Washington’s Blog
Monday , January 11th, 2010
Everyone knows that the too big to fails and their dishonest and footsy-playing regulators and politicians are largely responsible for trashing the economy.
But the military-industrial complex shares much of the blame.
Nobel prize winning economist Joseph Stiglitz says that the Iraq war will cost $3-5 trillion dollars.
Sure, experts say that the Iraq war has increased the threat of terrorism. See this, this, this, this, this, this and this. And we launched the Iraq war based on the false linkage of Saddam and 9/11, and knowingly false claims that Saddam had WMDs. And top British officials, former CIA director George Tenet, former Treasury Secretary Paul O’Neill and many others say that the Iraq war was planned before 9/11. But this essay is about dollars and cents.
America is also spending a pretty penny in Afghanistan. The U.S. admits there are only a small handful of Al Qaeda in Afghanistan. As ABC notes:
U.S. intelligence officials have concluded there are only about 100 al Qaeda fighters in the entire country.
With 100,000 troops in Afghanistan at an estimated yearly cost of $30 billion, it means that for every one al Qaeda fighter, the U.S. will commit 1,000 troops and $300 million a year.
Sure, the government apparently planned the Afghanistan war before 9/11 (see this and this). And the Taliban offered to turn over Bin Laden (see this and this). And we could have easily killed Bin Laden in 2001 and again in 2007, but chose not to, even though that would have saved the U.S. hundreds of billions of dollars in costs in prosecuting the Afghanistan war. But this essay is about dollars and cents.Increasing the Debt Burden of a Nation Sinking In Debt.
All of the spending on unnecessary wars adds up.
The U.S. is adding trillions to its debt burden to finance its multiple wars in Iraq, Afghanistan, Yemen, etc.
Two top American economists – Carmen Reinhart and Kenneth Rogoff – show that the more indebted a country is, with a government debt/GDP ratio of 0.9, and external debt/GDP of 0.6 being critical thresholds, the more GDP growth drops materially.
Specifically, Reinhart and Rogoff write:
The relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth rates fall by one percent, and average growth falls considerably more. We find that the threshold for public debt is similar in advanced and emerging economies…
Indeed, it should be obvious to anyone who looks at the issue that deficits do matter.
A PhD economist told me:
War always causes recession. Well, if it is a very short war, then it may stimulate the economy in the short-run. But if there is not a quick victory and it drags on, then wars always put the nation waging war into a recession and hurt its economy.
You know about America’s unemployment problem. You may have even heard that the U.S. may very well have suffered a permanent destruction of jobs.
But did you know that the defense employment sector is booming?
As I pointed out in August, public sector spending – and mainly defense spending – has accounted for virtually all of the new job creation in the past 10 years:
The U.S. has largely been financing job creation for ten years. Specifically, as the chief economist for BusinessWeek, Michael Mandel, points out, public spending has accounted for virtually all new job creation in the past 1o years:
Private sector job growth was almost non-existent over the past ten years. Take a look at this horrifying chart:
Between May 1999 and May 2009, employment in the private sector sector only rose by 1.1%, by far the lowest 10-year increase in the post-depression period.
It’s impossible to overstate how bad this is. Basically speaking, the private sector job machine has almost completely stalled over the past ten years. Take a look at this chart:
Over the past 10 years, the private sector has generated roughly 1.1 million additional jobs, or about 100K per year. The public sector created about 2.4 million jobs.
But even that gives the private sector too much credit. Remember that the private sector includes health care, social assistance, and education, all areas which receive a lot of government support.
Most of the industries which had positive job growth over the past ten years were in the HealthEdGov sector. In fact, financial job growth was nearly nonexistent once we take out the health insurers.
Let me finish with a final chart.
Without a decade of growing government support from rising health and education spending and soaring budget deficits, the labor market would have been flat on its back.
Raw Story argues that the U.S. is building a largely military economy:
The use of the military-industrial complex as a quick, if dubious, way of jump-starting the economy is nothing new, but what is amazing is the divergence between the military economy and the civilian economy, as shown by this New York Times chart.
In the past nine years, non-industrial production in the US has declined by some 19 percent. It took about four years for manufacturing to return to levels seen before the 2001 recession — and all those gains were wiped out in the current recession.
By contrast, military manufacturing is now 123 percent greater than it was in 2000 — it has more than doubled while the rest of the manufacturing sector has been shrinking…
It’s important to note the trajectory — the military economy is nearly three times as large, proportionally to the rest of the economy, as it was at the beginning of the Bush administration. And it is the only manufacturing sector showing any growth. Extrapolate that trend, and what do you get?
The change in leadership in Washington does not appear to be abating that trend…[121]
So most of the job creation has been by the public sector. But because the job creation has been financed with loans from China and private banks, trillions in unnecessary interest charges have been incurred by the U.S.
http://www.businessweek.com/the_thread/economicsunbound/archives/longjobs4.gif
