Fiscally speaking, the U.S. government has been running a disorderly house for some time. That makes the fiscal crisis in Greece an uneasy portent for Americans (as Steven Horwitz points out in our July/August issue).
Just contemplate some of the numbers. The total federal debt is nearly $13 trillion, $8.6 trillion of which is held by the public, with the rest held by government entities. (These are conservative estimates, since many government obligations are not counted.) GDP is something over $14 trillion. That ratio of debt to GDP isn’t pretty. “The CBO estimates that at the end of 2020 publicly held debt will be a staggering $20.3 trillion—90 percent of GDP—with total debt being notably higher than that,” Horwitz writes.
As for the budget deficit, the Congressional Budget Office projects it to exceed a trillion dollars this year and next, bringing it into the neighborhood of 10 percent of GDP. This comes on top of a 2009 deficit of $1.88 trillion—the government spent a buck-ninety for every dollar it collected. The deficit is projected to fall in the years following 2011, before resuming its growth in 2015 and beyond. By 2018 it will be back over $1 trillion, assuming these estimates are not wildly optimistic. Remember, ObamaCare has not kicked in yet.
According to the CBO, the Obama administration will create $9.75 trillion in deficits over the next decade.
Compare this with Greece: Its accumulated debt is 113 percent of GDP, and its budget deficit last year was 12.7 percent of GDP. Greece needed to sell bonds to obtain the money to pay debts come due, but lenders were too nervous to lend the money at rates the Greek government can handle. So Greece needed a bailout in the form of cheaper loans from the European Union and International Monetary Fund (a.k.a. American taxpayers), conditioned on budget austerity (spending cuts and tax increases), which in turn incited violent street demonstrations by government employees, who have benefited from high deficit spending for years.
The Need for Cuts
If we want to avoid the Greek experience, which could spread to other EU countries in the future, the U.S. fiscal house will have to be put in order. Contrary to what the policy elite is thinking, this does not mean raising taxes, which would impede economic activity and make conditions worse.
So if the deficit is to be eliminated it will have to be through dramatic budget cutting. In the current fiscal year the federal government is planning to spend $3.55 trillion. Among the largest categories of spending are Social Security (19.63 percent); unemployment/welfare/other “mandatory” spending (16.13 percent); Medicare (12.79 percent); Medicaid and the State Children’s Health Insurance Program (8.19 percent); and interest on the national debt (4.63 percent).
Of course I’ve left out a category, but deficit hawks often ignore it: the Department of Defense. It comes in at 18.74 percent of the budget, or $663.7 billion. (More about this number below.) For some context, the 2009 Pentagon budget was almost as much as the rest of the world’s military spending combined.
For fiscal 2011 President Obama has asked Congress to appropriate $719 billion for the Pentagon, a 4.5 percent increase over the current year. But as Robert Higgs points out, “few appreciate that the total amount of all defense-related spending greatly exceeds the amount budgeted for the Department of Defense.”
Writing about the 2009 Defense Department budget of $636.5 billion, Higgs states: “Lodged elsewhere in the budget, however, other lines identify funding that serves defense purposes just as surely as—sometimes even more surely than—the money allocated to the Department of Defense. On occasion, commentators take note of some of these additional defense-related budget items, such as the Department of Energy’s nuclear-weapons program, but many such items, including some extremely large ones, remain generally unrecognized.”
Those other items include the departments of Homeland Security and Veterans Affairs, and programs within the Energy, Justice, and State departments. Higgs also calculated the share of the interest on the debt attributable to past Pentagon spending: “Adding this interest component to the previous all-agency total, the grand total comes to $1,027.8 billion, which is 61.5 percent greater than the Pentagon’s outlays alone.”
The grand total will be well above a trillion dollars in the current fiscal year also.
Guns and Gravy
“Owing to the financial debacle and the ongoing recession,” Higgs sums up, “millions are out of work, millions are losing their homes, and private earnings remain well below their previous peak, but in the military-industrial complex, the gravy train speeds along the track faster and faster.”
It’s no mystery why so much is spent on the military. The U.S. government maintains close to a thousand military bases around the world and is engaging in two foreign occupations, not to mention less formal campaigns in Pakistan and elsewhere, including covert operations that never make the papers. Intervention has gone on at least since World War II. This costs money. The Iraq and Afghan occupations consume over $12 billion a month. USA Today reported recently that the Pentagon had spent $620 billion on the Iraq invasion and occupation and more than $190 billion on the operation in Afghanistan, America’s longest military adventure ever. Other estimates last summer were higher, as much as $300 billion for Afghanistan, according to U.S. News and World Report. Last summer, more spending was approved in Congress. It’s safe to say the combined price tag is over $1 trillion.
The fiscal question is whether, in the face of the huge national debt and multiyear trillion-dollar budget deficits, we can afford a “defense” establishment more befitting an empire than a republic. That’s not the only question, however. We must also ask if a society that claims to value free enterprise can long endure the economic disfigurement that inevitably accompanies a large military-industrial complex, as President Eisenhower warned of as he left office.
Small-government men from Richard Cobden to William Graham Sumner to Robert Taft would have said no, as does their political heir, Ron Paul, today. As for whether slashing military spending would deny us needed protection, one could as well ask whether we are safe today with policies that risk “blowback,” bankruptcy, and monetary disarray.
One cannot help but conclude that James Madison had it right:
“Of all the enemies to public liberty war is, perhaps, the most to be dreaded, because it comprises and develops the germ of every other. War is the parent of armies; from these proceed debts and taxes; and armies, and debts, and taxes are the known instruments for bringing the many under the domination of the few. . . . No nation could preserve its freedom in the midst of continual warfare.”