The Permanent War Economy

Posted: October 8, 2012 in Capitalism, Politics, The People's History
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For your convenience, I’ve created a .pdf – The Permanent War Economy – of this document. Creative Commons applies. Share with attributes.

In 1981, the supply siders commandeered the Reagan Presidency and employed their Voodoo Economics, as Bush senior had called it in 1980. He was saying that tax cuts would not increase government revenues. As you can see on the graph above, the Voodoo failed just as Bush predicted, and the supply siders turned a 32-year winning streak into a debt disaster that continues to this day. For 20-years, under Reagan and the Bushes, the national debt increased compared to GDP every single year. Source: http://zfacts.com/p/318.html

“The traditional pattern of running large deficits only in times of war or economic downturns was broken during much of the 1980s. In 1982 [Reagan’s first budget year], partly in response to a recession, large tax cuts were enacted. However, these were accompanied by substantial increases in defense spending. Although reductions were made to nondefense spending, they were not sufficient to offset the impact on the deficit. As a result, deficits averaging $206 billion were incurred between 1983 and 1992. These unprecedented peacetime deficits increased debt held by the public from $789 billion in 1981 to $3.0 trillion (48.1% of GDP) in 1992.” [emphasis added]

—From “Historical Tables, Budget of the U.S. Government, Fiscal Year 2006.” Downloaded from www.whitehouse.gov/omb/budget/fy2006/pdf/hist.pdf, p. 5.

Republicans say cut government regulations and taxes to create jobs. Did people stop building houses in 2007 because of all the new housing taxes and regulations imposed by five years of Republican rule? No, they did not. Will cutting regulations on house building fix the housing market? Don’t be ridiculous. Business is off because people aren’t buying. People aren’t buying because they can’t afford to buy and they are risk averse in a job market where job security is almost nil.

So who’s behind the Tax-and-Regulation myth? The biggest money behind that myth comes from the Koch brothers, who have been fined for pollution from their oil business and for cheating the federal government on oil extracted from Native-American land. The Koch brothers have spent, literally, hundreds of millions of dollars (starting with founding the Cato Institute in 1977) on lobbying for lower taxes and no regulation. In 2005, they started organizing and funding the Tea Party through third-party organizations, foundations, and various lobbyist think-tanks.

“Reaganomics” truly was “Voodoo Economics” as G.H.W. Bush stated. Trickle-down theory has never and will never work to do anything other than redistribute income from the working class to the top 1%.

President Franklin Delano Roosevelt once said:

“We should enter upon a new and terrible era in which the whole world, our hemisphere included, would be run by threats of brute force. And to survive in such a world, we would have to convert ourselves permanently into a militaristic power on the basis of war economy.”

But at the time he was speaking of gearing up to fight the Nazis just prior to our entrance into WWII. What he didn’t know at the time was that the industrial capitalists of his era were carefully listening to his speech, taking note of a new kind of economy, one based on permanent warfare. The government raised taxes which paid for half of the war’s costs and borrowed money in the form of war bonds to cover the rest of the bill, something the Bush Administration failed to do when they decided to wage the wars in Iraq and Afghanistan.

One must wonder, at some point, about the morality of a seemingly limitless war chest of trillions of dollars being spent on war based on lies and crippling and killing thousands every year, even while America’s veterans find themselves jobless, or worse homeless — between 130,000 and 200,000 on any given night — spending night after night seeking shelter on the streets of the country they served. (Veterans Affairs Secretary Shinseki, if you’re reading this, why are you content to allow veterans to sleep on the streets for the five years you claim it will take for your plan to house them all? If only the guns and missiles and drones we use in warfare took five years to reach the battlefield… but I digress.)

“The term “permanent war economy” is attributed to Charles Wilson, CEO of GE, who warned at the end of World War II that the US must not return to a civilian economy, but must keep to a “permanent war economy” of the kind that was so successful during the war: a semi-command economy, run mostly by corporate executives, geared to military production. Among other very important contributions, Melman has written extensively on the harmful effects of gearing much of the economy to military production rather than to civilian needs. What he describes is correct and important, but there are other dimensions to be considered. After World War II, most economists and business leaders expected that the economy would sink back to depression without massive government intervention of the kind that, during the war years, finally overcame the Great Depression. The New Deal had softened the edges, but not much more. Business understood that social spending could overcome market catastrophes as well as military spending, but social spending has a downside: it has a democratizing and redistributive effect while military spending is a gift to the corporate manager, a steady cushion. And the public is not involved. People care about hospitals and schools, but if you can “scare the hell out of them,” as Senator Vandenberg recommended, they will huddle under the umbrella of power and trust their leaders when it comes to jet planes, missiles, tanks, etc. Furthermore, business was well aware that high-tech industry could not survive in a competitive free enterprise economy, and “government must be the savior,” as the business press explained. Such considerations converged on the decision to focus on military rather than social spending. And it should be borne in mind that “military spending” does not mean just military spending. A great deal of it is high-tech R&D. Virtually the entire “new economy” has relied heavily on the military cover to socialize risk and cost and privatize profit, often after many decades: computers and electronics generally, telecommunications and the Internet, satellites, the aeronautical industry (hence tourism, the largest “service industry”), containerization (hence contemporary trade), computer-controlled machine tools, and a great deal more. Alan Greenspan and others like to orate about how all of this is a tribute to the grand entrepreneurial spirit and consumer choice in free markets. That’s true of the late marketing stage, but far less so in the more significant R&D stage. Much the same is true in the biology-based sectors of industry, though different pretexts are used. The record goes far back, but these mechanisms to sustain the advanced industrial economy became far more significant after World War II.

“In brief, the permanent war economy has an economic as well as a purely military function. And both outcomes — incomparable military force and an advanced industrial economy — naturally provide crucial mechanisms for foreign policy planning, much of it geared to ensuring free access to markets and resources for the state-supported corporate sector, constraining rivals, and barring moves towards independent development.”

—Noam Chomsky, Five Questions with Noam Chomsky, Merlin Chowkwanyun, Counterpunch, JUL 31-AUG 02, 2004

So, the whole “free market” theory of capitalism is really just a big lie promulgated by the 1%ers and their friends in Congress and the corporate media, and the punditocracy who don’t research anything deeply. Private enterprise in a so-called “free market” (or even a fair market) economy cannot stand on its own two feet without public taxpayer funding (corporate welfare); it cannot “lift itself up by its own boot straps” apparently.

“In January 1944 Charles E. Wilson, president of General Electric and executive vice chairman of the War Production Board, delivered a speech to the Army Ordnance Association advocating a permanent war economy. According to the plan Wilson proposed on that occasion, every major corporation should have a “liaison” representative with the military, who would be given a commission as a colonel in the Reserve. This would form the basis of a program, to be initiated by the president as commander in chief in cooperation with the War and Navy departments, designed to bind corporations and military together into a single unified armed forces-industrial complex. “What is more natural and logical,” he asked, “than that we should henceforth mount our national policy upon the solid fact of an industrial capacity for war, and a research capacity for war that is already ‘in being’? It seems to me anything less is foolhardy.” Wilson went on to indicate that in this plan the part to be played by Congress was restricted to voting for the needed funds. Further, it was essential that industry be allowed to play its central role in this new warfare state without being hindered politically “or thrown to the fanatical isolationist fringe [and] tagged with a ‘merchants-of-death’ label.”

“In calling, even before the Second World War had come to a close, for a “continuing program of industrial preparedness,” for war, Charles E. Wilson (sometimes referred to as “General Electric Wilson” to distinguish him from “General Motors Wilson”—Charles Erwin Wilson, president of General Motors and Eisenhower’s secretary of defense) was articulating a view that was to characterize the U.S. oligarchy as a whole during the years immediately following the Second World War. In earlier eras it had been assumed that there was an economic “guns and butter” trade-off, and that military spending had to occur at the expense of other sectors of the economy. However, one of the lessons of the economic expansion in Nazi Germany, followed by the experience of the United States itself in arming for the Second World War, was that big increases in military spending could act as huge stimulants to the economy. In just six years under the influence of the Second World War the U.S. economy expanded by 70 percent, finally recovering from the Great Depression. The early Cold War era thus saw the emergence of what later came to be known as “military Keynesianism”: the view that by promoting effective demand and supporting monopoly profits military spending could help place a floor under U.S. capitalism.5

John Maynard Keynes, in his landmark General Theory of Employment, Interest and Money (.pdf), published in 1936, in the midst of the Depression, argued that the answer to economic stagnation was to promote effective demand through government spending. The bastardized Keynesianism that came to be known as “military Keynesianism” was the view that this was best effected with the least negative consequences for big business by focusing on military spending.”

The U.S. Imperial Triangle and Military Spending, Foster, Holleman, & McChesney, Monthly Review, 2008, Volume 60, Issue 05 (October)

In other words, the elites and industrialists of the day (and let’s not fool ourselves in thinking these folks had no relation to members of Congress) knew very well that spending on public works projects and jobs and other programs for the common good would work just as well as military spending to stimulate the economy, but that spending for the common good would do more to promote actual democracy here at home, through such things as public education and health care, and they didn’t want to lose the power and control they had over government and the people, so they CHOSE to focus the spending on the military in the name of corporate profit.

After all, an educated populace that has its basic needs met begins to question authority, the decisions of authority figures, and demands human rights, and even a share of the profits being made from publicly owned natural resources and human labor (through unions of workers who fight for a living wage). Democracy is the very last thing the corporate-military-Congressional elite wants. You can read more about this in The Permanent War Economy, T.N. Vance, New International, Vol.17 Nos.1-6, 1951.

Keynes, however, was not in support of stimulating the economy through military spending. In 1933, John Maynard Keynes wrote an open letter to President Franklin D. Roosevelt urging the new president to borrow money to be spent on public works programs.

Thus as the prime mover in the first stage of the technique of recovery I lay overwhelming emphasis on the increase of national purchasing power resulting from governmental expenditure which is financed by Loans and not by taxing present incomes. Nothing else counts in comparison with this. In a boom inflation can be caused by allowing unlimited credit to support the excited enthusiasm of business speculators. But in a slump governmental Loan expenditure is the only sure means of securing quickly a rising output at rising prices. That is why a war has always caused intense industrial activity. In the past orthodox finance has regarded a war as the only legitimate excuse for creating employment by governmental expenditure. You, Mr President, having cast off such fetters, are free to engage in the interests of peace and prosperity the technique which hitherto has only been allowed to serve the purposes of war and destruction.”

DOD Budget Since WW2

Current defense spending levels – even without funding for the wars in Iraq and Afghanistan – are higher than at any time since World War II when adjusted for inflation.

“Actually, if you look back at the debates which went on in the late 1940’s when the Pentagon system was first being set up, they’re very revealing. You have to examine the whole development against the background of what had just happened. There was this huge Depression in the 1930’s, world-wide, and at that point everyone understood that capitalism was dead. I mean, whatever lingering beliefs people had about it, and they weren’t very much before, they were gone at that point—because the whole capitalist system had just gone into a tailspin: there was no way to save it the way it was going. Well, every one of the rich countries hit upon more or less the same method of getting out. They did it independently, but they more or less hit on the same method—namely, state spending, public spending of some kind, what’s called “Keynesian stimulation.” And that did finally get countries out of the Depression. […] And if you go back and read the economists, people like Paul Samuelson and others in the business press, at that point they were saying that advanced industry, high-technology industry, “cannot survive in a competitive, unsubsidized free-enterprise economy”—that’s just hopeless. They figured we were heading right back to the Depression, but now they knew the answer: government stimulation. And by then they even had a theory for it, Keynes; before that they’d done it by instinct.

“So at that point, there was general agreement among business and elite planners in the United States that there would have to be massive government funneling of public funds into the economy, the only question was how to do it. Then came kind of an interesting… it wasn’t really a debate, because it was settled before it was started, but the issue was at least raised: should the government pursue military spending or social spending? Well, it was quickly made very clear in those discussions that the route that government spending was going to have to take was military. And that was not for reasons of economic efficiency, nothing of the sort—it was just for straight power reasons, like the ones I mentioned: military spending doesn’t redistribute wealth, it’s not democratizing, it doesn’t create popular constituencies or encourage people to get involved in decision-making. It’s just a straight gift to the corporate manager, period.”

—Noam Chomsky, Understanding Power, pp. 73-74

Some of the biggest companies in the United States have been firing workers, offshoring jobs to countries where wages are extremely low, and in some cases lobbying for rules that depress wages at the very time that jobs are needed, pay is low and the federal budget suffers from a lack of revenue. And these companies are using every tax loophole, tax credit, tax abatement, and subsidies galore to continually rake in billions of dollars in profit each year, getting tax refunds while paying very little if anything to the IRS.

For Hire: Lobbyists or the 99%? (.pdf)

Amidst a growing federal deficit and widespread economic insecurity for most Americans, some of the largest corporations in the country have avoided paying their fair share in taxes while spending millions to lobby Congress and influence elections. This report builds on a recent report on corporate tax dodging by Citizens for Tax Justice by examining lobbying expenditure data provided by the Center for Responsive Politics. We also look at publicly available data on job creation, federal campaign contributions, and executive compensation, to understand how these corporations have been spending their cash.

Key Findings

  • The thirty big corporations analyzed in this report paid more to lobby federal policymakers than they paid in federal income taxes for the three years between 2008 and 2010, despite being profitable.
  • Despite making combined profits totaling $164 billion in that three-year period, the 30 companies combined received tax rebates totaling nearly $11 billion.
  • Altogether, these companies spent nearly half a billion dollars ($476 million) over three years to lobby Congress—that’s about $400,000 each day, including weekends.
  • In the three-year period beginning in 2009 through most of 2011, these large firms spent over $22 million altogether on federal campaigns.
  • These corporations have also spent lavishly on compensation for their top executives ($706 million altogether in 2010).

So who, really, are the parasites on the economy sucking up welfare from American taxpayers?

“The Federal Government alone shells out $125 billion a year in corporate welfare, this in the midst of one of the more robust economic periods in the nation’s history. Indeed, thus far in the 1990s, corporate profits have totaled $4.5 trillion–a sum equal to the cumulative paychecks of 50 million working Americans who earned less than $25,000 a year, for those eight years.

“That makes the Federal Government America’s biggest sugar daddy, dispensing a range of giveaways from tax abatements to price supports for sugar itself. Companies get government money to advertise their products; to help build new plants, offices and stores; and to train their workers. They sell their goods to foreign buyers that make the acquisitions with tax dollars supplied by the U.S. government; engage in foreign transactions that are insured by the government; and are excused from paying a portion of their income tax if they sell products overseas. They pocket lucrative government contracts to carry out ordinary business operations, and government grants to conduct research that will improve their profit margins. They are extended partial tax immunity if they locate in certain geographical areas, and they may write off as business expenses some of the perks enjoyed by their top executives.”

Corporate Welfare, a TIME Magazine Investigation, 1998 (.pdf)

That was in 1998. As we all know, the problem has gotten much worse since then. The largest corporate welfare payments go to the wealthiest corporations. Corporate welfare in the federal budget costs taxpayers at least $100 billion a year, according to CATO, and even more if you add in military, intelligence, private security contractors, and war spending—trillions of dollars more. Looking across the breadth of the U.S. budget and policies, a key question arises:

Whose welfare is the government serving — the people’s or corporations’?

How many jobs does $1 Billion Buy?

Image courtesy of Common Dreams

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