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Is it Time to End America's Expensive Global Military Empire?

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  • Is it Time to End America's Expensive Global Military Empire?

    The Cost of Empire
    by Jonathan Taplin

    Boom and Bust
    Paul Krugman wrote an interesting piece recently on the boom and bust nature of recent American capitalism.

    These prolonged recession-like episodes probably reflect the changing nature of the business cycle. Earlier recessions were more or less deliberately engineered by the Federal Reserve, which raised interest rates to control inflation. Modern slumps, by contrast, have been hangovers from bouts of irrational exuberance — the savings and loan free-for-all of the 1980s, the technology bubble of the 1990s and now the housing bubble.

    Ending those old-fashioned recessions was easy because all the Fed had to do was relent. Ending modern slumps is much more difficult because the economy needs to find something to replace the burst bubble.
    The chart at the top of this article is the S & P 500 for the last ten years. As you can clearly see, if you had all of your money in an index fund you would be right back to where you started from ten years ago. So it appears that the only way America can grow wealth is by creating low interest-fueled financial bubbles. Because our consumer spending (chart at left for the last 20 years), which is 70% of our GDP flucuatates in the same boom and bust cycle.

    The next 6 months will be the most severe test of our bubble-driven economy as the Fed’s ability to lower interest rates is constrained by the inflationary pressures of high gas prices and the falling dollar. Although some have asserted that the rush of fast money into commodities is creating yet another bubble, it is not one that can be enjoyed by the average citizen, the way Internet stocks or flipping condos did in the last ten years. This fact actually increases social tensions as can be seen in the numerous congressional hearing investigating commodity speculation.

    In classic economic terms, an economy ought to create enough surplus wealth to grow without resorting to excess borrowing–we ought to be able to live on what we earn. But since 1983, we have been unable to do that. So what differentiates the American economy from the rest of the developed world since 1983? The only rational answer is in the chart below which demonstrates how far beyond any possible rival our military budgets have travelled. The fact that the DOD’s own inventory of worldwide bases is more than 189 pages long cannot lead one to any other conclusion than the American taxpayer is supporting the infrastructure of empire.

    NSC-68
    The roots of American Empire began with President Woodrow Wilson’s decision to enter World War I “to make the world itself at last free”, which set in motion a kind of messianic foreign policy of American Exceptionalism, which echoes in the righteous speeches of President Bush today. As Henry Kissinger once observed, “It is to the drumbeat of Wilsonian idealism that American foreign policy has marched since his watershed presidency, and continues to march to this day.” Although contemporary politicians have used the shattering events of September 2001 to explain that everything has changed, their neoconservative mentors know the real story. “America did not change on September 11,” Robert Kagan wrote. “It only became more itself.” He went on to note that “over the last six decades, it is an objective fact that Americans have been expanding their power and influence in ever widening arcs.” Though historians could reach back to the British retreat from Kabul in 1882 to point to the perils of such expansive empires, the past seems to be lost to our country’s leaders. The effective result of this was a permanent militarization of American policy in a way that now puts us in peril economically and culturally.

    I will argue that the initial source of our problems stemmed from a document, NSC-68, which remained secret from the day it was issued by the Truman administration on April 7, 1950 up until the day that Henry Kissinger declassified it in 1975. Written by Paul Nitze for the National Security Council, it laid out in Manichean terms the coming conflict with the Soviet Union that has echoes in today’s call for a war against Islam.

    The Soviet Union, unlike previous aspirants to hegemony, is animated by a new fanatic faith, anithetical to our own, and seeks to impose its absolute authority over the rest of the world…The assault on free institutions is worldwide now, and in the context of the present polarization of world power, a defeat of free institutions anywhere is a defeat everywhere.
    It was one thing for President Wilson to proclaim the principles of freedom, but here in a stroke, the U.S. took upon itself the responsibility to defend “free institutions” everywhere on the globe without creating any hierarchy of American interests as to which of these “free institutions” was worth shedding our blood and treasure for. At this point in the early 50’s with troops still deployed in Germany and many more to be deployed in Korea, it was only a matter of time that the Pentagon’s desire for “global force dominance” would find the necessary funding from a fearful Congress. Almost 60 years later the result is a worldwide command structure with U.S. troops deployed on every continent.

    From an economist’s point of view, having just survived a Great Depression, the notion of military spending as a boost to jobs and production was given credibility and the theory of “guns and butter” became the conventional wisdom. Especially during the boom times of the fifties the notion was that spending money on guns did not take money away from civilian infrastructure. In fact civilian infrastructure like the Interstate Highway System was justified as a civil defense system for evacuating cities in a nuclear attack. President Eisenhower, who has been called a “nuclear schizophrenic” for his role in both enabling the gigantic growth of the military industrial complex and his prescient warnings about it, knew that the notion of guns and butter was patently false as he said in his famous speech to the newspaper editors in 1953.

    Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed.

    This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities. It is two electric power plants, each serving a town of 60,000 population. It is two fine, fully equipped hospitals.

    It is some 50 miles of concrete highway. We pay for a single fighter with a half million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people.

    This, I repeat, is the best way of life to be found on the road the world has been taking. This is not a way of life at all, in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron. These plain and cruel truths define the peril and point to the hope that comes with this spring of 1953.
    Even though Eisenhower ended his term by warning about the unchecked influence of the military on our democracy, it was probably too late. Military spending had come to be seen as a jobs program by every congressman and the big military contractors spread their plants into every state in order to curry influence. As we will see, this could last only as long as the country had a current account surplus with the rest of the world.

    Living in Fear
    Life in 1950’s America was lived under the twin fears of annihilation and depression. Annihilation because the constant threat of a Soviet nuclear attack was drummed into the populace from the day you practiced your first duck and cover drill in Kindergarten. I will never forget my second grade teacher’s warning that we should not open our eyes until she gave the all clear signal, for we would surely be blinded by the nuclear flash. The very idea that blindness would not be our biggest problem was not something a seven year old mind could wrap itself around. The second threat, unknown to a kid, but ever present in the minds of our parents and grandparents had been the 12 year world-wide annihilation of the capitalist economy known as The Great Depression. For economists and planners the biggest shock of the thirties had been the deflationary spiral. Excessive margin borrowing for stock speculation in the late 20’s led inevitably to debt liquidation as stock prices fell sharply. This in turn led to slowing of consumer purchasing. Once demand for new products dried up, prices started to fall and the Federal Reserve was unable to stimulate demand by lowering interest rates. It was “pushing on a string”.

    The almost two decades of austerity ending in 1947 unleashed a good deal of pent-up demand for consumer products, but by 1954 demand growth for both automobiles and appliances (“consumer durables”) began to flatten. That year at the conference of American advertisers in Minneapolis, Studebaker Auto’s chief designer Brooks Stevens gave a talk on how to use “planned obsolescence” to prevent another fall in demand. Heretofore products had been sold on durability and quality, and even though the British economist, Bernard London had proposed in 1932 that planned obsolescence would be the way out of the depression, it wasn’t until Stevens began touting the idea that it was embraced by American companies. What was necessary he said, was “Instilling in the buyer the desire to own something a little newer, a little better, a little sooner than is necessary.” From this point on, from Chevrolet cars to Amana refrigerators to RCA televisions the annual “model change”, introduced in September with the start of the new television season became a fact of American life. Ironically, the one American TV manufacturer, Allen Dumont, that sold his more expensive sets based on a high quality “5000 hour picture tube” was forced out of business by 1958.

    A much greater irony rests in the fact that at the same time Steven’s idea of disposable consumer durables (the irony) was being widely accepted in the U.S., the two defeated powers of World War II were rebuilding their industrial plant on a very different model. In Tokyo a young entrepreneur named Akio Morita was building the first transistor radio for a small start-up called Sony, based on licenses he had obtained from Bell Labs. From as early as the invention of radio, the U.S. and firms like RCA had always been in the forefront of consumer electronics. But now as most U.S. government R & D funding in electronics was going into the military economy, we began to cede our front rank in consumer electronics in order to concentrate on military electronics. Within 15 years, the Japanese firms would completely dominate the consumer electronics business. Not far away, Eiji Toyoda, had recently returned from a visit to Ford Motor’s River Rouge plant, convinced that his small Toyota Motor company could build cars more efficiently. He put forth to his board the outrageous idea that they sell their new Toyota Crown (left) outside of Japan, targeting Brazil and the U.S. At the same time the factories in Germany of Mercedes Benz, BMW and Volkwagen were slowly beginning to turn out cars based on a principle that they could be run for at least 150,000 miles with the original engine. So as the American manufacturing culture of durability was being hollowed out by a marketing aesthetic of disposability, our former enemies were creating a culture of quality goods that would come to have lasting appeal for publics around the world. This disparity of course would come to haunt our country to an extent unrecognized at the dawn of the cultural revolution of the 60’s.

    This cultural revolution affected the ability of all business to continue to market in the aspirational style that had been the hallmark of the consumer durable business. For those companies working with the Pentagon, it was even more problematic. Dow Chemical was no longer known as the producer of miracle fabrics, but rather of incendiary Napalm weapons, capable of searing the flesh off young Vietnamese children. It would not be until 1971, when soon to be Supreme Court Justice Lewis Powell wrote his notorious memorandum to the head of the U.S. Chamber of Commerce, that business fought back. The Powell Manifesto was a call for the Chamber and it’s allies to fund a counter revolution against the cultural and political forces of the 60’s and recapture the country for the political forces of big business.

    In an extraordinary prefiguring of the social goals of business that would be felt over the next three decades, Powell set his main goal: Changing how individuals and society think about the corporation, the government, the law, the culture, and the individual became, and would remain, a major goal of business.
    Powell’s plan of attack was for big business to fund think tanks like the American Enterprise Institute, the Heritage Foundation and others who would provide policy papers to begin the rollback of the power of unions, students, consumer and environmental groups. Of course in the intervening 25 years since America had introduced it’s planned obsolescence manufacturing system, the lure of foreign quality goods had begun to catch on. By 1975, the U.S. was running an annual merchandise trade deficit, which would never be eliminated. With the election of Ronald Reagan, a full scale war against the unions began, but at the same time new thinking at the top of many corporations began to coalesce around the idea of outsourcing manufacturing to countries with lower labor costs and little or no environmental legislation. These two factors began the wholesale deindustrialization of America.

    Of course the only industries not outsourced were the defense contractors. Eisenhower’s prescient warning of “the unwarranted influence of the military industrial complex” had come true. With factories in almost every state, military contractors had remarketed their closed bid contracts as “job programs” and legislators were eager to protect some of the few manufacturing facilities left in America.

    Reagan had convinced us by 1984 that he was presiding over “Morning in America” and for the conservatives that Lewis Powell had urged into battle, it certainly seemed that victory was at hand. All attempts to regulate business such as passing further auto mileage standards had been beaten back and even American car manufacturers were winning converts to their new SUV’s. But there was one part of the puzzle that was being ignored, even though Jimmy Carter had pointed it out during the oil embargo. The U.S. domestic oil supply had passed it’s peak and was declining even as low mileage SUV’s were burning gas at an unprecedented rate. As we will see, the combined forces of imported oil, skyrocketing military budgets, growing trade and current account deficits were powering Battleship America towards a sea of icebergs.

    The Walls Come Down
    The neoconservative narrative on the Ronald Reagan Presidency is that he raised our military spending and sent the Soviet Union into an arms race they could not afford. On their knees economically, they were forced to give up their empire. Thus the Berlin Wall came down.

    But who really brought down the Berlin Wall? I say it was not Ronald Reagan and his $800 billion military buildup, but rather a courageous Pope named John Paul II who in 1979 journeyed to his native Poland, embraced the embattled trade union leader Lech Walensa and declared,

    The future of Poland will depend on how many people are mature enough to be non-conformist…There is no need to be afraid. The frontiers must be opened. There is no imperialism in the Church, only service.
    Within weeks a million people were in the streets in support of Solidarity. He had given the Polish people the will and courage to be non-conformist, even at the risk of imprisonment. Long before Reagan was even in office, the Pope had created the conditions for freedom. It is clear that that Soviet President Gorbachev also must take some credit for pushing through the basic reforms that led to the freedoms that followed.

    It is of course one of the defining articles of faith of the conservative movement that Reagan militarily spent the Soviets into bankruptcy. But it is a Big Lie. Of course the Soviet economy was a hollowed out shell in 1989, but it also held an extrordinary number of assets including one of the world’s largest oil reserves and an well educated work force. Freed from the need to compete in an arms race, the Russians were able to turn their talents to business. Today, the Russian central bank and the Central Bank of China, our other cold war foe, now control over 20% of the U.S. Treasury debt, and we control none of theirs. Exactly who spent who into bankruptcy? As if in some epic match of “rope a dope”, our rivals, freed of the military burdens of imperialism, have allowed us to spend our selves deep into debt. Worse than just government and military profligacy, the consumer also went on a binge in the Reagan Era. The easy regulatory environment of the Republicans allowed banks to market credit cards with formerly illegal usury interest rates to almost anyone. The consumer who had maintained debt levels at near 12% of assets since the 60’s suddenly went into hock. This of course meant a declining personal savings rate (below zero for the last two years), which in turn meant the U.S. Government had to call on the more than ample savings of the rest of the world to fund its debt for military expenditures.

    It wasn’t that there weren’t people making money during the Republican reign in the 80’s. It was just a certain class of people–the richest 0.01% (chart below). I remember having a meeting at Drexel Burnham Lambert in 1986, soon after it had been revealed that Mike Milken’s take home pay for the year was $550 million. I was working for Merrill Lynch’s media mergers and acquisition group and Milken demanded we show up at 5:15 AM in their Beverly Hills office in a glassed walled conference room right off the trading floor. Milken has spread another $150 million around to his colleagues on the trading desk, so the sense of bonhomie and entitlement was pretty thick. They “owned” the junk bond market, but as Bob Dylan once said, “to live outside the law, you must be honest.” Milken went to jail and had to pay a huge fine, but he’s out now, still with billions in the bank. By “cashing out at the top”, Milken is one of those bubble players who have done well in the last 30 years of Republican rule, even if he did have to “disgorge $400 million and pay a $200 million fine, he had billions left over.

    The mid eighties were also a very profitable time, if you were a defense contractor or lobbyist. It is not the purpose of this relatively brief summation to review the elaborate rationalizations for Reagan’s defense build-up–to critique the work of Cap Weinberger, Richard Perle, Paul Wolfowitz or any of the lobbyists and intellectuals who contributed to the build up. Suffice to say, when Perle advocated unilaterally abrogating the 1972 ABM treaty so that we could begin building what was to become the Star Wars anti-ballistic missile system, he said he felt no reason to keep treaties with a barbaric people like the Soviets. As James Carroll writes in his classic , House of War,

    Perle blithely declared that the Soviet Union would willingly sacrifice twenty million of its own citizens in a nuclear war with the United States, a prediction the President had often made in after-dinner speeches as a private citizen.
    Historians have since proven that many of the claims of the Reagan administration about Soviet power were constructs of the imagination with no basis in fact. But men like Perle and Wolfowitz had been schooled in the political philosophy of Leo Strauss, the spiritual father of neo-conservatism. Deception was part of their job description.

    Not only did Strauss have few qualms about using deception in politics, he saw it as a necessity. While professing deep respect for American democracy, Strauss believed that societies should be hierarchical – divided between an elite who should lead, and the masses who should follow. But unlike fellow elitists like Plato, he was less concerned with the moral character of these leaders. According to Shadia Drury, who teaches politics at the University of Calgary, Strauss believed that “those who are fit to rule are those who realize there is no morality and that there is only one natural right – the right of the superior to rule over the inferior.”
    What should be noted is that this philosophy of deception did not end when the Berlin Wall fell. During the Bush I Gulf War both the Pentagon and Raytheon claimed that their Patriot Missle had knocked down dozens of Iraqi Scud Missiles. This of course was not true and the Patriot was so hapless the Israelis refused to take them, even when offered at no cost. Media scholars of the Gulf War claim it was but a commercial for U.S. smart bombs and of course large contractors like Raytheon were happy to sell their wares to any country. But the tradition born of Woodrow Wilson’s Committee on Public Information, honed by the early propaganda work of Walter Lippmanwas alive and well. Lippmann assumed a public that “is slow to be aroused and quickly diverted . . . and is interested only when events have been melodramatized as a conflict.” Even Bill Clinton in his campaign against George Bush for President was not above using “melodramatized evil” in his campaign advertising. “Saddam Hussein still has his job. Do You?”, intoned one ad with ominous background music.

    To study a new Democratic President arriving in office in 1992, at a time of peace is to reach into the core of our story. For if ever there was a time when our military commitments could have been cut back to give us a “peace dividend”, it would have been in 1993. The sad story of Clinton’s colossal failure to reign in the military is best encapsulated in an incident reported in House of War. Shortly after he had unveiled his “don’t ask, don’t tell” order on homosexuals in the military, Clinton visited the aircraft carrier USS Theodore Roosevelt.

    As he was piped aboard, he passed a young sailor at the head of the gangplank. The sailor pointedly declined to salute his commander in chief. Instead of rebuking such disrespect to the office of the presidency on the spot, or afterward, Clinton let the slight pass, as if it did not matter. The President’s refusal to enforce due deference to authority was a graver offense against the military ethos than the sailor’s contemptuous act, and every member of the armed forces took note.
    Whether intimidated by his own draft dodging past, or merely incapable of standing up to the generals, Clinton’s regime can be seen as an abject failure when it came to taming the military industrial complex. He took office in a recession and almost immediately had to deal with intense pressure from Congress and the military industrial complex to expand NATO. Both Reagan and Bush had made commitments to the Russians not to let the former Warsaw pact countries into NATO. As Carroll notes,

    But the Pentagon had never accepted that. Getting former Warsaw Pact members into NATO, beginning with Poland, Hungary and the Czech Republic, was less a security question, now that Russia was in decline, than an economic one, for Moscow’s former satellite nations, needing an arms buildup from scratch, represented a major new market for the Pentagon’s industrial partners. That was an argument Clinton could understand, and as a politician he saw a benefit of pleasing U.S. voters with ties to Eastern Europe.
    Needless to say defense contractors showered money on new Democratic committee chairmen and their allies, spending almost $50 million in one year to lobby for NATO expansion. The benefits of not crossing the military industrial complex could be shared by both political parties. And in the area of nuclear disarmament, Clinton ended up with a far worse record than either Reagan or Bush 1, under whom the nuclear arsenal had been cut in half. Under Clinton, partially because of his embrace of NATO expansion almost no cuts in nukes were made.

    As our story moves towards the present, we must acknowledge one insight of the Clinton administration into the problems that will confront the Bush administration after the turn of the Millennium. Treasury Secretary Rubin was well aware that running a $3 billion per day current account deficit was unsustainable. And by a combination of raised taxes and fees along with spending cuts, he was able to bring it to a surplus in the last year of the administration. This lesson in fiscal responsibility was of course lost on the idealogical tax cutters of the Bush-Cheney administration. As we will see, Eisenhower’s early warnings that “the disastrous rise of misplaced power exists and will persist” would come true in a way that perhaps only a poet of the apocalypse could have imagined. As W.B. Yeats had written in 1920,

    Things fall apart; the centre cannot hold;
    Mere anarchy is loosed upon the world,
    The blood-dimmed tide is loosed, and everywhere
    The ceremony of innocence is drowned.
    The best lack all conviction, while the worst
    Are full of passionate intensity.
    Imperial Overstretch
    In September of 2000, at the height of the Presidential election campaign, The Project for the New American Century (PNAC) released a report entitled, Rebuilding America’s Defenses. PNAC was comprised of the major neoconservatives including Don Rumsfeld, Dick Cheney, Paul Wolfowitz, Doug Feith, William Kristol, John Bolton and Richard Perle. They were not interested in letting the end of the Cold War slow down America’s military buildup.

    At present the United States faces no global rival. America’s grand strategy should aim to preserve and extend this advantageous position as far into the future as possible…At no time in history has the international security order been as conducive to American interests and ideals.The challenge for the coming century is to preserve and enhance this “American peace.”

    Underlying the failed strategic and defense reviews of the past decade is the idea that the collapse of the Soviet Union had created a “strategic pause.” In other words, until another great power challenger emerges, the United States can enjoy a respite from the demands of international leadership. Like a boxer between championship bouts, America can afford to relax and live the good life, certain that there would be enough time to shape up for the next big challenge. Thus the United States could afford to reduce its military forces, close bases overseas, halt major weapons programs and reap the financial benefits of the “peace dividend.” But as we have seen over the past decade, there has been no shortage of powers around the world who have taken the collapse of the Soviet empire as an opportunity to expand their own influence and challenge the American-led security order.

    In sum, the 1990s have been a “decade of defense neglect.” This leaves the next president of the United States with an enormous challenge: he must increase military spending to preserve American geopolitical leadership, or he must pull back from the security commitments that are the measure of America’s position as the world’s sole superpower and the final guarantee of security, democratic freedoms and individual political rights.
    This is the “Pax Americana”– laid out in stark terms. Four months later, the authors of this document took over the National Security Strategy of the United States and immediately began to implement the “American Peace”. Their formula was based around four core missions.

    •defend the American homeland;
    •fight and decisively win multiple, simultaneous major theater wars;
    •perform the “constabulary” duties associated with shaping the security environment in critical regions;
    •transform U.S. forces to exploit the “revolution in military affairs;”

    As clear as their vision was for the future of American force projection, the neoconservatives were not unrealistic about the power of domestic politics to slow down their transformational strategy. The first year of the Bush Administration met with considerable resistance both inside and outside the Pentagon to the strategy of “The Vulcans” , as Wolfowitz and Feith’s team were called. Buried deep on page 63 of the 90 page PNAC document was an acknowledgement of the need for a catalyst.

    Further, the process of transformation, even if it brings revolutionary change, is likely to be a long one, absent some catastrophic and catalyzing event – like a new Pearl Harbor.
    Conspiracy theorists have seized upon these two lines to show that Cheney and his teams knew that 9/11 was being planned and they let it happen to provide the catalyst. But it is not necessary to buy into this line of thinking to understand that the planning to overthrow Saddam Hussein had been in Wolfowitz’s head since probably 1976. Because they had studied Leo Strauss, Walter Lippman and the “manufacturing of consent”, they were well prepared to use the public’s hysterical reaction to 9/11 to move the country behind the Iraq War. Our task here is not to review the propaganda mission of the Bush Regime or its egregious strategic blunders, but rather now to turn to the economic effects of a $2 trillion “war of choice”. The effect of Bush’s Military buildup was dramatic.

    Fourteen months after the 9/11 attacks, Ben Bernanke, then a Fed Governor, gave a speech to the National Economists Club in Washington entitled, “Deflation: Making Sure “It” Doesn’t Happen Here”. The combined shocks of the Dot Com crash and 9/11 had drastically weakened demand and the Fed had studied the ten year Japanese battle with deflation as a cautionary tale. Bernanke, also a student of the punishing deflation of our Great Depression, was genuinely worried that corporations were losing all pricing power. Bernanke laid out the dangers of deflation.

    Suppose that deflation is proceeding at a clip of 10 percent per year. Then someone who borrows for a year at a nominal interest rate of zero actually faces a 10 percent real cost of funds, as the loan must be repaid in dollars whose purchasing power is 10 percent greater than that of the dollars borrowed originally. In a period of sufficiently severe deflation, the real cost of borrowing becomes prohibitive. Capital investment, purchases of new homes, and other types of spending decline accordingly, worsening the economic downturn.
    For Bernanke, this situation was a central banker’s worse nightmare, and he urged the Fed to get out ahead of this disaster by drastically cutting rates. His boss Alan Greenspan bought into the argument. Although rates were already historically low, the Fed continued to cut, ending at a 1% Fed Funds rate in June of 2003. As James Grant pointed out in the Wall Street Journal, this deliberate “reflation” of the economy had a number of effects.

    The central bank pushed the interest rate it controls, the so-called federal funds rate, all the way down to 1% and held it there for the 12 months ended June 2004. House prices levitated as mortgage underwriting standards collapsed. The credit markets went into speculative orbit, and an idea took hold. Risk, the bankers and brokers and professional investors decided, was yesteryear’s problem.
    The historically low rates in 2003 and 2004 were also very helpful for George Bush in that they made financing the Iraq War relatively cheap by historical standards. On May 15, 2003, The New York Times noted that the 10 Year T Bill had fallen to a 45 year low yield of only 3.52%. But as the war moved into its second full year and the Treasury borrowing continued to mount the once mighty dollar began to fall. From an economic point of view it was first noticed in the oil market as Mid East oil traders kept raising prices to make up for the dollar’s fall. As 2005 began the fall of the dollar accelerated. Warren Buffet disclosed he had a major short position in the dollar on global currency markets and the price of oil continued its relentless climb, especially if you were buying it with dollars. The continuing fall of the global reserve currency posed an especially tricky problem for the governments of China, Japan, Korea and Saudi Arabia. They were all selling a huge amount of goods and commodities to the U.S. and thus were taking in far more dollars than they needed for domestic uses. The Chinese and the Saudis were essentially pegging their own currencies to the dollar in order to keep prices stable and U.S. demand strong. But as the value of their dollar reserves was being marked down on a daily basis, they began to contemplate spreading their reserve holdings into Euros. But they were caught in a trap. If they sold a lot of dollars their remaining reserves would plummet, U.S. interest rates would rise rapidly and a global recession might start, thereby harming their export industries. All through 2006 they tried to avoid this problem, but by mid 2007, they had no choice. This relatively benign diversification of risk on the part of sovereign wealth funds could have easily been absorbed in a global market with oceans of liquidity, except for one problem. The four year long housing bubble was rapidly deflating.

    The world financial markets might have been able to handle the effect of yet a second bubble bursting in 6 years except for the fact that most Wall Street firms had been more profligate in their borrowing than their hapless sub-prime mortgage holders. As James Grant explains, they were leveraged to the gills.

    For every dollar of equity capital, a well-financed regional bank holds perhaps $10 in loans or securities. Wall Street’s biggest broker-dealers could hardly bear to look themselves in the mirror if they didn’t extend themselves three times further. At the end of 2007, Goldman Sachs had $26 of assets for every dollar of equity. Merrill Lynch had $32, Bear Stearns $34, Morgan Stanley $33 and Lehman Brothers $31. On average, then, about $3 in equity capital per $100 of assets. “Leverage,” as the laying-on of debt is known in the trade, is the Hamburger Helper of finance. It makes a little capital go a long way, often much farther than it safely should. Managing balance sheets as highly leveraged as Wall Street’s requires a keen eye and superb judgment. The rub is that human beings err.
    So we had the perfect storm: A U.S. Government needing to borrow $50 billion a month; a banking system needing to replace perhaps $1.2 trillion in capital losses;rapidly rising delinquencies in consumer mortgages, credit cards and auto loans. This could not end well.

    The British economist Baron Robbins wrote that “economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses.” In a sense, politics is the process by which we decide which alternatives we will dedicate our “means” to. Dick Cheney’s idea of a “Pax Americana” has brought us to this perfect storm. The chart on the left, of the 2007 discretionary budget, could not make our priorities more clear. In an era of global liquidity and easy money, we might, like the condo-flipper of 2006, have been able to avoid the hard choices between guns and butter. But the next two years and beyond will not afford us that luxury. As our country’s most important bond manager, Bill Gross has pointed out, the only exit strategy from our current economic nightmare is an old fashioned Keynesian stimulus plan.

    To provide a stable recovery path, government spending needs to fill the gap – not consumption. Public works programs, badly needed infrastructure repairs, as well as spending on research and development projects should form the heart of our path to recovery.
    But that stimulus will not be possible as long as the Military continues to hog 56% of our discretionary budget. Yesterday in Jordan, Barack Obama noted that the President must make hard choices that go beyond the responsibility of regional military commanders, including,

    “what’s adequate for our security interests, factoring in the fact that not only do we have Afghanistan, which I believe is the central front on terror, but also the fact that if we’re spending $10 billion a month over the next two, four, five years, then that’s $10 billion a month that we’re not using to rebuild the United States.”
    This is a start in the right direction, but the ultimate question of where the source of America’s power resides is yet to be addressed in the current Presidential campaign. The answer for the neoconservatives that make up John McCain’s National Security brain trust are clear. They all were members of the Project for the New American Century and the “constabulary duties” they see for American forces are endless. But a new vision of American power that resides in its economic, cultural and technological power has yet to be clearly defined by the Democrats. Perhaps a Presidential campaign is not the place to introduce America to the notion that spending more on the military than all our rivals and allies combined is folly. But at some point in the not too distant future this is a conversation we must have. I say this not because of some idealistic notion of peace, but rather from the hard bitten realism that comes to anyone who circulates in the world’s capitals. We are engaged in a global commercial competition of such scale that unless we are able to rebuild our schools, our health care system, our energy system, our transportation and digital networks we will surely become a second class power.

    In 1997 the Yale historian Paul Kennedy, author of The Rise and Fall of Great Powers wrote,

    The United States now runs the risk, so familiar to historians of the rise and fall of Great Powers, of what might be called ‘imperial overstretch’: that is to say, decision-makers in Washington must face the awkward and enduring fact that the total of the United States’s global interests and obligations is nowadays far too large for the country to be able to defend them all simultaneously.
    Saying this less than eight years after the fall of communism brought ridicule from the Conservatives then planning their return to power. How ironic that a mere ten years later it all came true. But this story does not have to end like some sad tale of Nero-like decadence at the fall of Rome. Those of us that have spent our life in business know that “creative destuction” can unleash the powers of imagination. It will be our task to imagine a way to free our country from the grip of a permanent war economy.

    It will not be easy, but it must be done.
    __________________________________________________ ______________________________________________

    This article is almost two years old, but it's still relevant to the discussion, maybe even more relevant now. The author makes this claim, and I mostly agree.

    "The Cost of Empire" is an analysis of the 30 year build-up of U.S. Defense spending. It is my contention that our current economic crisis is directly tied to our "imperial overstretch" and that only by a careful reexamination of our military commitments will we be able to emerge from the current slump. Source.
    The full article has several charts and graphs and can be viewed here:

    The Cost of Empire

    Pdf version
    |TG-X| mp40x



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  • #2
    Re: Is it Time to End America's Expensive Global Military Empire?

    As much as I think we overspend on the military the same benefits come from military spending as infrastructure spending: Stable jobs, new technologies and a pool of resources that can respond to issues. While a lot of the money spent occupying foreign lands could be better spent at home in most cases, the total of the spending is not a waste.

    My uneducated and uninformed opinion is that yes, we should reduce spending on overseas global military action for the most part and we should reduce our roles to UN involvement as part of a unified action and not unilateral action. While our actions in the middle east have supposedly solidified our oil suppliers I would prefer an economic crash that resulted in alternative power solutions being forced upon the US instead of a continued reliance on foreign suppliers in a historically unstable part of the world.
    |TG-6th|Snooggums

    Just because everyone does something does not mean that it is right to do.

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    • #3
      Re: Is it Time to End America's Expensive Global Military Empire?

      I'm cool with decreasing our role as World Police, but, please, let's not increase our participation in the corrupt United Nations.
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      • #4
        Re: Is it Time to End America's Expensive Global Military Empire?

        What do you mean by corrupt? All I'm aware of is decisions that the USA doesn't agree with, which is going to happen in any political decision making progress.
        |TG-6th|Snooggums

        Just because everyone does something does not mean that it is right to do.

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        • #5
          Re: Is it Time to End America's Expensive Global Military Empire?

          Originally posted by snooggums View Post
          As much as I think we overspend on the military the same benefits come from military spending as infrastructure spending: Stable jobs, new technologies and a pool of resources that can respond to issues. While a lot of the money spent occupying foreign lands could be better spent at home in most cases, the total of the spending is not a waste.
          If the military is creating something (such as rebuilding schools and other infrastructure) then I'd agree. But do we need people trained for combat to do that?

          Otherwise we have the broken window fallacy. We're parking resources in the form of deployment that could have been used to create something. Creating jobs is not inherently good. You might as well just put people on the dole if those jobs aren't increasing general wealth.
          Dude, seriously, WHAT handkerchief?

          snooggums' density principal: "The more dense a population, the more dense a population."

          Iliana: "You're a great friend but if we're ever chased by zombies I'm tripping you."

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          • #6
            Re: Is it Time to End America's Expensive Global Military Empire?

            Originally posted by ScratchMonkey View Post
            If the military is creating something (such as rebuilding schools and other infrastructure) then I'd agree. But do we need people trained for combat to do that?

            Otherwise we have the broken window fallacy. We're parking resources in the form of deployment that could have been used to create something. Creating jobs is not inherently good. You might as well just put people on the dole if those jobs aren't increasing general wealth.
            The US military does build a lot of infrastructure though. I am going to invent some numbers here for the sake of illustration.

            Suppose a private contractor gets paid 2 million dollars, and uses it to build four schools. Meanwhile a military division uses a $2 Million budget to build two schools and buy two tanks. If you consider the tanks to have no economic value, than the military division is definitely less efficient, but still not worthless...you did get some useful infrastructure out of them, just not as much as you could have got by routing the money through private builders.

            The real value of building them through the military outfit comes not in the schools you got, but in the potential to defend those schools against attack with the two tanks you also got. So the true efficiency of the military spending is based on the likelihood of NEEDING those tanks. Of course, the chances of needing them are higher when you don't have them than when you do, since potential attackers can usually see ahead of time whether you have tanks or not.

            Why is that military division spending half its budget on schools in the first place? I suspect that is related to the issue of upkeep and maintenance of your military force. A military force that is fully equipped but stands around not fighting anything still consumes money, even when you aren't buying any new tanks / other stuff. You've got all these trained personnel on payroll just in case they MIGHT have to fight someone, but in the mean time you might as well have them build stuff for you instead. They probably won't be quite as efficient at it as having a specially trained building force instead of a specially trained fighting force that is ALSO building, but this way if a fight shows up they can drop the building task and switch to fighting instantly. So the reduction in economic efficiency of building infrastructure with soldiers instead of builders can be considered the "true" upkeep cost of that peacetime military force.

            ------

            Regarding the article that started this thread:
            Giving up America's global military empire will lead to a dramatically different world. I am willing to consider the idea that it might be necessary anyway, especially if we decide that we simply can't afford the level of military we've been supporting the last twenty years, but the world will change in significant and unpredictable ways when that happens. I am hesitant to go that route unless absolutely necessary, due to some of the potential hard-to-predict world changes that would come with it.

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            • #7
              Re: Is it Time to End America's Expensive Global Military Empire?

              Originally posted by snooggums View Post
              What do you mean by corrupt? All I'm aware of is decisions that the USA doesn't agree with, which is going to happen in any political decision making progress.
              Are you serious?

              Oil for food program?

              Congo sex scandal?

              UN Budget Oversight/procurement?

              The United Nations has a culture of corruption that has eaten away at it's very core. It's not worth saving anymore.
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              • #8
                Re: Is it Time to End America's Expensive Global Military Empire?

                After reading this article, the main thing I took away was that the US is being sold to the highest overseas bidder. Big business is the true vilian here, driven mostly by politicians that are either getting kick backs from these same corporations or are shareholders. Also, I see a tint of anti-conservatism here. If I remember correctly, it was Obama that paid off the banks that nearly bankrupt this country. And what do we have to show for it, besides CEOs still making millions just in incentives for almost bankrupting the country?

                Just my opinion here, but we should try and get the trillions in dollars we have given in foreign aid back. Haiti, the Phillipines, Chile, Japan, Germany, Kosovo, South and more than likely North Korea, and just about any other country that has had US troops stationed or deployed to in the last 60 years. Also, lets get rid of most of the welfare. Drive through a low income housing project and see how many new or newer cars are park there. I think health care needs to be looked at as well. I dont know the specifics, but seems to be alot of insurance and medication compaines are rolling in cash, while health care is broken.

                Again, just my humble opinion.

                |TG-IRR|

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                • #9
                  Re: Is it Time to End America's Expensive Global Military Empire?

                  Let me refresh your memory.



                  and

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                  • #10
                    Re: Is it Time to End America's Expensive Global Military Empire?

                    Originally posted by CingularDuality View Post
                    Are you serious?

                    Oil for food program?

                    Congo sex scandal?

                    UN Budget Oversight/procurement?

                    The United Nations has a culture of corruption that has eaten away at it's very core. It's not worth saving anymore.
                    I was referring to military action only, per the thread topic. Yes, the 'UN' has done some horrible things like all of it's member nations have done so while it is terrible, it is not surprising that the same actions are taken on the international level as the national level.

                    I don't suppose you have a different system for international cooperation that would be less prone to exploits or just a preference to not work outside issue specific coalitions? Or do you just think that it is something that ends up too all encompassing to avoid exploitation like the examples above?
                    |TG-6th|Snooggums

                    Just because everyone does something does not mean that it is right to do.

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                    • #11
                      Re: Is it Time to End America's Expensive Global Military Empire?

                      Originally posted by snooggums View Post
                      Or do you just think that it is something that ends up too all encompassing to avoid exploitation like the examples above?
                      Yes.

                      The UN was formed in the shadow of WWII to prevent war. It's been completely successful on that front, no? I just think it was a kneejerk reaction to WWI and II, and is unnecessary. I think it does more harm than good. Adding an additional layer of bureaucracy to, well, to everything the UN is supposed to address, is just inefficient. Mix a healthy dose of corruption into the mix, and it's just a disaster!
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                      • #12
                        Re: Is it Time to End America's Expensive Global Military Empire?

                        I agree with that conclusion, and disagree on whether it is worse than not having such a group. I would prefer it was limited to only military action specific duties (ie weapons inspections, direct military peacekeeping missions and not economic pseudo peacekeeping actions) and I do want to note I didn't advocate an increase in activity with them, just a limitation on our unilateral action down to involvement with their military peacekeeping actions.
                        |TG-6th|Snooggums

                        Just because everyone does something does not mean that it is right to do.

                        Comment


                        • #13
                          Re: Is it Time to End America's Expensive Global Military Empire?

                          Something I found very interesting about the article was this point the author made.

                          Of course the Soviet economy was a hollowed out shell in 1989, but it also held an extrordinary number of assets including one of the world’s largest oil reserves and an well educated work force. Freed from the need to compete in an arms race, the Russians were able to turn their talents to business. Today, the Russian central bank and the Central Bank of China, our other cold war foe, now control over 20% of the U.S. Treasury debt, and we control none of theirs. Exactly who spent who into bankruptcy? As if in some epic match of “rope a dope”, our rivals, freed of the military burdens of imperialism, have allowed us to spend our selves deep into debt.
                          What he's saying is that Russia could not achieve success until it stopped trying to maintain an empire and compete in an arms race with the United States.

                          You have to look at the amount of money we spend on defense, it's astronomical, we spend almost as much as the entire world combined. There's something wrong with that.

                          According to Wikipedia.

                          The top 15 countries with the highest military expenditure for 2008 by Stockholm International Peace Research Institute using market exchange rates

                          1 United States 607.0 41.5
                          2 Chinaa 84.9 5.8
                          3 France 65.7 4.5
                          4 United Kingdom 65.3 4.5
                          5 Russiaa 58.6 4.0
                          6 Germany 46.8 3.2
                          7 Japan 46.3 3.2
                          8 Italy 40.6 2.8
                          9 Saudi Arabia 38.2 2.6
                          10 India 30.0 2.1
                          11 South Korea 24.2 1.7
                          12 Brazil 23.3 1.6
                          13 Canada 19.3 1.3
                          14 Spain 19.2 1.3
                          15 Australia 18.4 1.3
                          Of course it's much higher now, nearly $700 billion. We are spending the wealth our children and perpetuating debt on something that has no value to the people of the US whatsoever. This quote from President Eisenhower sums it up.

                          Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed.

                          This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities. It is two electric power plants, each serving a town of 60,000 population. It is two fine, fully equipped hospitals.

                          It is some 50 miles of concrete highway. We pay for a single fighter with a half million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people.
                          Eisenhower also had this to say about American foreign policy.

                          The way chosen by the United States was plainly marked by a few clear precepts, which govern its conduct in world affairs.

                          First: No people on earth can be held, as a people, to be enemy, for all humanity shares the common hunger for peace and fellowship and justice.

                          Second: No nation's security and well-being can be lastingly achieved in isolation but only in effective cooperation with fellow-nations.

                          Third: Any nation's right to form of government and an economic system of its own choosing is inalienable.

                          Fourth: Any nation's attempt to dictate to other nations their form of government is indefensible.

                          And fifth: A nation's hope of lasting peace cannot be firmly based upon any race in armaments but rather upon just relations and honest understanding with all other nations.
                          People used to think like this in the US, but not today.

                          The US needs to put a stop to this global militarism and reinvent itself. Sure, there's a need for a strong defense of the continental United States, but not the entire world. Bring ALL the troops home, close ALL the foreign bases, and drastically cut the defense budget - perhaps in half for starters. We must do this NOW while we still have a choice, instead of waiting until the deficits and debt force us to do it - retreat now with dignity, not later with disgrace.
                          |TG-X| mp40x



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                          • #14
                            Re: Is it Time to End America's Expensive Global Military Empire?

                            The decision will have to be forced upon us, as it was with the Soviet Union.

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                            • #15
                              Re: Is it Time to End America's Expensive Global Military Empire?

                              The U.S. is stuck in the Cold War

                              America is following security and trade policies that made sense just after World War II, but are disastrous now

                              What does America's deepening war in Afghanistan have to do with the American trade deficit? Answer: Both are the results of Cold War policies that made sense at one time but are now harmful to the United States.

                              During World War II, the Roosevelt administration planned for a postwar world in which the wartime cooperation of the Big Three -- the United States, Britain and the Soviet Union -- would continue indefinitely. The Bretton Woods system was designed to allow countries to pursue domestic policies of full employment and to avert the kind of trade wars and beggar-thy-neighbor currency revaluations that had wrecked the global economy in the interwar years.

                              But the Cold War divided much of the world between rival blocs, symbolized by the division of four countries -- Germany, China, Korea and Vietnam -- into communist and non-communist states.

                              During and after the Korean War, the U.S. rebuilt its military and stationed troops along "tripwires" from Central Europe to East Asia. The U.S. encouraged the formation of the European Common Market (now the European Union) in part to provide the West Germans with markets. In Asia, Mao Zedong's victory in China cut off Japan's China market, so the U.S. offered the American market to Japanese exporters, which initially were not considered a threat to American businesses.

                              Thus began the Grand Bargain at the heart of U.S. Cold War strategy toward West Germany and Japan, the "markets-for-bases" swap. In return for giving up an independent foreign policy to their protector, the United States, the West Germans and Japanese would be granted access to American markets (and, in the case of the Germans, access to Western European markets).

                              By the 1970s, it was clear that the markets-for-bases swap was a better deal for West Germany and Japan than for the U.S. They recovered from the devastation of World War II and won growing shares of global markets in automobiles and, in the case of Japan, consumer electronics.

                              Japan did so by boldly unfair "mercantilist" measures, like non-tariff barriers that kept U.S. imports out of Japan, and interlocking corporate ownership patterns that froze American and other foreign investors out of Japanese multinationals. When American manufacturers complained about this double standard, however, the Pentagon and State Department warned that to crack down on unfair Japanese trade practices would endanger the markets-for-bases swap at the heart of Cold War strategy.

                              The markets-for-bases deal should have been scrapped when the Cold War ended and there was no longer any need to favor American allies with one-way trade privileges in return for their support of U.S. military objectives in their regions. Unfortunately, the Cold War lasted long enough for two completely separate American foreign policy establishments -- the security establishment and the economic establishment -- to develop and take separate paths.

                              The American security establishment, dominating both parties, wanted the U.S. to expand its overseas commitments after the Cold War, not reduce them. Under both Clinton and Bush the U.S. expanded NATO to the borders of the Soviet Union, consolidated America's position as the hegemon of the Persian Gulf, maintained America's bases in Japan and South Korea, and encircled China and Russia with new bases in Central Asia, whose strategic usefulness was not limited to the war against a small number of jihadists.

                              Meanwhile, in a different part of the building, the economic establishment was living in a fantasy world, ignoring the markets-for-bases swap and pretending that every country in the world believed in Chicago School free-market fundamentalism. A version of the markets-for-bases deal was extended to China, which, it was hoped, would acquiesce in U.S. military hegemony in its own neighborhood, in return for unlimited access to American consumers.

                              George W. Bush made the deal explicit in his 2002 West Point address: "America has, and intends to keep, military strengths beyond challenge -- thereby making the destabilizing arms races of other eras pointless and limiting rivalries to trade other pursuits of peace." U.S. to other great powers: We make wars, you make cars.

                              China, like West Germany (now Germany) and Japan before it, took the U.S. up on the offer. In seeking to persuade multinationals to close down production in the U.S. and make things in China, the Chinese government cheated in various ways, confident perhaps that the U.S. foreign policy establishment, invoking diplomatic and national-security considerations, would intervene on its behalf against American manufacturers and workers. Like postwar Japan and Germany, China has accepted the terms of the bargain America's elites offered, focusing on economic growth while the U.S. wasted blood and treasure on wars in Iraq and Afghanistan.

                              But now the markets-for-bases deal has broken down, because American consumers are tapped out. The bargain nearly broke down in the 1990s, when a Japanese-American trade war was averted only by the economic collapse of Japan.

                              In the 2000s, debt-fueled consumption in the U.S. kept the system going for a while. China kept its currency low by using its huge dollar surpluses to buy U.S. federal debt, thereby keeping interest rates low and allowing Americans to borrow to pay for Chinese imports. But like all Ponzi schemes, this collapsed, leaving China with overbuilt export capacity and not enough customers either in the U.S. or at home, where the consumption of the Chinese people has been ruthlessly suppressed.

                              A similar Ponzi scheme has broken down in Europe, where Germany ran perpetual trade surpluses with the other EU nations, in the way that first Japan and then China have run perpetual surpluses with the U.S.

                              For half a century America's economic establishment, turning a blind eye to Asia's crude and Germany's subtle mercantilism, pretended that American protectionism was the greatest threat to the world economy. It is gradually dawning even on former free-trade fundamentalists that you cannot have a liberal global trading system in which three of the four largest industrial capitalist countries -- China, Japan and Germany -- pursue policies that permit them to enjoy perpetual trade surpluses, which require perpetual trade deficits by the U.S. and other countries.

                              Meanwhile, the security half of America's global strategy is headed for a crash as well. Since the end of the Cold War, the U.S. has mindlessly sought to fill every power vacuum from the Balkans to the Persian Gulf to Central Asia, while spending far less on the military than it did in the Cold War. The U.S. has gone into debt to finance the Iraq and Afghan wars. You don't have to be a grand strategist to figure out that extending territorial commitments without commensurately expanding funding and troop levels is a formula for strategic and perhaps national bankruptcy.

                              By declaring that the new deficit commission would not consider any cuts in military spending, only in entitlement spending, President Obama reflected the preferences of America's policy elite. Its members would gladly cut Social Security and Medicare in order to pay for bases and "nation-building" abroad. In the same way, for half a century, America's foreign-policy elite tolerated the targeted deindustrialization of America by Asian mercantilist states, as long as those countries did not challenge America's global military hegemony.

                              There are signs, however, that the American people and their representatives in Congress, if not the White House, are ready to reject a Cold War system under which the U.S. gives away its industries while wasting taxes and the lives of its soldiers on quixotic crusades in the lands of the former British empire.

                              Members of Congress are threatening to use tariffs to punish China for its unfair currency manipulation policies if the Obama administration does not name China as a currency manipulator on April 15. And while the public has acquiesced in escalation of the war in Afghanistan, if the choice comes down to balancing the budget by slashing the Pentagon or slashing Social Security, it is not clear that the Pentagon will win. After all, massive post-Cold War cuts in Pentagon spending, along with tax revenues raised by the tech stock bubble, permitted the budget to be balanced under Clinton.

                              For the time being, however, America's out-of-touch foreign policy establishment continues to favor the policy of expanding America's geopolitical frontiers while allowing our self-interested industrial rivals to hollow out the American economy. Policies that made sense in the early years of the Cold War emergency continue to be followed out of inertia, when their original strategic rationale has long since vanished. In the words of the philosopher George Santayana, "Fanaticism consists in redoubling your effort when you have forgotten your aim."
                              |TG-X| mp40x



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