The Debt Ceiling Was a Distraction. The Crisis Is With Waste

By Steven Hill, Forbes.com, August 2, 2011

The U.S. massively wastes money and resources in three critical areas: military spending, health care and energy/transportation.

The first act of the Debt Deiling Drama is over for now, with all the pundits now assessing the damage to the President, House Republicans, the economy and more. But during the ordeal, while the politicians traded insults like carnival barkers, the real threats to America’s future remained ignored. It’s not simply that the country is spending money that it doesn’t have, but also a matter of what the money is spent on. Is the debt the result of needed investment — or waste?

Unfortunately the U.S. massively wastes money and resources in three critical areas, especially when compared to our international competitors:  military spending, health care and energy/transportation. Let’s look more closely at one of these, military spending.

The U.S. spends as much money on its annual defense budget as the next 20 nations combined, and three times more than all conceivable enemies combined (and that figure does not include spending for war operations in Iraq, Afghanistan and Libya, which amounts to another estimated $1 to $3 trillion, nor does it include large expenditures by the Department of Homeland Security, National Security Agency, CIA, Veterans Administration and other agencies). Is that level of spending really necessary to secure the homeland and global stability?

The answer is ‘no’. Leading military analysts report that vast sums are being spent on outmoded weapons systems that have little relevance to America’s actual defense needs. Most of today’s security risks result from insurgencies led by non-state actors, as in Iraq, Afghanistan and Pakistan. Yet as one defense critic put it, with over 760 military bases around the world, eleven large aircraft-carrier battle groups and other obsolete military hardware, the U.S. military is “still geared to fight the Imperial Navy of Japan.”

In reality, a substantial part of the U.S. defense budget actually is not for defense but instead is a jobs program. It’s also a major source of pork for the use of politicians in their reelection campaigns. Combined with the insider influence of defense industry lobbyists, it means that the U.S. economy has become hooked like an addict to an ongoing fiscal stimulus from military expenditures.

Yet as a fiscal stimulus, it’s extremely inefficient. For starters, you are building a product – weapons – that you hope to never use, so the market for future sales faces severe constraints. And many of the million plus U.S. soldiers are stationed overseas, where they are spending their salaries in some other nation’s economy. For all these reasons and more, many studies have shown that the economic “multiplier effect” that causes each dollar spent to ripple through an economy is much higher for spending on physical infrastructure – maintaining roads, bridges, airports and harbors, for which the American Society of Civil Engineers says the U.S. has fallen $2 trillion behind  – than military spending.

Beyond the economic inefficiencies lies the question of relevance. With the Cold War over, it’s important to ask who are America’s enemies today, and what level of resources does national security require?  Is Afghanistan the enemy, a poor, ravaged country of little strategic value with an economy smaller than that of tiny Rhode Island? Is it Iran, a poor country badly in need of economic development that, despite all its oil and alleged nuclear ambitions, has an economy smaller than that of New Jersey?

Indeed, the Bush adminstration’s top analyst in the U.S. intelligence community wrote a report in September 2008 in which he concluded that U.S. superiority in military power will “be the least significant” asset in the era that is unfolding. America is not getting its military money’s worth, not by a long shot, and we can no longer afford this kind of waste.

Wasteful defense spending is going to be tough to rein in but it’s important to try, because a reduction in military spending even to the same share of GDP as it was in 2000 would save $240 billion a year. In a classic guns vs butter tradeoff, America spends more than twice as much of its gross domestic product on the military as Europe, while Europe spends about 35 percent more of GDP on social spending than the U.S.

Similarly, the United States is spending far more than its international competitors on health care (about twice as much per capita) and energy and transportation (the average American uses twice as much electricity as the average European, and the average American car uses 40-50 percent more fuel as the average European or Japanese car). American businesses spend far more than their international counterparts on health care as well as energy and transportation, putting them at a competitive disadvantage.

When the United States was the world’s pre-eminent power in the post-World War II era, we could afford such waste and inefficiency at the core of our economy. But in today’s multi-polar, hyper-competitive world, such profligacy puts the U.S. at a economic disadvantage. What this also means is that it’s not just the amount of deficits and debt that sends a nation hurtling toward a tipping point, but the quality of those obligations – are the deficits due to needed investment or waste?

No other developed nation suffers from so much waste and inefficiency in critical areas like defense spending, health care and energy and transportation as the United States. It’s hard to imagine how America can continue to lead globally if it cannot figure out how to stop the leakage. But that will be devilishly difficult to do if the carnival barkers in the U.S. government continue to distract the nation with pointless debates over things like the debt ceiling.

[Steven Hill is a political writer and columnist whose latest book is “Europe’s Promise: Why the European Way is the Best Hope in an Insecure Age” (www.EuropesPromise.org).