A friend of mine who works for a defense contractor showed me this article. I thought it explained many insightful (but frightening) things in simple terms.
http://www.lexingtoninstitute.org/why-d … amp;c=1129
The last ten years have been kinder to the defense industry than just about any other sector of our economy.
Military spending has risen from 300 billion dollars the year President George W. Bush took office to 700 billion today.
That means America -- five percent of the world's population -- now accounts for nearly 50 percent of all global military spending.
However, during the same ten years, America's share of global economic output plummeted from nearly a third to less than a quarter.
In other words, our portion of the global economy has fallen by about one percentage point each year for ten straight years.
The growing gap between our military power and our economic power has become unsustainable unless there is a basic restructuring of federal spending priorities.
Since no such restructuring has been proposed by either major political party, I conclude that defense spending must fall considerably in the near future.
....
Threats to our security are the main reason we have a military.
However, if you trace U.S. military spending back to the early days of the Republic, an interesting pattern emerges.
Between 1800 and 1950, the United States typically devoted about one-percent of its economy to military activities.
But every 30 years or so, military spending would spike in response to a threat such as southern insurrection or fascism.
What's striking about that pattern isn't the spikes, but the consistency with which military spending always reverted back to one-percent of the economy once the danger had passed.
That tells you that most of the time, the political system did not feel threatened by external enemies -- which is why there was barely any defense industry in America beyond a handful of government-owned shipyards and depots.
When threats appeared, the economy would be mobilized for war production, but as soon as they waned it would demobilize and return to its previous commercial pursuits.
However, that pattern shifted decisively at about the time that I was born, 1951, because a different kind of threat materialized that looked unlikely to go away anytime soon.
The new threat was communism, specifically the global challenge posed by an ascendant Soviet Union, and it persisted for four decades during a period we came to call the Cold War.
....
In response to this persistent, undeniable danger, America spent ten percent of its economy on defense in the 1950s, nine percent in the 1960s, and six percent in the 1970s and 1980s.
The buying power of the military budget was remarkably stable during this period because the economy was growing steadily as the percentage of it devoted to defense gradually declined.
So we became accustomed to the idea that having a big, dedicated defense industry was just the normal state of affairs in the modern world.
In fact, the communist threat persisted for so long that by the time it disappeared in the early 1990s, many people working in the defense sector had forgotten that was why the industry came into being in the first place.
....
While the rest of the economy basked in the warm glow of the dot.com boom, the defense industry had fallen to its lowest ebb in half a century, with scant prospect of recovery.
What saved military contractors was a new threat -- the terrorist attacks of 9-11 that led to a global war on terror, and then later to a protracted military campaign in Iraq.
The new threat not only created a surge in demand for military goods and services, but also made it easier for defense secretary Donald Rumsfeld to fund ambitious investment plans in pursuit of "military transformation."
Thus, a decade that began with defense companies in despair about future business prospects ended with military outlays at their highest level since World War Two.
Just as the threat posed by communism had given birth to the modern defense industry during the early days of the Cold War, so a different kind of threat at the dawn of the new millennium gave that industry a renewed lease on life.
By the time Congress and the public began questioning whether the new danger really was as serious as initially feared, the nation was engaged in two different wars that would require years of heavy spending before U.S. troops could be extricated.
That brings us to where the industry stands today -- flush with cash after a decade of continuous increases in defense spending.
....
In terms of size, speed, and directional flow, the global shift in relative economic power now under way -- roughly from West to East -- is without precedent in modern history.
The intelligence community had never before made such a statement in one of its five-year assessments, and the fact that it did in 2008 sent a sobering message: America's economy is gradually losing the vitality that made our nation a superpower.
Said differently, the economic challenges we face aren't just a temporary rough patch resulting from a downturn in the business cycle.
There is an underlying, secular decline that has been under way for some time, and it is slowly robbing America of the economic preeminence it enjoyed throughout the second half of the Twentieth Century.
Let me give you some indicators tracking that decline...
-- Employment in the United States grew 20 percent in the 1980s and 20 percent in the 1990s, but it has only grown one percent since the beginning of the new millennium.
-- The United States has lost an average of 40,000 manufacturing jobs every month for the last ten years, and accumulated the biggest merchandise trade deficit in the history of the world.
-- According to the CIA's World Factbook, median household income in America has not increased at all in the last 30 years, and over the past ten years household net worth has fallen 13 percent.
There are many other such indicators, but they all point to the same conclusion: the U.S. economy is not performing anywhere near as well as it did in the previous five decades that we call the "postwar era."
One consequence of our waning economic strength is that the federal government cannot generate sufficient tax receipts to cover the cost of its activities, so it is borrowing money at a furious pace.
I pointed out to the senior management of DRS Technologies at a March offsite that on the day I was giving the speech to them, the federal government would need to borrow as much money as DRS had booked in sales the entire previous year.
Do the math: if the federal government's projected deficit for fiscal 2010 is 1.34 trillion dollars, that works out to about 3.7 billion dollars in new borrowing every day.
Add in the additional borrowing required to turn over existing debt, and Washington is borrowing the equivalent of one DRS Technologies every day.
Such trends moved Harvard economist Larry Summers to pose a pointed question shortly before he joined the Obama Administration...
How long can the world's biggest borrower remain the world's biggest power?
Well, we’re going to discover the answer to that question over the next ten years because the Congressional Budget Office projects that the government will add an average of a trillion dollars to the national debt every year during that period.
The government has a bi-partisan debt commission looking at how to get annual deficits down to no more than the cost of interest on the debt, but CBO says by 2020 interest payments on the debt could be nearly a trillion dollars each year.
I don't know whether the federal government's borrowing binge will end in some grand political compromise or in an economic catastrophe, but it will end.
When the inevitable downward adjustment in federal spending arrives, defense will have to take its share of cuts -- and maybe a disproportionate share if threats are low and the appetite for entitlements remains high.
So, basically, our relative economic power is waning, our debt is rising, we no longer have a major conventional enemy to worry about, and budget cuts will likely affect military spending even more than entitlement spending.
Granted, across the board, we're going to have to eventually move toward smaller government overall -- both with regard to defense spending and entitlements.
I guess the question I have for this thread is... when will we actually start cutting government spending overall?
http://www.lexingtoninstitute.org/why-d … amp;c=1129
The last ten years have been kinder to the defense industry than just about any other sector of our economy.
Military spending has risen from 300 billion dollars the year President George W. Bush took office to 700 billion today.
That means America -- five percent of the world's population -- now accounts for nearly 50 percent of all global military spending.
However, during the same ten years, America's share of global economic output plummeted from nearly a third to less than a quarter.
In other words, our portion of the global economy has fallen by about one percentage point each year for ten straight years.
The growing gap between our military power and our economic power has become unsustainable unless there is a basic restructuring of federal spending priorities.
Since no such restructuring has been proposed by either major political party, I conclude that defense spending must fall considerably in the near future.
....
Threats to our security are the main reason we have a military.
However, if you trace U.S. military spending back to the early days of the Republic, an interesting pattern emerges.
Between 1800 and 1950, the United States typically devoted about one-percent of its economy to military activities.
But every 30 years or so, military spending would spike in response to a threat such as southern insurrection or fascism.
What's striking about that pattern isn't the spikes, but the consistency with which military spending always reverted back to one-percent of the economy once the danger had passed.
That tells you that most of the time, the political system did not feel threatened by external enemies -- which is why there was barely any defense industry in America beyond a handful of government-owned shipyards and depots.
When threats appeared, the economy would be mobilized for war production, but as soon as they waned it would demobilize and return to its previous commercial pursuits.
However, that pattern shifted decisively at about the time that I was born, 1951, because a different kind of threat materialized that looked unlikely to go away anytime soon.
The new threat was communism, specifically the global challenge posed by an ascendant Soviet Union, and it persisted for four decades during a period we came to call the Cold War.
....
In response to this persistent, undeniable danger, America spent ten percent of its economy on defense in the 1950s, nine percent in the 1960s, and six percent in the 1970s and 1980s.
The buying power of the military budget was remarkably stable during this period because the economy was growing steadily as the percentage of it devoted to defense gradually declined.
So we became accustomed to the idea that having a big, dedicated defense industry was just the normal state of affairs in the modern world.
In fact, the communist threat persisted for so long that by the time it disappeared in the early 1990s, many people working in the defense sector had forgotten that was why the industry came into being in the first place.
....
While the rest of the economy basked in the warm glow of the dot.com boom, the defense industry had fallen to its lowest ebb in half a century, with scant prospect of recovery.
What saved military contractors was a new threat -- the terrorist attacks of 9-11 that led to a global war on terror, and then later to a protracted military campaign in Iraq.
The new threat not only created a surge in demand for military goods and services, but also made it easier for defense secretary Donald Rumsfeld to fund ambitious investment plans in pursuit of "military transformation."
Thus, a decade that began with defense companies in despair about future business prospects ended with military outlays at their highest level since World War Two.
Just as the threat posed by communism had given birth to the modern defense industry during the early days of the Cold War, so a different kind of threat at the dawn of the new millennium gave that industry a renewed lease on life.
By the time Congress and the public began questioning whether the new danger really was as serious as initially feared, the nation was engaged in two different wars that would require years of heavy spending before U.S. troops could be extricated.
That brings us to where the industry stands today -- flush with cash after a decade of continuous increases in defense spending.
....
In terms of size, speed, and directional flow, the global shift in relative economic power now under way -- roughly from West to East -- is without precedent in modern history.
The intelligence community had never before made such a statement in one of its five-year assessments, and the fact that it did in 2008 sent a sobering message: America's economy is gradually losing the vitality that made our nation a superpower.
Said differently, the economic challenges we face aren't just a temporary rough patch resulting from a downturn in the business cycle.
There is an underlying, secular decline that has been under way for some time, and it is slowly robbing America of the economic preeminence it enjoyed throughout the second half of the Twentieth Century.
Let me give you some indicators tracking that decline...
-- Employment in the United States grew 20 percent in the 1980s and 20 percent in the 1990s, but it has only grown one percent since the beginning of the new millennium.
-- The United States has lost an average of 40,000 manufacturing jobs every month for the last ten years, and accumulated the biggest merchandise trade deficit in the history of the world.
-- According to the CIA's World Factbook, median household income in America has not increased at all in the last 30 years, and over the past ten years household net worth has fallen 13 percent.
There are many other such indicators, but they all point to the same conclusion: the U.S. economy is not performing anywhere near as well as it did in the previous five decades that we call the "postwar era."
One consequence of our waning economic strength is that the federal government cannot generate sufficient tax receipts to cover the cost of its activities, so it is borrowing money at a furious pace.
I pointed out to the senior management of DRS Technologies at a March offsite that on the day I was giving the speech to them, the federal government would need to borrow as much money as DRS had booked in sales the entire previous year.
Do the math: if the federal government's projected deficit for fiscal 2010 is 1.34 trillion dollars, that works out to about 3.7 billion dollars in new borrowing every day.
Add in the additional borrowing required to turn over existing debt, and Washington is borrowing the equivalent of one DRS Technologies every day.
Such trends moved Harvard economist Larry Summers to pose a pointed question shortly before he joined the Obama Administration...
How long can the world's biggest borrower remain the world's biggest power?
Well, we’re going to discover the answer to that question over the next ten years because the Congressional Budget Office projects that the government will add an average of a trillion dollars to the national debt every year during that period.
The government has a bi-partisan debt commission looking at how to get annual deficits down to no more than the cost of interest on the debt, but CBO says by 2020 interest payments on the debt could be nearly a trillion dollars each year.
I don't know whether the federal government's borrowing binge will end in some grand political compromise or in an economic catastrophe, but it will end.
When the inevitable downward adjustment in federal spending arrives, defense will have to take its share of cuts -- and maybe a disproportionate share if threats are low and the appetite for entitlements remains high.
So, basically, our relative economic power is waning, our debt is rising, we no longer have a major conventional enemy to worry about, and budget cuts will likely affect military spending even more than entitlement spending.
Granted, across the board, we're going to have to eventually move toward smaller government overall -- both with regard to defense spending and entitlements.
I guess the question I have for this thread is... when will we actually start cutting government spending overall?
