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
It was believed that the United States 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 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:
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 has written:
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
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 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 in the period since 1968 to reverse these trends, and it shows today in our massive imports of equipment—from medical machines such as 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 more than eight hundred 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.