Sunday, December 31, 2006

The Road to Weimar--Revisited

The bipartisan Congressional Research Service estimates that spending on the wars in Iraq and Afghanistan in the fiscal 2006 budget will reach $10 billion per month for an extra $120 billion for the year. As of mid 2006, the wars' total costs exceed $400 billion. Depending on which end of the political spectrum you inhabit, the total bill for the Middle East expedition will be from $1 to $2 trillion. Both estimates are an order of magnitude larger than the Charlatan's regime will admit. Current military spending consumes 19% of total fiscal 2007 federal budget according to the DOD. That figure climbs to as much as 51% if other relevant factors are considered such as supplemental appropriations for the wars (the wars' costs are not included in the budget), interest on previous deficit spending for military purposes, veterans benefits, whether Social Security trust funds are excluded from calculation and the military portion of other departments' spending such the Department of Energy's nuclear warhead program. The U.S. military budget is the world's largest, more than six times as large as the budget of its nearest competitor, Russia. The cost of our military establishment puts us in a class of our own.

Since before Eisenhower warned of the "grave implications" of the "military-industrial complex" for our society, the United States has been traveling the fiscal road of military Keynesianism. That was the same road traveled by the German Reich after the Weimar Republic collapsed beneath piles of worthless Reichmarks. Hyperinflation was so bad that Germans actually burned paper money in the their stoves because firewood was too expensive. Hitler did not undertake a program of rearmament and expansion solely for economic reasons, but increased government spending on arms made him more acceptable to German industrialists who might otherwise have opposed his destabilizing plans for leibenstraum. Expansion of the army also absorbed many young males with few skills and little education while placating the Prussian officer corps fuming over the perceived humiliation of Versailles. Many abroad applauded his German economic miracle.

Traditional Keynesian economic policy prescribes deficit government spending in bad times--the proverbial pump priming--balanced by debt repayment in good times. Military Keynesianism is unstable because there is no political check on deficit spending for armaments. One of the side effects of continuous war preparation is, inevitably, war or at least a warlike political environment. The supposedly co-equal branches of government have ceded power to the executive during the post WWII era in which there have been four major wars and several minor military actions. The War Powers Act of 1973, passed in the reaction to Vietnam and intended to limit the president's ability to wage war without an act of Congress, had been ignored or violated before the Charlatan was installed in office. Few government leaders, except the rigidly authoritarian Vice President, think the executive branch has lost power in the last thirty years. The regime never misses an opportunity to justify its actions on a state of war replacing the Cold War, called "the Global War on Terror". It has spent its last six years in power seeking to expand presidential authority to a level never before experienced in America under the rubric of Commander in Chief. The Chief candidly admits that this will be a long war that may never be finally over.

While the United States continues to incur debt for a permanent war, its trade deficit soared to an all-time high in 2005 of $782.7 billion, the fourth consecutive year of record trade deficits. This massive amount of debt is financed by two major creditors, Japan ($850 billion) and China ($854 billion). Of course, these countries continue to lend to our treasury because America is a vast market for their consumer goods. But they do so only because of a competitive advantage. American demand for their goods provides employment. How long they will be willing to be paid for their products in devalued American dollars is any body's guess. Investors like Warren Buffet are aware of the weakening dollar as they move into foreign currencies to hedge. This foreign underwriting of our military economy explains in part why the huge U.S. debt burden has not yet triggered a severe domestic economic contraction, as predicted by traditional analysis. Pump priming works only so long as the bills are eventually paid.

The U.S. appears unwilling to give up its expensive military hegemony, choosing instead the bad example of Rome. That empire maintained its republican facade while clinging to its provinces by dictatorial force until it collapsed from within. National bankruptcy did not mean the literal end of Germany in 1923 or the end of Argentina in 2001. However, learning to exist with much lower living standards, an authoritarian national government, and the reemergence of countervailing powers in the world will be difficult for Americans accustomed to having it their way.

Weekend Update: The Center for Budget and Policy Priorities has released figures showing that in the last six years of the Bush regime, the national debt has increased by $2.3 trillion including $633 billion in interest payments. Foreign investors financed 78% of the deficit. The trade deficit for 2006 is projected to be a record $750 billion. Trade deficits have exceeded 5% of the GDP since 2004, a condition most economists consider unsustainable in the long term. Most of the growth in the imbalance is caused by foreign oil imports. I wonder how much gas mileage an Abrams tank gives?

Just so you know its not only me, here is a quote from Chris Hedges, Harvard Divinity graduate and former Pulitzer Prize winning journalist:
There has been, along with the creation of an American oligarchy, the steady Weimarization of the American working class. The top one percent of American households have more wealth than the bottom 90 percent combined. This figure alone should terrify all who care about our democracy.

No comments: