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Notes on the Revolution / Column #60

Excessive military spending undermines U.S. economic development

Excessive military spending undermines U.S. economic development

Notes on the Revolution / Column #60    

January 20, 2020

Excessive military spending harms the U.S. economy

By Charles McKelvey


      Heidi Peltier, Director of the “20 Years of War” Project at the Boston University Pardee Center for the Study of the Longer-Range Future, maintains that “throughout the 18 years the U.S. has been engaged in the ‘Global War on Terror,’ mainly in Iraq and Afghanistan, the government has financed this war by borrowing funds rather than through alternative means such as raising taxes or issuing war bonds.”  She maintains that, in addition to the $2 trillion dollars in war related spending from 2001 to 2019, one should add the cumulative interest payment of $925 billion dollars on the loans contracted to pay for this war-related spending.  The interest payments will continue to grow, and the debt of the $2 trillion in loans could reach $6.5 trillion dollars by 2050, even if we stopped borrowing the finance further wars.  This means that the financial costs of the “War on Terrorism” are being deferred to future generations.

    Peltier further observes that the ratio of debt to GDP has increased from 33.6% in 2000 to over 80% by 2020, and it could reach 95% by 2029 and 169% by 2049.  And she notes that 40% of the U.S. public debt is held by institutions and individuals of other nations, with 17% of the foreign-owned U.S. treasury securities held by Japan, and 16% by China.

    Peltier notes that the nation has not always conducted itself with such fiscal irresponsibility.  In the past, the government levied taxes specifically for the purpose of waging war, such that U.S. wars from the Civil War to the Korean War was at least partly financed through new additional taxes as part of a systematic plan to pay for the costs of the war.  However, all U.S. wars since 2001, including Afghanistan and Iraq, have been funded entirely by borrowing.

    The problem of government borrowing to finance war, and other patterns of short-sighted spending, can be dated from 1965, with the rapid escalation of the Vietnam War, and it applies not only to the government, but also to corporations and consumers.  Faustino Cobarrubia, a researcher at the Cuban Center for Research on the World Economy (CIEM), observes that, as a result of spiraling military costs in relation to the Vietnam War as well as growing government expenditures for social programs combined with low taxes, U.S. government debt expanded by 137% during the 1970s.    At the same time, as a result of an increasing tendency toward consumerism, consumer debt increased by 190% during the decade.  In addition, corporate debt, oriented toward financial speculation rather than investments to improve productivity, increased by 243% during the same time period.  Thus began a process in which the dominant global power became increasingly an indebted nation with declining productivity.

     Cobarrubia further notes that, during the 1970s, U.S. consumers and industry were importing more goods than what U.S. industry was exporting, creating a commercial balance of payments deficit.  In addition to this “double deficit” of government debt plus commercial balance of trade deficit, the U.S. lost control of the international monetary system, when President Richard Nixon unilaterally suspended the backing of the U.S. dollar with gold reserves, a good strategy for satisfying immediate needs, but detrimental to the nation in the long term and to global financial stability.

      The double deficit was accelerated in the 1980s, Cobarrubia observes, when the Reagan administration sharply cut taxes while significantly increasing military expenditures.  By 1988, the USA had become the most indebted country in the world.  At the same time, the U.S. economy became what CIEM has called a “casino economy,” as the speculative movement of capital by large corporations became a primary characteristic.  Acquisitions and mergers became common, and the phenomenon of  “junk bonds” emerged.  In addition, deindustrialization of the economy and growing unemployment were characteristics of the decade.  

     In reflecting on the post-2001 military expenditures, we also should be aware that the militarization of the economy and society is a historic tendency in the United States.  Imperialist policies at the beginning of the twentieth century established military interventions and military support of neocolonial states as central to U.S. foreign policy.  In the 1940s, U.S. entrance into World War II required the systemic and rapid militarization of the economy and society.  Following World War II, rather than reverting to a peacetime economy, as Franklin Delano Roosevelt had envisioned, the nation turned to a permanent war economy, justified by the Cold War ideology.  In his farewell address in 1960, President and former general Dwight Eisenhower warned the nation of the “military industrial complex.”  By the end of the Cold War, the militarization of the economy had been completed. According to CIEM, “In 1990, the value of arms, equipment, and factories dedicated to the Department of Defense represented 83% of the value of the factories and equipment in U.S. manufacturing.”

     The dependency of the U.S. economy on military production made necessary a foreign policy orientation toward the fabrication of enemies and false threats as pretexts for military action, making difficult the peaceful and negotiated resolution of genuine conflicts of interest among nations, as has been repeatedly demanded by the Non-Aligned Movement and other international organizations.  In addition, the continued militarization of the U.S. economy undermines U.S. economic development in the long run.  CIEM wrote in 2010:

“The growth of an economy, be it of a rich country or a poor country, regardless of its political ideology, demands as a necessary condition the continuous increase of capital accumulation, and this continuous increase cannot be attained if the goods that are produced do not produce wealth, as occurs, for example, when a tank, grenade, or demolition bomb is manufactured.  In fact, the majority of economic theories show that military expenditures detour resources from productive uses, such as consumption and investment, and in the final analysis, they reduce economic growth and employment.  The bulging budget assigned to the defense sector affects in a disastrous form the civil sectors of economic activity.  The war economy has direct repercussion on monetary and fiscal policy.  The expansion of the military-industrial complex not only restricts and deforms industrial development but also leads to technological paralyzization in a vicious circle in which industrial decline stimulates military expenditure, which then, paradoxically, accentuates the process of decline.”

    In light of these historic tendencies, the superficiality of U.S. public discourse is noteworthy, if not stunning.  The economy is supposedly doing well today.  Unemployment is low, and the stock market is at record high levels.  The Trump administration has recently concluded trade deals, giving reason for optimism. For the business community, the elimination of regulations also is a plus.  But how can the economy be doing well, in the midst of long-term tendencies toward growth in the double deficit, toward emphasis on financial speculation rather than investment in sustainable forms of production, and the continuation of endless wars that are financed by mortgaging the future?

     In my view, the U.S. Left ought to have a more politically mature response.  The U.S. Left ought to be capable of moving beyond the superficial discourse of the media and the politicians, explaining to the people the historic irresponsible conduct of the U.S. political establishment, and formulating a political project that calls the people to the building of a sustainable economy and a more dignified foreign policy.

     This is Charles McKelvey, reflecting on the unfolding global popular socialist revolution forged by our peoples in defense of humanity.  

 

Edited by Ed Newman
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