Chinese Billionaire Jack Ma has some advice for the US government: If the US is so concerned about industry and jobs, it should try starting fewer wars and spending trillions of dollars on them. Ma spoke at the World Economic Forum in Davos last week, saying:
By: Ryan McMaken
This article first appeared at Mises.org
“In the past 30 years, America has had 13 wars at a cost of US$14.2 trillion.” So what if the US “had spent part of that money on building up their infrastructure, helping white-collar and blue-collar workers? You’re supposed to spend money on your own people. It’s not that other countries steal American jobs. It is your strategy – that you did not distribute the money in a proper way.”
Ma is taking a fairly typical left-center line here, and he seems to think — mistakenly — that government spending can produce economic growth.
Nevertheless, Ma has a point.
There are bad ways to spend government money, and there are worse ways to spend it. In recent decades, the US has been largely committed to spending trillions on those worse ways. In terms of foreign policy, the US has spent trillions on overthrowing secularist governments in Iraq and Libya to clear the way for al-Qaeda aligned terrorists. The US has been trying to do the same in Syria.
Meanwhile, the Pentagon doesn’t know what happened to more than six trillion dollars spent in recent years. And, the Pentagon’s own report admits the Pentagon wasted $125 billion (more than one-sixth of an entire year’s budget) in “administrative waste.” And that’s just the tip of the iceberg. As the Fiscal Times notes, “The Pentagon has never completed an audit of how they actually spend the trillions of dollars on wars, equipment, personnel, housing, healthcare and procurements.”
So, Jack Ma may be on to something. If you must blow several trillion dollars — and not even keep the receipts — you could at least spend some of that on something the taxpayers might be able to use — like a bridge or a hospital.
The Myth of the Military’s Decline
If you’re John McCain, however, the Pentagon’s rampant waste should be rewarded with even greater spending. In recent weeks, McCain has been playing up the time-worn narrative that the US military budgets have been cut to the bone by the Obama administration. Never mind, of course, that in inflation-adjusted terms, the US is spending more now than under Reagan.
Although defense spending has been falling since 2010, it remains in real terms well above where it was in the 1980s, back when the CIA was telling us how the Soviet Union was an economic powerhouse.
Unfortunately, in his effort to raise military spending above even the all-time highs, McCain may gain some traction with the Trump administration, because Trump himself has called for even more military spending.
Among Trump’s pet projects, it seems, is his call for big increases in spending on the Navy and other forces that are allegedly in decline. Back in September, Trump was already calling for a major military buildup in both personnel and naval equipment.
Trump has also bought into the myth that the US military is in decline, but it’s not hard to see why. Advocates for more government spending on the military have been bemoaning the state of the military — and the Navy in particular — for many years. In 2007, neoconservative Robert Kagan claimed the US was in danger of losing its position as Naval hegemon and was in a state of “elegant decline.” Kagan’s “evidence” of this was so imaginary, however, that International Relations scholar Robert Farley concluded “Unfortunately, since no actual evidence of U.S. naval decline exists, Kaplan is forced to rely on obfuscation, distortion, and tendentious historical analogies to make his case.”
Little has changed since then. The Navy, like most other elements of the US military, is many times larger than any other military force in the world. In their text US Defense Politics, Harvey Sapolsky, et al write (in the text’s 2014 edition):
Today the United States spends almost as much on defense as the rest of the world combined, allies and enemies included. It invests six times more in defense and research and development activities than the rest of the world, and sustained its high R&D spending for more than six decades. The US Navy is about ten times bigger than the next largest navy, which happen to be its close ally, the Royal Navy. The United States has four air forces, one for each service, and all very capable… the US Army has dozens of powerful brigade combat teams and dominates potential rivals in any form of conventional warfare. The US Marine Corps is much bigger than any comparable force. And US special operations forces are about the same size as all elements of the Canadian military.
It’s difficult to see how by any serious measure the US military is in danger of being even comparable to any other military in the world.
A New Pentagon Spending Binge Is on the Horizon
Yet, as a jobs program and as a source of political patronage, military spending continues to be popular among policymakers.
In the days following Trump’s election, William Hartung of the Center for International Policy suggested
the defense industry, always sensitive to the vibes of presidential candidates, has been popping the champagne corks in the wake of Trump’s victory. The prospects are clear: a new Pentagon spending binge is on the horizon.
In fact, the military and the weapons manufacturers appear to be among the biggest winners coming out of the 2016 election:
Veteran defense analyst David Isenberg has convincingly argued that the “military-industrial-congressional-complex,” not the white working class, will be the real winner of the 2016 presidential election. The Forbes headline for a column Loren Thompson, an industry consultant (whose think tank is heavily funded by weapons contractors), recently wrote says it all: “For the Defense Industry, Trump’s Win Means Happy Days are Here Again.” The stocks of industry giants Lockheed Martin, Raytheon, and Northrop Grumman rose sharply upon news of his election and the biggest winner of all may be Huntington Ingalls, a Virginia-based manufacturer of aircraft carriers and nuclear attack submarines that would be a primary beneficiary of Trump’s proposed naval buildup.
All of this, of course, comes at a hefty price tag, and, was the case in September when he first called for a buildup, Trump remains vague about how he will pay for it all. Moreover, this is only one of his big spending proposals, as Hartung also noticed:
As a start, how in the world will Trump pay for his ambitious military, “security,” and infrastructure plans? A huge military buildup, a $25 billion wall on the Mexican border, a potentially enormous increase in spending on immigration enforcement officials and private detention centers, and a trillion-dollar infrastructure program, all against the backdrop of a tax plan that would cut trillions in taxes for the wealthiest Americans. The only possible way to do this would be to drown the country in red ink.
This brings us back to Jack Ma’s claim. If the federal government is going to increase spending by a few trillion, can this spending at least be counted on to produce some hefty job growth? Hartung thinks not:
Nor will Trump’s incipient infatuation with Pentagon spending do much for members of his working class base who have been left behind economically as traditional manufacturing employment has waned. In fact, Pentagon spending is one of the worst possible ways of creating jobs. Much of the money goes to service contractors, arms industry executives, and defense consultants (also known as “Beltway bandits”), and what does go into the actual building of weapons systems underwrites a relatively small number of manufactured items, at least when compared to mass production industries like automobiles or steel.
Spending a more on defense will not revive manufacturing or the economy in general, although it will create more government jobs and more taxpayer funded jobs in the ostensibly “private” sector that is the military tech industry. It will continue to remove trillions of the dollars from the real private sector where producers spend money outside the purview of the Pentagon’s central planners.
Today, as always, military spending is determined by the political considerations of policymakers and the institutional desires of government bureaucracies. Since these government planners function outside the price mechanism, they have no way of knowing the true benefits or cots of spending another 500 billion on a project.
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The Opportunity Cost of Military Spending
Arguments about whether the US Navy should have “only” ten times more aircraft-carrier power than any other Navy or should have fifty times more is simply a political assertion with no connection to the real opportunity costs involved. If the answer is always “keep spending because there are bad guys out there” then the position is really nothing more than “spend as much as the taxpayers will let you get away with.” This attitude is akin to the idea that governments should spend endlessly to make highways safe or bridges indestructible. In the real world, we know that spending must stop at some point because the cost of building the world’s safest highway or the world’s strongest bridge grows higher as we lose more opportunities for using those resources elsewhere. In those caes, even the users of those highways and bridges aren’t willing to pay for a streetlight every 50 feet or guardrails on every curve. The users are willing to adopt some risk because they innately know that total “safety” — assuming such a thing could even be achieved — comes at a price.
The same, of course, applies to the military. The position of the pro-military ideologue is that even the smallest cut in military spending is akin to Chamberlain’s capitulation to Hitler or an invitation to invasion from overseas. In reality, of course, cuts really only mean that the US can’t build yet another military base in central Asia or threaten war with China over some rocks in the South China Sea. “Defense” has little to do with it. Thus, the pro-military-spending strategy relies largely on pretending there is only upside to more military spending (i.e., more alleged “safety”) and no downside (a weakened private sector).
But, any president who proposes to cut military spending at all is accused of eviscerating the military and opening up the US to global international chaos.
At times like this it is always worth remembering that Dwight Eisenhower cut military spending — in absolute terms — by 23 percent from 1952 to 1956. This was in the thick of the Cold War, and right after the Soviet Union tested its first hydrogen bomb.
David Stockman has noted:
Although defense spending never did shrink all the way to Ike’s target, the wind-down of Truman’s war budget was swift and drastic. When measured in constant 2005 dollars of purchasing power, the defense budget was reduced from a peak of $515 billion in fiscal 1953 to $370 billion by fiscal 1956. It remained at that level through the end of Eisenhower’s second term.
Coupled with this, federal spending remained flat from 1953 to 1957, freeing up the private economy to build wealth and create jobs.
If Trump really wants to strengthen the American private sector as he claims, he should think twice about siphoning off a few trillion more from the productive taxpayers to pay for even more government bureaucracy in the form of the latest military projects. If the Pentagon needs more, it can find that six trillion dollars it lost track of. If Trump fails to give the taxpayer some breathing room here, however, he can stop looking around the world to find someone to blame for the ongoing decline in real American incomes and job growth. He need look no further than Washington, DC.
This article first appeared at Mises.org