Magazine article Sojourners Magazine

Taming the Beast: An Economist Explains Why Reducing the Deficit Will Require Big Cuts in Military Spending

Magazine article Sojourners Magazine

Taming the Beast: An Economist Explains Why Reducing the Deficit Will Require Big Cuts in Military Spending

Article excerpt

THE MAIN CAUSE of our ongoing economic crisis--which is perhaps finally starting to slowly wane--is too much private debt. After the elimination of financial-industry regulation by Republican and Democratic governments, Wall Street got rich by acting as a middleman, lending Asian and Middle Eastern money to people who could not possibly repay their debts. Borrowers--workers with stagnant or declining incomes--bought too many houses, cars, big-screen televisions, and other toys that they really could not afford. The festival of mindless, unsustainable lending ended in global economic collapse.

What's saving us from a second Great Depression now? Deficit spending by Uncle Sam. In an economic collapse on the scale of the last few years, the economy falls into a vicious cycle of unemployment, pessimism, falling spending by workers and businesses, and bank failure. Big government is the only institution in the system that can break the cycle, by pumping more buying power into the economy by spending more while cutting taxes.

In other words, the way to keep a recession from turning into a depression is for governments to deliberately run budget deficits. In this way, government budgets are the exact opposite of household budgets, for which it's usually prudent to cut spending in tough times.

But aren't budget deficits bad? Not always. Borrowing--for a government, as for a household--is either a fine or stupid idea depending on what a borrower spends the money on. Borrowing for stimulus and for assets that increase future income by more than interest payments is an excellent idea; the higher income is so large that the overall burden of interest and debt repayments falls.

Government economic stimulus spending to fend off a depression is one (but not the only) form of wise investment. Better schools, roads, transport infrastructure, investment in green technologies--all of these boost a nation's future income.

On the other hand, borrowing lots of money to have a gigantic party is deeply irresponsible; once the party is over, the family or nation must cut back its spending on other things, perhaps even essential needs, in order to pay off its bills.

The American government does have a debt problem. The problem comes from borrowing in the Reagan and George W. Bush eras to finance a lavish party--all those tax cuts for the rich--which did nothing to improve our nation's income and capacity to pay off the debt in good times. Tax cuts for wealthy people are the very definition of economic frivolity and deep social injustice.

When our current economic crisis finally abates, we are going to have to stop borrowing as much, raise taxes, and cut economically ineffective forms of government spending. Indeed, economic sanity requires the U.S. to return to the conservative policies of the Clinton years, when the federal government ran a budget surplus in good times.

The alert reader will note that I've said nothing about Social Security or Medicare or any of the other big, bad stuff that deficit scaremongers love to throw out there. The only way Social Security will run out of money is if the young stop paying taxes to finance their parents' benefits; as long as we like our parents, we can more than afford Social Security. And Medicare's problems, though real, will go away once we fix the U.S.'s health-care finance mess, in which we pay far more per person than similarly rich countries with better health outcomes.

So what should be the primary targets of fiscal reform? Hard-nosed economics tells us that these targets must include big cuts in military spending and root-and-branch reform of the "defense" economy. From the perspective of hard-edged economics, a substantial part of military spending is a spectacular waste of public money. In fiscal 2009, military spending--not including veteran's benefits or interest on past military deficit spending--amounted to $661 billion, roughly 19 percent of all government spending. …

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