The Military-Industrial Complex is Ruining the Economy → Washingtons Blog
The Military-Industrial Complex is Ruining the Economy - Washingtons Blog

Saturday, January 9, 2010

The Military-Industrial Complex is Ruining the Economy

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, 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.

Even the top American military and intelligence officials say that debt is the main threat to our country's national security.

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. [120]

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.
And this shows military versus non-military durable goods shipments:

[Click here to view full image.]

So we're running up our debt (which will eventually decrease economic growth), but the only jobs we're creating are military and other public sector jobs.

PhD economist Dean Baker points out that America's massive military spending on unnecessary and unpopular wars lowers economic growth and increases unemployment:
Defense spending means that the government is pulling away resources from the uses determined by the market and instead using them to buy weapons and supplies and to pay for soldiers and other military personnel. In standard economic models, defense spending is a direct drain on the economy, reducing efficiency, slowing growth and costing jobs.
A few years ago, the Center for Economic and Policy Research commissioned Global Insight, one of the leading economic modeling firms, to project the impact of a sustained increase in defense spending equal to 1.0 percentage point of GDP. This was roughly equal to the cost of the Iraq War.

Global Insight’s model projected that after 20 years the economy would be about 0.6 percentage points smaller as a result of the additional defense spending. Slower growth would imply a loss of almost 700,000 jobs compared to a situation in which defense spending had not been increased. Construction and manufacturing were especially big job losers in the projections, losing 210,000 and 90,000 jobs, respectively.

The scenario we asked Global Insight [recognized as the most consistently accurate forecasting company in the world] to model turned out to have vastly underestimated the increase in defense spending associated with current policy. In the most recent quarter, defense spending was equal to 5.6 percent of GDP. By comparison, before the September 11th attacks, the Congressional Budget Office projected that defense spending in 2009 would be equal to just 2.4 percent of GDP. Our post-September 11th build-up was equal to 3.2 percentage points of GDP compared to the pre-attack baseline. This means that the Global Insight projections of job loss are far too low...

The projected job loss from this increase in defense spending would be close to 2 million. In other words, the standard economic models that project job loss from efforts to stem global warming also project that the increase in defense spending since 2000 will cost the economy close to 2 million jobs in the long run.
The Political Economy Research Institute at the University of Massachusetts, Amherst has also shown that non-military spending creates more jobs than military spending.

So we're running up our debt - which will eventually decrease economic growth - and creating many fewer jobs than if we spent the money on non-military purposes.

But the War on Terror is Urgent for Our National Security, Isn't It?

For those who still think that the Iraq and Afghanistan wars are necessary to fight terrorism, remember that a leading advisor to the U.S. military - the very hawkish and pro-war Rand Corporation - released a study in 2008 called "How Terrorist Groups End: Lessons for Countering al Qa'ida".

The report confirms that the war on terror is actually weakening national security. As a press release about the study states:

"Terrorists should be perceived and described as criminals, not holy warriors, and our analysis suggests that there is no battlefield solution to terrorism."

Former U.S. National Security Adviser Zbigniew Brzezinski told the Senate that the war on terror is "a mythical historical narrative". And Newsweek has now admitted that the war on terror is wholly unnecessary.

In fact, starting right after 9/11 -- at the latest -- the goal has always been to create "regime change" and instability in Iraq, Iran, Syria, Libya, Sudan, Somalia and Lebanon; the goal was never really to destroy Al Qaeda. As American reporter Gareth Porter writes in Asia Times:
Three weeks after the September 11, 2001, terror attacks, former US defense secretary Donald Rumsfeld established an official military objective of not only removing the Saddam Hussein regime by force but overturning the regime in Iran, as well as in Syria and four other countries in the Middle East, according to a document quoted extensively in then-under secretary of defense for policy Douglas Feith's recently published account of the Iraq war decisions. Feith's account further indicates that this aggressive aim of remaking the map of the Middle East by military force and the threat of force was supported explicitly by the country's top military leaders.
Feith's book, War and Decision, released last month, provides excerpts of the paper Rumsfeld sent to President George W Bush on September 30, 2001, calling for the administration to focus not on taking down Osama bin Laden's al-Qaeda network but on the aim of establishing "new regimes" in a series of states...
General Wesley Clark, who commanded the North Atlantic Treaty Organization bombing campaign in the Kosovo war, recalls in his 2003 book Winning Modern Wars being told by a friend in the Pentagon in November 2001 that the list of states that Rumsfeld and deputy secretary of defense Paul Wolfowitz wanted to take down included Iraq, Iran, Syria, Libya, Sudan and Somalia [and Lebanon].
When this writer asked Feith . . . which of the six regimes on the Clark list were included in the Rumsfeld paper, he replied, "All of them."
The Defense Department guidance document made it clear that US military aims in regard to those states would go well beyond any ties to terrorism. The document said the Defense Department would also seek to isolate and weaken those states and to "disrupt, damage or destroy" their military capacities - not necessarily limited to weapons of mass destruction (WMD)...
Rumsfeld's paper was given to the White House only two weeks after Bush had approved a US military operation in Afghanistan directed against bin Laden and the Taliban regime. Despite that decision, Rumsfeld's proposal called explicitly for postponing indefinitely US airstrikes and the use of ground forces in support of the anti-Taliban Northern Alliance in order to try to catch bin Laden.
Instead, the Rumsfeld paper argued that the US should target states that had supported anti-Israel forces such as Hezbollah and Hamas.
After the bombing of two US embassies in East Africa [in 1998] by al-Qaeda operatives, State Department counter-terrorism official Michael Sheehan proposed supporting the anti-Taliban Northern Alliance in Afghanistan against bin Laden's sponsor, the Taliban regime. However, senior US military leaders "refused to consider it", according to a 2004 account by Richard H Shultz, Junior, a military specialist at Tufts University.
A senior officer on the Joint Staff told State Department counter-terrorism director Sheehan he had heard terrorist strikes characterized more than once by colleagues as a "small price to pay for being a superpower".
If you still believe that the war on terror is necessary, please read this.

Torture is Bad for the Economy

For those who still think torture is a necessary evil, you might be interested to learn that top experts in interrogation say that, actually:

Indeed, historians tell us that torture has been used throughout history - not to gain information - but as a form of intimidation, to terrorize people into obedience. In other words, at its core, torture is a form of terrorism.

Moreover, the type of torture used by the U.S. in the last 10 years is of a special type. Senator Levin revealed that the the U.S. used torture techniques aimed at extracting false confessions.

McClatchy subsequently filled in some of the details:

Former senior U.S. intelligence official familiar with the interrogation issue said that Cheney and former Defense Secretary Donald H. Rumsfeld demanded that the interrogators find evidence of al Qaida-Iraq collaboration...

For most of 2002 and into 2003, Cheney and Rumsfeld, especially, were also demanding proof of the links between al Qaida and Iraq that (former Iraqi exile leader Ahmed) Chalabi and others had told them were there."

It was during this period that CIA interrogators waterboarded two alleged top al Qaida detainees repeatedly — Abu Zubaydah at least 83 times in August 2002 and Khalid Sheik Muhammed 183 times in March 2003 — according to a newly released Justice Department document...

When people kept coming up empty, they were told by Cheney's and Rumsfeld's people to push harder," he continued."Cheney's and Rumsfeld's people were told repeatedly, by CIA . . . and by others, that there wasn't any reliable intelligence that pointed to operational ties between bin Laden and Saddam . . .

A former U.S. Army psychiatrist, Maj. Charles Burney, told Army investigators in 2006 that interrogators at the Guantanamo Bay, Cuba, detention facility were under "pressure" to produce evidence of ties between al Qaida and Iraq.

"While we were there a large part of the time we were focused on trying to establish a link between al Qaida and Iraq and we were not successful in establishing a link between al Qaida and Iraq," Burney told staff of the Army Inspector General. "The more frustrated people got in not being able to establish that link . . . there was more and more pressure to resort to measures that might produce more immediate results."

"I think it's obvious that the administration was scrambling then to try to find a connection, a link (between al Qaida and Iraq)," [Senator] Levin said in a conference call with reporters. "They made out links where they didn't exist."

Levin recalled Cheney's assertions that a senior Iraqi intelligence officer had met Mohammad Atta, the leader of the 9/11 hijackers, in the Czech Republic capital of Prague just months before the attacks on the World Trade Center and the Pentagon.

The FBI and CIA found that no such meeting occurred.

In other words, top Bush administration officials not only knowingly lied about a non-existent connection between Al Qaida and Iraq, but they pushed and insisted that interrogators use special torture methods aimed at extracting false confessions to attempt to create such a false linkage. See also this and this.

Paul Krugman eloquently summarized the truth about the type of torture used:

Let’s say this slowly: the Bush administration wanted to use 9/11 as a pretext to invade Iraq, even though Iraq had nothing to do with 9/11. So it tortured people to make them confess to the nonexistent link.

There’s a word for this: it’s evil.
But since this essay in on dollars and cents, the important point is that terrorism is bad for the economy.

Specifically, a study by Harvard and the National Bureau of Economic Research (NBER) points out:
From an economic standpoint, terrorism has been described to have four main effects (see, e.g., US Congress, Joint Economic Committee, 2002). First, the capital stock (human and physical) of a country is reduced as a result of terrorist attacks. Second, the terrorist threat induces higher levels of uncertainty. Third, terrorism promotes increases in counter-terrorism expenditures, drawing resources from productive sectors for use in security. Fourth, terrorism is known to affect negatively specific industries such as tourism.
The Harvard/NBER concludes:
In accordance with the predictions of the model, higher levels of terrorist risks are associated with lower levels of net foreign direct investment positions, even after controlling for other types of country risks. On average, a standard deviation increase in the terrorist risk is associated with a fall in the net foreign direct investment position of about 5 percent of GDP.
So the more unnecessary wars American launches, the more innocent civilians we kill, and the more people we torture, the less foreign investment in America, the more destruction to our capital stock, the higher the level of uncertainty, the more counter-terrorism expenditures and the less expenditures in more productive sectors, and the greater the hit to tourism and some other industries.

Terrorism has contributed to a decline in the global economy (for example, European Commission, 2001).
So military adventurism and torture, which increase terrorism, hurt the world economy. And see this.

For the foregoing reasons, the military-industrial complex is ruining the economy.


  1. Excellent post sir... great research done on this subject.
    Progressive radio talk show host Thom Hartmann often comments on this topic as well on his show and after reading this, I like the fact this is getting out into the public via the web and radio.
    Now we just need to see the MSM do the same on television and radio, but that likely won't happen as they are corporate controlled.
    Keep up the great work on your site.

  2. Best article on this subject I have read for a long time.

  3. Well said sir. The american mentality wants to turn any social crusade into a military campaign. Sometimes I think the worst thing to happen to the US was to win WW II. It locked us into mil-mode. as Eisenhower saw all too well. Bush as president when 9/11 happened is the other national tragedy. W made sure we played just the game that Bin Laden predicted. What a waste.

    oh yes, and death to amerika

  4. Perfectly right.

    I just want to point out the earlier similar is Germany in the WW II. The US did with the Germans the same as they did with Iraq and Afagnisthan and a lot of other countries. There are remarkable parallels between the Iraq war and the war against Germany. WW II was perfectly set up, those criminals have posted Hitler and supported him by all means to keep him in the power. Provocated him all around and the idiot went into the trap needed for the US to go into the war with Germany.

    They got away with it, got celebrated as liberators and since they do it again and again. Iraq, Afganisthan, but there is a long chain of other wars...

    What they care last for are people, not even at home.

  5. People love to believe in fairy tales and the 911 commission report is just that. If your believe that then you would believe unicorns. But American haven't sit down and actually read the report are go over all the eye witness accounts and Bush and Cheney and Rumsfeld stumbling over there lying statements. Out of the 19 terrorist 5 of them are still alive. No black boxes from the planes they were vaporized, but two passports made it out of the inferno to be found among the millions of papers two days after the false flag attack. Phone calls being made from cell phone at high altitude, nano thermite found in dust from the towers. I can go on forever and ever. Wake up people you are living a lie! The hammer is about to fall on America!

  6. It is in some ways ironic that America should mire itself in potentially critical debt attempting to wipe out a foreign guerrilla resistance.

    We won our independence from England relying heavily on guerrilla tactics. They work. If the technology for IEDs had existed at the time, it's not a stretch to imagine they might have been used in the War for American Independence.

    You win a war on terrorism with better policing and security awareness and border control in your homeland, and by killing with kindness. You lose a war on terrorism when you kill or torture innocents.

  7. This is a great, great post with lots of really important links. I need to bookmark several of these. Thanks so much for enlightening all of us!

  8. if you win a war on terrorism by doing those things,(with better policing and security awareness and border control in your homeland),why after 50 years and all that Isreal does have they not won, that is a stupid comment, people would have this country pull back inside our borders till the rest of the world closes in just outside the 3 mile limit, then what you fools?

  9. I have long wondered why the US policy in the WOT has been so ham-fisted, but after reading this it seems clear that it is designed to provoke countries into attacking the US to give us an excuse to occupy and institute a regime change (and scoop up any valuable resource rights in the process).

    Even if this scheme does work, it is amazing to me that the architects apparently do not think there will be bad enough blowback to stop this insanity.

  10. We have been at these wars for 9 years now. Has the economy improved in that period of time. No is the obvious answer and no more than was to be expected in pushing at least a third of the budget into hardware and munitions and we have won WHAT? The most bang you get for the buck with military spending is 1:1 so you will not get much of a boost for the general economy out of military spending.

    Meantime we are destroying our own military by running the reserve troops into the ground, destroying their families, their jobs, their lives with repeated deployments, stop loss orders and in way too many cases piss poor treatment when they get out.

    My personal shame of having once been a part of a military that now tortures it's prisoners and bends the laws to say it's legal and it works will never be fixed. Now , even though he promised to and said he ended torture we now read that he has not. Two very trusted reporters have said that torture is still going on and it turns out to be true , Obama is toast in my book.

    A side note, while were blowing all this money on the military my old submarine force will be running with way too few boats for the next 30 years . Deployments of normal duration (6 months) will now be extended to 7 months and no doubt with less inport time in-between deployments. Gee, could it be the $400 per gallon gasoline were burning in Afghanistan.

  11. This post is true.

    These events were forecast by our forefathers who realized the effects of war on a free people.

  12. When I read this I was constantly reminded of my history lessons about ancient Greece and Rome. In both cases they began to convert their economies to war economies, and this was followed by the decline of economic output which led to end of their positions as world powers.

    When war is used as a defense it is relatively brief. When war is used for domination (with the excuse being defense), war also takes up a primary and dominant position in the economy as well. A war based economy is both intractable and unsustainable. A war based economy is permanent and causes the inevitable decline of the country due to the increasingly parasitic grip on the economy.

  13. Excellent essay.

    When we compare this to the military response to Haiti it becomes an interesting case of governmental schitozophrenia which is also alarming.

    Perhaps if we treat the warmongerism as a disease rather than a moral problem we will be more effective?

  14. Let me offer two actual apples to apples comparisons amongst this mish mash of unrelated information. So let's look at military expenditures as a percentage of GDP, the only legitimate way to draw conclusions about what is an appropriate level of military expenditure.

    1. Historical military spending as a percentage of GDP. From 1962-2007, the average was 5.5%. During the height of the Viet Nam war the figure was 9.5%. And what is the ratio now? It's now 4%. OMG!

    2. Military spending as a percentage of GDP ranked by country. In the CIA Factbook, an analysis of 173 countries shows that the U.S. places 28th, just a bit LESS than China (26th) and a bit more than Russia (30th). The leading militarized countries are, not surprisingly, all in the Middle East. In fact, El Salvador is more heavily militarized than the U.S. Hah!

    So it's crystal clear the U.S. does not spend more than the higher average country on it's military forces. Of course, a country by country comparison does not include responsibilities other countries do not have, including defense of free riding Europe and being the first responder to international disaster assistance incidents.

    Now, all that has been addressed here is the false characterization of military expenditures in this blog post. There are plenty of additional military issues, i.e. when and under what circumstances forces should be based and used overseas.

    Your humble commenter's opinion is that the U.S. has not actually dealt with the lingering commitments that arose from "collective security" treaties from the Cold War. We no longer have the existential threat of communism. Thus, all of these treaties should be renegotiated or cancelled. The U.S., as a major player in global commerce, cannot fail to participate in decision making and execution of actions aimed a protecting the freedom to trade. But all a priori promises must end.

  15. By far one of the best contributions as why modern american foreign policy is the beginning of the end!!

  16. Laura Eisenhower: Unity consciousness will collapse military-industrial complex

  17. It seems like the Al Queda has succeeded after all. Their aim was to weaken the US and the US has taken the bait.


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