bill,” which is tiny compared to the other expenditures—$12.2 billion for fiscal 2005—but which covers all the military bases around the world. Adding these non-Department of Defense expenditures, the supplemental appropriations for the wars in Iraq and Afghanistan, and the military construction budget to the Defense Appropriations Bill actually doubles what the administration calls the annual defense budget. It is an amount larger than all other defense budgets on Earth combined.⁸⁵ Still to be added to this are interest payments by the Treasury to cover past debt-financed defense outlays going back to 1916. Robert Higgs, author of Crisis and Leviathan and many other books on American militarism, estimates that in 2002 such interest payments amounted to $138.7 billion.⁸⁶

Even when all these things are included, Enron-style accounting makes it hard to obtain an accurate understanding of our reliance on a permanent arms economy. In 2005, the Government Accountability Office reported to Congress that “the Pentagon has no accurate knowledge of the cost of military operations in Iraq, Afghanistan, or the fight against terrorism.”⁸⁷ It said that, lacking a reliable method for tracking military costs, the army merely inserts into its accounts figures that match the available budget. “Effectively, the Army [is] reporting back to Congress what it had appropriated.”

Joseph Stiglitz, the Nobel Prize-winning economist, and his colleague at Harvard Linda Bilmes have tried to put together an estimate of the real costs of the Iraq war. They calculate that it will cost about $2 trillion.⁸⁸ This figure is several orders of magnitude larger than what the Bush administration publicly acknowledges. Above all, Stiglitz and Bilmes have tried to compile honest figures for veterans’ benefits. For 2006, the officially budgeted amount is $68 billion, which is absurdly low given the large number of our soldiers who have been severely wounded. We celebrate the medical miracles that allow some of our troops to survive the detonation of an “improvised explosive device” hidden in the Earth under a Humvee, but when larger numbers of soldiers who once might have died in such situations are saved, the resulting wounds, often including brain damage, require that they receive round-the-clock care for the rest of their lives.

We almost surely will end up repudiating some of the promises we have made to the men and women who have volunteered to serve in our armed forces. For instance, the government’s medical insurance scheme for veterans and their families, called Tricare, is budgeted for 2007 at a mere $39 billion. But the future demands on Tricare are going to go off the chart. And we cannot afford them unless we radically reorient our economy. The American commitment to military Keynesianism and the nontransparent manner in which it is implemented have combined into a set of fatal contradictions for our country.

In Blowback, I set out to explain why we are hated around the world. The concept “blowback” does not just mean retaliation for things our government has done to and in foreign countries. It refers to retaliation for the numerous illegal operations we have carried out abroad that were kept totally secret from the American public. This means that when the retaliation comes—as it did so spectacularly on September 11, 2001— the American public is unable to put the events in context. So they tend to support acts intended to lash out against the perpetrators, thereby most commonly preparing the ground for yet another cycle of blowback. In the first book in this trilogy, I tried to provide some of the historical background for understanding the dilemmas we as a nation confront today, although I focused more on Asia—the area of my academic training—than on the Middle East.

The Sorrows of Empire was written during the American preparations for and