Tag Archives: debt

U.S. defense budget is too high, experts say

By CATHERINE NGAI
WASHINGTON – In the 2010 fiscal year, the United States allotted $663.8 billion for defense, a number that some analysts deemed too high. Amid the nation’s budget deficit and national debt problems, some argue that cutting back on the 2011 defense budget request proposal of $708 billion is the only way to help the economy in the future.

“It’s very important, when it comes to discretionary spending, that we look at everything,” said Laicie Olson, senior policy analyst at the Center for Arms Control and Non-Proliferation, a non-profit and non-partisan research organization based in Washington, DC, in an interview. “The military makes up 55 percent of discretionary spending. It’s a giant chunk. We have to consider it if we can make any headway.”

The defense budget is broken down by specific sections such as military personnel funding, operations and maintenance, procurement as well as research, development, test and evaluation. However, the budget is also broken into another category called discretionary spending.

 
Defined as the amount of federal money that the government is not obligated to make, discretionary spending is negotiated between Congress and the President. The defense budget is under this discretionary spending. Non-discretionary items are obligatory and include social security and Medicare.

In 2004, President George Bush was criticized after he incorrectly stated during an interview with NBC that annual federal discretionary spending slowed since he took office. This amount is heavily criticized because it affects the budget the most since it’s not an obligatory expense.

According to statistics from the World Bank, military spending made up approximately 4.6 percent of the U.S. gross domestic product in 2009. Although defense spending is only a small percentage of the total GDP, some analysts see it in a different context.

“If you eliminated all military spending, you would reduce the budget enough [to helps stabilize the economy],” said Kevin Stevens, Director of the School of Accountancy and Management Information Systems at DePaul University in Chicago, in an interview. “The question is how much of a multiplier would you get off of reducing military spending.”

Stevens says it is important to consider the ‘opportunity cost’ of military spending compared to spending in another sector, such as education. He says at DePaul University, the annual budget is approximately $500 million for a student population of 26,000.

“When you look at the budget, where do you get the bigger bang for your buck?” Stevens said.

Military spending has increased quickly over the years. With its spike after 9/11, this number has grown steadily. According to data from the Center for Arms Control and Non-Proliferation, the defense budget grew from $432 billion in 2001 to $720 billion in 2011, an increase of approximately 67 percent.

The New York Times reported in an article Wednesday that a group of budget experts and politicians called for a reduction in military spending to help with the budget deficit. The plan proposed includes a five-year freeze on Pentagon spending and was led by former Senator Pete V. Domenici of New Mexico and former budget director Alice M. Rivlin.

Some think that this surge was caused by a lack of direction.

“We started with the US entry into Iraq and Afghanistan,” said Olson, who focuses on weapons proliferation, military spending and global security. “As years have gone on, we lost focus. We have lost a sense of what direction we are getting into. We are trying to prepare for wars, any potential wars in Iraq or Afghanistan. At the same time, we are preparing for large scale conventional wars, like the world wars. We are all over the board.”

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Why the U.S. outspends the world on defense

By CATHERINE NGAI
WASHINGTON – Evan Siff comes from a military family. His great grandfather was a general, his grandfather was in the navy and so was his father. For Siff, staying close to that tradition was second nature.

But, he chose the academic route and pursued an MA in International Relations at Durham University in England. In his dissertation, he examined NATO as an instrument of U.S. foreign policy, and how that relates to US military spending.

If you ask him what he learned as a result of the degree, his answer will be unorthodox.

“When I was writing my thesis, I really examined why NATO didn’t go away. The fall of the USSR made it obsolete,” Siff said. “I found out some things that didn’t help my outlook on things at all…I had gotten pretty cynical. The more you study, you more you will realize how much lobbyists actually determine legislation in the U.S.”

And while most of his fellow-classmates moved into government jobs, Siff chose to work in public relations at Topaz Partners, a Boston-area technology PR firm, because he was disappointed in how “political” the military had become, especially when the U.S. is pouring millions and billions of dollars into two wars that seem too expensive. (Continued below graphic)

In U.S. Dollars. Source: Stockholm International Peace Research Institute
Graphic by Catherine Ngai

The current U.S. defense budget proposal of $708 billion for fiscal 2011, a 6.7 percent increase from the year prior of $663.8 billion. According to the Stockholm International Peace and Research Institute, this number surpasses defense spending in the next 10 countries combined. Some question why this number is so big and whether reducing it would help lower the nation’s budget deficit.

“The US military is the pillar upon which the stability and safety of the international system rests,” said Daniel Goure, vice president of the Lexington Institute, a libertarian think tank based in Arlington, VA, in an interview. “It’s not in our interests to see the Middle East exploding into war or to see South Korea overrun by North Korea.”

Goure says that although the U.S. military budget is large, it acts as an international defense mechanism. He argues that the U.S. uses its military to keep peace internationally.

He also points out that if the entire defense budget were cut to zero, it would further exacerbate the debt situation instead of alleviating it. He reasons that eliminating the defense budget would mean firing the nearly 1.4 million men and women on active duty and the another 1 million in the Reserves and the National Guard. This would mean increasing the already high unemployment rate.

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U.S. debt a national security threat?

As of this month, the federal debt stands at more than $13 trillion, or about 90 percent of annual Gross Domestic Product.

Let’s do the math. If you had been alive since Jesus was born and spent a million dollars every day, you wouldn’t have spent $1 trillion dollars, never mind $13 trillion. That’s according to calculation by Kevin Williamson of the National Review.

Why is the burgeoning debt a security threat? In addition to hindering economic growth, a 90 percent threshold of government debt relative to G.D.P. will make it extremely difficult for the U.S. government to make debt-service payments to its creditors, including governments around the world.

If its creditors in Asia and the Middle East doubt Washington’s ability to pay back interest on treasuries, they may stop purchasing US-backed securities, experts warn. They might even demand higher interest rates. Both will impede the federal government from doing its job, including protecting the country’s security.

As of last month, a quarter of the country’s debt is in the hands of foreign governments, nearly double the ratio in 1988 at 13 percent. Of that amount, China holds 23 percent, followed by Japan with a little more than 20 percent.

“I think the biggest threat we have to our national security is our debt,” said Adm. Mike Mullen, Chairman of the Joint Chiefs of Staff, during a “Tribute to the Troops” breakfast in Washington last month.

House Democratic Majority Leader Rep. Steny Hoyer, D-Md., said, “It is time to stop talking about fiscal discipline and national security threats as if they’re separate topics.” His comments came during a speech to the Center for Strategic and International Studies in June.

Hoyer phrased the whopping dollar amount as “unsustainable,” and mentioned how financial dependence has toppled other superpowers.

David Walker, the former Comptroller General and current President of the Peter G. Peterson Foundation, said Washington’s financial dependence on foreign loans affects its policy towards its lenders. “One of the reasons American tax payers now guarantee $5 trillion in Fannie Mae and Freddie Mac debt is because the Japanese and the Chinese demanded it,” said Walker during an interview with Politics Daily earlier this year.

Walker added, it’s likely that “China will say, ‘We’re not going to lend you money unless you pay us higher interest rates.’”

While that is a possibility, the Basel, Switzerland-based Bank for International Settlement reported that that is highly improbable for public sector investors, i.e. governments. The global institution caters only to central banks and international organization, with the aim of fostering cooperation within the world financial system.

Doug Bandow, a senior fellow at the Cato Institute agrees. The specialist in foreign policy and civil liberties said that asking for a higher interest rate, and thus putting the U.S. economy in danger, will be a “self-destructive move” by Beijing. “The Chinese government knows the importance of a vibrant American economy, China’s biggest market.”

Similar confidence in financial stability in the future is also reflected in a briefing paper published on July 26 by the Economic Policy Institute, a non-partisan, non-profit think tank. John Irons and Josh Bivens wrote the fact that interest rates of U.S. treasuries are at historic lows reflects that there is still demand by global investors.”

While there is no immediate threat to national security, the defense chief, Mullen, is urging sharp cuts in expensive programs. His department spends $700 billion a year, the biggest part of the federal budget. That’s as much on defense as the rest of the world’s combined.

The largest program right now is the F-35 Joint Strike Fighter, funded at a level of $11.5 billion in next year’s budget request.  The aircraft carrier replacement program receives $2.7 billion in annual funding, the DDG-51 Destroyer gets $3.0 billion, and Space-Based Infrared System receives $1.5 billion.

Todd Harrison, Senior Fellow for Defense Budget Studies at Center for Strategic and Budgetary Assessments said it is time for an overhaul. “It would be a mistake to simply downsize the military such that in a few years it looks essentially like a smaller version of the force we have today. ” Harrison added, “We should use this as an opportunity to make some strategic decisions about what missions and capabilities our military no longer needs to support.” Harrison concluded that targeted cuts that reshape the force could actually be a benefit in the long run.

Despite worries that the burgeoning debt might put the U.S. government in vulnerable position, many experts claim its influence on world economy is too large for any one of its creditors to want to destabilize. And with the defense department showing unprecedented efforts to downsize, the rate of government spending will likely slow down.

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