In 1922, the British Empire held sway over a population of about 458 million people, one-quarter of the world’s people and covered more than 13,000,000 square miles: approximately a quarter of the Earth’s total land area. By 1956, after the disastrous attempt to hold on to the Suez Canal, the British finally abandoned the last of their imperial pretensions and settled into rebuilding their own country, culture and spirit. It took them 20 years or so to do it but by 1964 the rest of the world was already sharing in the joy of their life after empire.Swinging London of 1964 was very happy for Great Britain to not be the world’s unpaid policemen. The Covid-19 pandemic allows America a similar opportunity to free itself from the burdens of empire.
I was born in 1947. From my third birthday to the present moment the United States has been involved in a war or “international police action” somewhere on globe. (that link is by no means comprensive). Almost all of these wars were unsuccessful — Bay of pigs, Vietnam, Lebanon, Somalia, Afghanistan, Iraq — to name a few. But those failures didn’t reduce our imperial overstretch. This is what our current overseas military posture looks like.
As I pointed out in an earlier post, sometimes a crisis like the pandemic we are in, is an opportunity to recalibrate our priorities. As the military historian, Col. Andrew Bacevich (U.S.Army, retired) recently pointed out, those priorities are misaligned for the current moment.
And what of the United States military? Its attention remains fixed in those distant places like Afghanistan and Iraq, where the Pentagon has wasted several trillion dollars in a vain attempt to create order and midwife a transition to modernity. Wouldn’t it have been nice if just a couple of those trillion had been invested in stockpiling the medical equipment that is today in desperately short supply?
In the last month, the “nationwide business shutdown and surge in U.S. government spending will nearly quadruple the federal deficit to a record $3.7 trillion this fiscal year” according to Reuters. Although there are few who think this move wasn’t essential, when combined with the astronomical expansion of the Federal Reserve balance sheet, the amount of new debt is potentially problematic for the younger generation that will have to pay it off The Wall Street Journal tells the story.
Economists project the central bank’s portfolio of bonds, loans and new programs will swell to between $8 trillion and $11 trillion from less than $4 trillion last year. In that range, the portfolio would be twice the size reached after the 2007–09 financial crisis and nearly half the value of U.S. annual economic output.
The irony for progressives is that Democrats will probably be left to clean up the near-term fiscal mess caused by Republican tax cuts for the rich, in the same way the both Clinton and Obama inherited the profligacy of Reagan and Bush tax cuts. But unlike both Clinton and Obama, who cut domestic programs, Biden should focus on reducing the bloated budget of the Pentagon. The military takes almost half of the yearly discretionary budget of our country.
We need to radically reduce the military budget, not just because we realize our domestic priorities have changed, but also because most economists, including conservatives like Former Fed Chairman Alan Greenspan, agree that military spending retards the private economy growth. As economist Dean Baker has stated, “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.” The refusal of both Republican and Democratic administrations to reduce the bloated military budget since the end of the cold war is the most classic example of crony capitalism. President Dwight Eisenhower in his farewell address named the problem: “In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.”
In Search of Monsters
Eisenhower’s warning, harks back to the famous speech of Secretary of State John Quincy Adams delivered on July 4, 1821, defining the principles of our foreign policy.
She has abstained from interference in the concerns of others, even when conflict has been for principles to which she clings, as to the last vital drop that visits the heart…But she goes not abroad, in search of monsters to destroy.
From the beginning of the Korean War in 1951, the Communist block of the Soviet Union and China has represented the “monsters” that justified the unprecedented military expenditures. After the collapse of the Soviet Union in 1990, Bill Clinton ran on a platform to convert from a war economy to a peace economy.
Convert our defense-based economy to a peacetime one to ensure that the communities and workers who won the Cold War don’t get left out in the cold. Create a civilian research and development agency to encourage conversion and cutting-edge technologies.
But the very same establishment that convinced him to get rid of the New Deal era banking laws, also convinced him to maintain the defense budgets at Reagan era levels. And even though Donald Trump ran on a policy of “no more stupid wars”, he continues to increase the defense budget every year. Once again the monsters the Pentagon puts forth are China and Russia.
But the Covid-19 Crisis reveals that Russia is a totally oil dependent economy, crushed by falling prices and China is dependent on growing world trade, which will inevitably fall as the West de-globalizes.
The national security analyst George Friedman recently wrote, Russia is a paper tiger, not a monster: “Russia’s challenge is not building a new generation of hypersonic missiles, nor investing in advanced technologies. Russia’s challenge now is to avoid collapse. The Russian budget is distributed among its constituent regions, which pay the teachers and doctors and firemen. But with the decline of energy prices, Russia’s budget declines, and as it declines, the regions contract. Russia, a Third World country, has few counters to low energy prices.” Obviously, post pandemic, if the U.S. committed to move to renewable energy, Russia’s decline would accelerate.
Friedman also feels that China is much weaker that the Republican China Hawks like Senator Tom Cotton would have us believe.
The Chinese economy is staggeringly weak. Their banks — that’s the first place you see problems — are in trouble. We’ve been hearing that China, an economic miracle, will overtake the United States in five years. Journalists don’t come back and notice it isn’t overtaking the United States, or even coming close. The Chinese “One Belt, One Road” project is not happening.
China’s total corporate, household and government debt rose to 303% of GDP in the first quarter of 2019, according to the Institute of International Finance. And whereas the Chinese used to be big purchasers of U.S. Treasury Bills, they have been draining their banking reserves to pay for the misbegotten Belt and Road Initiative — a strategy that harks back to the failed imperialism of the late 19th Century.
One of the great lessons learned so far from the pandemic is that the U.S. cannot be dependent on China as the sole source manufacturer of strategic material like medical protective equipment, pharmaceuticals, computer chips and communication network equipment. A Biden administration will have to designate certain materiel as strategic, and force U.S. multinationals to make them in domestic plants.
Remember Eisenhower’s words — “The potential for the disastrous rise of misplaced power exists and will persist.” This is exactly what we observed for years in Defense Department procurement. We all remember the $10,000 aircraft toilet seat. So new we are getting Trump’s version of the crony capitalism game show. The Small Business Administration loan program has been riddled with corruption.
A company in Georgia paid $6.5 million to resolve a Justice Department investigation — and, two weeks later, received a $10 million federally backed loan to help it survive the coronavirus crisis.
Another company, AutoWeb, disclosed last week that it had paid its chief executive $1.7 million in 2019 — a week after it received $1.4 million from the same loan program.
Never mind the big public companies that should have never got their hands on the money in the first place. It was clear that if you know someone in the Trump orbit, you could get the the front of the line, no questions asked. In a Dallas Morning News article titled, “Publicly traded Dallas hotel group says it’s keeping $126 million in small-business rescue loans”we see Trump donor, Monty Bennett, CEO of Ashford, Inc in all his Gordon Gekko, “greed is good” glory.
A Dallas group of publicly traded hotel companies described as the Paycheck Protection Program’s biggest beneficiary says it’s keeping $126 million in coronavirus hardship loans to help put its thousands of employees back to work.
Here is Monty and part of his crew, looking like extras in The Wolf Of Wall Street. He should be personally told by Trump that he has to give the money back.
The Coming Recession
The next year is going to be painful. Even if we avoid a full out depression (18% unemployment) we are going to have to reallocate how we spend our collective federal funds, as Noriel Roubini points out.
The coronavirus crisis shows that much more public spending must be allocated to health systems, and that universal health care and other relevant public goods are necessities, not luxuries. Yet, because most developed countries have aging societies, funding such outlays in the future will make the implicit debts from today’s unfunded health-care and social-security systems even larger.
This will mean reducing our military footprint around the world. Hawks like Tom Cotton will scream and cry, but the U.S. has a military force larger than the next seven countries combined.
The Covid-19 Crisis allows the opportunity to re-order our priorities. Shoring up the budgets of our states and cities and building the robust infrastructure in healthcare and renewable energy should be our primary focus. Hopefully a new administration in January will make this possible.