Reports from the Economic Front

by Martin Hart-Landsberg

Archive for the ‘Military Spending’ Category

Taxes and Militarism

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Tax day has come and gone.  And there is indeed a lot to complain about: our corporations and the wealthy have successfully minimized their own tax responsibilities, leaving us to support a powerful and profitable military-national-security-industrial complex at the expense of needed public services and social programs.

Let’s start with who pays taxes.  Individuals and corporations pay income taxes to the federal government.  However, as the chart below shows, corporations have been able to take advantage of increasingly lenient income tax laws and a corporate friendly globalization process to significantly lower their tax obligations.  If we add payroll taxes which are paid to support specific programs like Social Security and Medicare, the overall individual contribution is approximately 80% and the corporate share about 11%.

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Lower corporate taxes were supposed to unleash the power of the market and make us all better off.  Unfortunately, but not surprisingly, all they have done is boost corporate profits at the public expense.

Of course, income tax burdens are not equally divided among individuals.  In fact, our federal income tax code has become increasingly favorable to higher income earners.  As the next chart shows, the top marginal income tax rate has been dramatically reduced.  The top marginal tax rate was 50 percent in the mid-1980s and even higher in the 1950s.  Currently, the top rate is 39.6 percent; it is paid by individuals making more than $406,750 and couples making more than $457,600.  And then there are tax breaks that disproportionately benefit top income earners.

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The combination of more income going to top earners, lower top marginal tax rates, and specially crafted tax breaks cannot help but reduce federal tax revenues and drive up our federal deficits.

The payment of income taxes is one thing—how the federal government uses the money it receives is another.  As we see next, military related activities absorb a heavy share of federal spending.

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Direct spending on the military accounts for 27 cents of every federal tax dollar spent.  Including spending for veterans benefits and approximately two-thirds of the interest on the federal debt adds another 16.05 cents, which brings the overall military total to 43.05 cents out of every dollar spent.  This is a conservative estimate because it does not include spending on activities that fall under the broader heading of national security such as homeland security and certain “foreign aid” expenditures.  No wonder our infrastructure and social programs are starved for funds.

Federal spending can be divided into non-discretionary and discretionary items.  In the case of the former, spending is mandated by law, such as payment of the national debt.  In the case of the latter, the federal government has discretion in how it spends our tax money.  Looking just at discretionary spending reveals even more clearly the dominant position of the military in our budget priorities.

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Moreover, political pressure keeps working to push the military share higher.  Both House and Senate budget proposals call for spending some $530 billion on defense in Fiscal Year (FY) 2016.  That is the most that can be spent without triggering automatic spending cuts due to sequestration.  But – happily for the military – there is an exception to the sequestration process.

This exception allows Congress to authorize unlimited spending for current military operations or what is officially known as Overseas Contingency Operations.  House and Senate proposals include more than $90 billion under this heading.  Significantly, there is no similar exception when it comes to spending on non-military, discretionary items.  Apparently our non-military needs don’t rise to the same level of urgency as our military ones.

A few key changes in the tax code and federal spending priorities and a better 2016 tax day is not hard to imagine.

The Federal Budget In Pictures

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The following charts, taken from a National Priorities Project post, highlight our federal budget priorities.

As the post explains:

President Obama recently released his fiscal year 2016 budget proposal. Budgets are about our nation’s priorities: What are we going to spend money on? How are we going to raise the money we want to spend?

Though the budget ultimately enacted by Congress may look very different from the budget request released by the president, the president’s budget is important. It’s the president’s vision for the country in fiscal year 2016 and beyond, and it reflects input and spending requests from every federal agency.

 Here’s a look at the overall proposed budget:

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Here’s a look at the allocation of discretionary tax dollars:

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Here”s a look at the relative balance of military and non-military discretionary spending over time:

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Here’s a look at the structure of taxes supporting federal spending:

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Written by marty

February 9th, 2015 at 9:16 am

Still The World’s Top Military Spender

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According to the Stockholm International Peace Institute, the United States remains the world’s top military spender. In fact, U.S. military spending equals the combined military spending of the next ten countries.  And most of those are U.S. allies.

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Although declining in real terms, the U.S. military budget remains substantial and a huge drain on our public resources.  As the following chart shows, military spending absorbs 57% of our federal discretionary budget.

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 Notice that many so-called non-military discretionary budget categories also include military related spending. For example: Veteran’s Benefits, International Affairs, Energy and the Environment, and Science.   We certainly seem focused on a certain kind of security.

 

Written by marty

July 17th, 2014 at 1:04 pm

America: Land Of The Surveilled and Imprisoned

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America stands out for the high share of its labor force that is employed in what economists Samuel Bowles and Arjun Jayadev call “guard labor.”

There are now more people working as private security guards than high school teachers.

The following graph highlights the number of “protective service workers” employed per 10,000 workers and the degree of income inequality in the year 2000 for 16 countries.  The United States is tops on both counts.

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Two things stand out from this graph beyond U.S. “leadership.”  The first is the relationship between the share of protective service workers and inequality.  As Bowles and Jayadev comment:

In America, growing inequality has been accompanied by a boom in gated communities and armies of doormen controlling access to upscale apartment buildings. We did not count the doormen, or those producing the gates, locks and security equipment. One could quibble about the numbers; we have elsewhere adopted a broader definition, including prisoners, work supervisors with disciplinary functions, and others.

But however one totes up guard labor in the United States, there is a lot of it, and it seems to go along with economic inequality. States with high levels of income inequality — New York and Louisiana — employ twice as many security workers (as a fraction of their labor force) as less unequal states like Idaho and New Hampshire.

When we look across advanced industrialized countries, we see the same pattern: the more inequality, the more guard labor. As the graph shows, the United States leads in both.

The second is the rapid rise in the U.S. share of guard labor and inequality from 1979 to 2000.

For those who like definitions: The category protective service workers includes those employed as Private Security Guards, Supervisors of Correctional Officers, Supervisors of Police and Detectives, Supervisors of all other Protective Service Workers, Bailiffs, Correctional Officers and Jailers, Detectives and Criminal Investigators, Fish and Game Wardens, Parking Enforcement Workers, Police and Patrol Officers, Transit and Railroad Police, Private Detectives and Investigators, Gaming Surveillance Officers, and Transportation Security Screeners.  Inequality is measured by the gini coefficient; the higher the number the greater the degree of inequality.

As noted above Bowles and Jayadev have explored broader measures of guard labor.  One such measure adds members of the armed forces, civilian employees of the military, and those that produce weapons to those employed as protective service workers.  The total was 5.2 million workers in 2011.

One can only wonder in what ways and for whom this large and growing dependence on guard labor represents a rational use of social resources.

Cutting Through The Budget Nonsense

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The media continues to direct out attention to deficits and debt as our main problems.  Yet, it does little to really highlight the causes of these deficits and debts.

The following two figures from the Center on Budget and Policy Priorities help to clarify the causes.  It is important to note that the projections underlying both figures were made before the recent vote making permanent most of the Bush-era tax cuts.

Figure 1, below, shows the main drivers of our large national deficits: the Bush-era tax cuts, the wars in Iraq and Afghanistan, and our economic crisis and responses to it.  Without those drivers our national deficits would have remained quite small.

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Figure 2, below, shows the main drivers of our national debt. Not surprisingly they are the same as the drivers of our deficits.

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Significantly, the same political leaders that scream the loudest about our deficits and debt have little to say about stopping the wars or reducing military spending and are the most adamant about maintaining the Bush-era tax cuts.  That is because, at root, their interest is in reducing spending on non-security programs rather than reducing the deficit or debt.

Some of these leaders argue that the tax cuts will help correct our economic problems and thereby help reduce the deficit and debt.  However, multiple studies have shown that tax cuts are among the least effective ways to stimulate employment and growth.  In contrast, the most effective are sustained and targeted government efforts to refashion economic activity by spending on green conversion, infrastructure, health care, education and the like.

While Republicans and Democrats debate the extent to which taxes should be raised, both sides appear to agree on the need to reign in federal government spending in order to achieve deficit reduction.  In fact, federal government spending has been declining both absolutely and, as the following figure from the St. Louis Federal Reserve shows, as a share of GDP.

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In reality, our main challenge is not reducing our deficit or debt but rather strengthening our economy, and cutting government spending is not going to help us overcome that challenge.  As Peter Coy, writing in BusinessWeek explains:

It pains deficit hawks to hear this, but ever since the 2008 financial crisis, government red ink has been an elixir for the U.S. economy. After the crisis, households strove to pay down debt and businesses hoarded profits while skimping on investment. If the federal government had tried to run balanced budgets, there would have been an enormous economy wide deficit of demand and the economic slump would have been far worse. In 2009 fiscal policy added about 2.7 percentage points to what the economy’s growth rate would have been, according to calculations by Mark Zandi of Moody’s Analytics. But since then the U.S. has underutilized fiscal policy as a recession-fighting tool. The economic boost dropped to just half a percentage point in 2010. Fiscal policy subtracted from growth in 2011 and 2012 and will do so again in 2013, to the tune of about 1 percentage point, Zandi estimates.

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If we were serious about tackling our economic problems we would raise tax rates and close tax loopholes on the wealthy and corporations and reduce military spending, and then use a significant portion of the revenue generated to fund a meaningful government stimulus program.  That would be a win-win proposition as far as the economy and budget is concerned.

Written by marty

January 6th, 2013 at 3:07 pm

Scaling The Fiscal Cliff

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With the election over, the news is now focused, somewhat hysterically, on the threat of the fiscal cliff.

The fiscal cliff refers to the fact that at the end of this calendar year several temporary tax cuts are scheduled to expire (including those that lowered rates on income and capital gains as well as payroll taxes) and early in the next year spending cuts are scheduled for military and non-military federal programs.  See here for details on the taxes and programs.

Most analysts agree that if tax rates rise and federal spending is cut the result will be a significant contraction in aggregate demand, pushing the U.S. economy into recession in 2013.

The U.S. economy is already losing steam.  GDP growth in the second half of 2009, which marked the start of the recovery, averaged 2.7% on an annualized basis.  GDP growth in 2010 was a lower 2.4%.  GDP growth in 2011 averaged a still lower 2.0%.  And growth in the first half of this year declined again, to an annualized rate of 1.8%.

With banks unwilling to loan, businesses unwilling to invest or hire, and government spending already on the decline, there can be little doubt that a further fiscal tightening will indeed mean recession.

So, assuming we don’t want to go over the fiscal cliff, what are our choices?

Both Republicans and Democrats face this moment in agreement that our national deficits and debt are out of control and must be reduced regardless of the consequences for overall economic activity.  What they disagree on is how best to achieve the reduction.  Most Republicans argue that we should renew the existing tax cuts and protect the military budget.  Deficit reduction should come from slashing the non-military discretionary portion of the budget, which, as Ethan Pollack explains, includes:

safety net programs like housing vouchers and nutrition assistance for women and infants; most of the funding for the enforcement of consumer protection, environmental protection, and financial regulation; and practically all of the federal government’s civilian public investments, such as infrastructure, education, training, and research and development.

The table below shows the various programs/budgets that make up the non-security discretionary budget and their relative size.  The chart that follows shows how spending on this part of the budget is already under attack by both Democrats and Republicans.

Unfortunately, the Democrat’s response to the fiscal cliff is only marginally better than that of the Republicans.  President Obama also wants to shrink the deficit and national debt, but in “a more balanced way.”  He wants both tax increases and spending cuts.  He is on record seeking $4 trillion in deficit reduction over a ten year period, with a ratio of $2.50 in spending cuts for every $1 in new revenue.

The additional revenue in his plan will come from allowing tax cuts for the wealthy to expire, raising the tax rate on the top income tax bracket, and limiting the value of tax deductions.  While an important improvement, President Obama is also committed to significant cuts in non-military discretionary spending.  Although his cuts would not be as great as those advocated by the Republicans, reducing spending on most of the targeted programs makes little social or economic sense given current economic conditions.

So, how do we scale the fiscal cliff in a responsible way?

We need to start with the understanding that we do not face a serious national deficit or debt problem.  As Jamie Galbraith notes:

. . . is there a looming crisis of debt or deficits, such that sacrifices in general are necessary? No, there is not. Not in the short run – as almost everyone agrees. But also: not in the long run. What we have are computer projections, based on arbitrary – and in fact capricious – assumptions. But even the computer projections no longer show much of a crisis. CBO has adjusted its interest rate forecast, and even under its “alternative fiscal scenario” the debt/GDP ratio now stabilizes after a few years.

Actually, as the chart below shows, the deficit is already rapidly falling.  In fact, the decline in government spending over the last few years is likely one of the reasons why our economic growth is slowing so dramatically.

As Jed Graham points out:

From fiscal 2009 to fiscal 2012, the deficit shrank 3.1 percentage points, from 10.1% to 7.0% of GDP.  That’s just a bit faster than the 3.0 percentage point deficit improvement from 1995 to ’98, but at that point, the economy had everything going for it.

Other occasions when the federal deficit contracted by much more than 1 percentage point a year have coincided with recession. Some examples include 1937, 1960 and 1969.

In short, we do not face a serious problem of growing government deficits.  Rather the problem is one of too fast a reduction in the deficit in light of our slowing economy.

As to the challenge of the fiscal cliff—here we have to recognize, as Josh Bivens and Andrew Fieldhouse explain, that:

the budget impact and the economic impact are not necessarily the same. Some policies that are expensive in budgetary terms have only modest economic impacts (for example, the 2001 and 2003 tax cuts aimed at high-income households are costly but do not have much economic impact). Conversely, other policies with small budgetary costs have big economic impacts (for example, extended unemployment insurance benefits).

In other words, we should indeed allow the temporary tax rate deductions for the wealthy to expire, on both income and capital gains taxes.  These deductions cost us dearly on the budget side without adding much on the economic side.  As shown here and here, the evidence is strong that the only thing produced by lowering taxes on the wealthy is greater income inequality.

Letting existing tax rates rise for individuals making over $200,000 and families making over $250,000 a year, raising the top income tax bracket for both couples and singles that make more than $388,350, and limiting tax deductions will generate close to $1.5 trillion dollars over ten years as highlighted below in a Wall Street Journal graphic .

However, in contrast to President Obama’s proposal, we should also support the planned $500 billion in cuts to the military budget.  We don’t need the new weapons and studies are clear that spending on the military (as well as tax cuts) is a poor way to generate jobs.  For example, the table below shows the employment effects of spending $1 billion on the military versus spending the same amount on education, health care, clean energy, or tax cuts.

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And, we should also oppose any cuts in our non-security discretionary budget. Instead, we should take at least half the savings from the higher tax revenues and military spending cuts–that would be a minimum of $1 trillion–and spend it on programs designed to boost our physical and social infrastructure.  Here I have in mind retrofitting buildings, improving our mass transit systems, increasing our development and use of safe and renewable energy sources like wind and solar, and expanding and strengthening our social services, including education, health care, libraries, and the like.

Our goal should be a strong and accountable public sector, good jobs for all, and healthy communities, not debt reduction.  The above policy begins to move us in the right direction.

The Role Of Government In The Economy

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A big debate is underway about fiscal multipliers.  Sounds esoteric but it is not—it reveals that economics is far from an exact science and the outcome appears to confirm what most working people thought, which is that government spending can help an economy grow.

A fiscal multiplier is an estimate of the economic impact of a change in government spending.  The debate was triggered, surprisingly enough, by a small box in the International Monetary Fund’s annual publication, World Economic Outlook.  There, the International Monetary Fund (IMF) admitted that its previous estimates of fiscal multipliers were too low.

Here is what the IMF chief economist Olivier Blanchard wrote:

The main finding, based on data for 28 economies, is that the multipliers used in generating growth forecasts have been systematically too low since the start of the Great Recession, by 0.4 to 1.2, depending on the forecast source and the specifics of the estimation approach. Informal evidence suggests that the multipliers implicitly used to generate these forecasts are about 0.5. So actual multipliers may be higher, in the range of 0.9 to 1.7.

As part of the attack on the role of government in the economy, many economists, prior to the Great Recession, argued that fiscal multipliers were roughly equal to 1.  That meant a 1% reduction in government spending would likely cause a 1% decline in GDP, and a 1% increase in government spending would likely generate a 1% increase in GDP.

As the Great Recession got under way, many economists, including those at the IMF, began arguing for substantially lower multipliers, on the order of 0.5%.  On the basis of this reduced value, many forecasters argued for the benefits of austerity.  Debt was seen as a major problem and if fiscal multipliers were only 0.5%, a $1 cut in government spending would reduce debt by $1 but GDP by only 50 cents.

Well, after watching how austerity policies collapsed many economies around the world, especially in Europe, the IMF acknowledged that it had badly misjudged the size of the fiscal multiplier.  As Cornel Ban explains:

In contrast [to its previous low estimates], the October 2012 WEO found that in fact [fiscal multipliers] ranged between .9 to 1.7 (the Eurozone periphery is closer to the higher end of the range), an error that explained the IMF’s extremely optimistic growth projections for countries who front-loaded fiscal consolidation.  Assuming the multiplier was 1.5, a fiscal adjustment of 3 percent of GDP-as much as Spain has to do next year- would lead to a GDP contraction of 4.5 percent. It was momentous finding and those who had been skeptical of the virtues of austerity felt vindicated.

Barry Eichengreen and Kevin H O’Rourke provide additional evidence for large fiscal multipliers, in fact for larger multipliers than those proposed by the IMF.  According to them:

The problem is that standard theory doesn’t tell us much about the precise magnitude of the multiplier under [current] conditions. The IMF’s analysis, moreover, relies on observations for only a handful of national experiences. It is limited to the post-2009 period. And it has been criticized for its sensitivity to the inclusion of influential outliers.

Fortunately, history provides more evidence on the relevant magnitudes. In a paper written together with Miguel Almunia, Agustin Bénétrix and Gisela Rua, we considered the experience of 27 countries in the 1930s, the last time when interest rates were at or near the zero lower bound, and when post-2009-like monetary conditions therefore applied (Almunia et al. 2010).

Our results depart from the earlier historical literature. Generalizing from the experience of the US it is frequently said, echoing E Cary Brown, that fiscal policy didn’t work in the 1930s because it wasn’t tried. In fact it was tried, in Japan, Italy, and Germany, for rearmament- and military-related reasons, and even in the US, where a Veterans’ Bonus amounting to 2% of GDP was paid out in 1936. Fiscal policy could have been used more actively, as Keynes was later to lament, but there was at least enough variation across countries and over time to permit systematic quantitative analysis of its effects.

We analyze the size of fiscal multipliers in several ways. First, we estimate panel vector regressions, relying on recursive ordering to identify shocks and using defense spending as our fiscal policy variable. The idea is that levels of defense spending are typically chosen for reasons unrelated to the current state of the economy, so defense spending can thus be placed before output in the recursive ordering. We also let interest rates and government revenues respond to output fluctuations. We find defense-spending multipliers in this 1930s setting as large as 2.5 on impact and 1.2 after the initial year.

Second, we estimate the response of output to government spending using a panel of annual data and defense spending as an instrument for the fiscal stance.

Here too we control for the level of interest rates, although these were low virtually everywhere, reflecting the prevalence of economic slack and ongoing deflation. Using this approach, our estimate of the multiplier is 1.6 when evaluated at the median values of the independent variables.

These estimates based on 1930s data are at the higher end of those in the literature, consistent with the idea that the multiplier will be greater when interest rates do not respond to the fiscal impulse, whether because they are at the lower bound or for other reasons. The 1930s experience thus suggests that the IMF’s new estimates are, if anything, on the conservative side.

 Some economists remain unconvinced—in fact, some actually argue that government spending is incapable of creating jobs.  The economist Robert J. Samuelson was so upset to read a New York Times editorial which claimed that government spending creates jobs that he had to respond:

In 35 years, I can’t recall ever writing a column refuting an editorial. But this one warrants special treatment because the Times’ argument is so simplistic, the subject is so important and the Times is such an influential institution.

Here is the nub of his argument:

it’s true that, legally, government does expand employment. But economically, it doesn’t — and that’s what people usually mean when they say “government doesn’t create jobs.”

What the Times omits is the money to support all these government jobs. It must come from somewhere — generally, taxes or loans (bonds, bills). But if the people whose money is taken via taxation or borrowing had kept the money, they would have spent most or all of it on something — and that spending would have boosted employment.

In other words, because the government relies on the private sector for the money it spends, the jobs created by its spending cannot be a net addition to the economy.  Said differently, jobs supported by public spending are not real jobs.  There is a lot that can be said, but here is Dean Baker’s response:

Samuelson tells us that if the government didn’t tax or borrow or the money to pay its workers (he makes a recession exception later in the piece) people “would have spent most or all of it on something — and that spending would have boosted employment.”

Again, this is true, but how does it differ from the private sector? If the new iPhone wasn’t released last month people would have spent most or all of that money on something — and that spending would have boosted employment. Does this mean that workers at Apple don’t have real jobs either?

The confusion gets even greater when we start to consider the range of services that can be provided by either the public or private sector. In Robert Samuelson’s world we know that public school teachers don’t have real jobs, but what about teachers at private schools? Presumably the jobs held by professors at major public universities, like Berkeley or the University of Michigan are not real, but the jobs held at for-profit universities, like Phoenix or the Washington Post’s own Kaplan Inc., are real.

How about health care? Currently the vast majority of workers in the health care industry are employed by the private sector. Presumably these are real jobs according to Samuelson. Suppose that we replace our private health care system with a national health care service like the one they have in the U.K. Would the jobs in the health care no longer be real? . . .

How about when the government finances an industry by granting it a state sanctioned monopoly as when it grants patent monopolies on prescription drugs. Do the researchers at Pfizer have real jobs even though their income is dependent on a government granted monopoly? Would they have real jobs if the government instead paid for research out of tax revenue and let drugs be sold in a free market, saving consumers $250 billion a year?

Robert Samuelson obviously thinks there is something very important about the difference between working for the government and working in the private sector. Unfortunately his column does not do a very good job of explaining why. It would probably be best if he waited another 35 years before again attacking a newspaper editorial.

If people are confused about how our economy works, or doesn’t work, it is no wonder.

The Greek Crisis and Militarization

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Greece has been in recession for close to four years and its economy continues its downward slide.  Its unemployment stands at 20.9%, youth unemployment at 48%.  In the words of the Guardian’s economic editor:  

Greece is broke and close to being broken. It is a country where children are fainting in school because they are hungry, where 20,000 Athenians are scavenging through waste tips for food, and where the lifeblood of a modern economy – credit – is fast drying up.

According to the conventional wisdom, Greece’s current economic problems are the result of years of too much public spending on social programs and too little tax collection.  Foreign borrowing enabled the Greek state to finance its ever larger budget deficits and sustain growth.  However, this strategy reached its limits in 2008.  The global crisis dramatically increased the country’s deficits and foreign lenders grew worried about Greece’s ability to pay its debts.  Unable to tap credit markets, the Greek state and economy entered into crisis.  

In response to the crisis, European institutions and the IMF have offered the Greek state special loans (so they can pay their debts to foreign banks—mostly German and French).  In exchange, the Greek government has agreed to slash its spending.  This has meant massive cuts in state employment and social programs and, of course, a worsening of the country’s economic downturn.

Interestingly, while the media has demonized Greek workers for creating the deficits and moralized about their need to readjust to the realities of Greek economic capacities, little attention has been paid to military spending as a cause of the deficits and the unwillingness of European leaders to demand a significant change in Greek defense spending.

 Here is what a Guardian reporter has to say  

The current EU-IMF bailout remains conditional on further austerity measures, including reducing pensions, the minimum-wage and civil service jobs. However, one area of the Greek budget doesn’t seem to have received much scrutiny: its huge military spending. . . .

In 2006, as the financial crisis was looming, Greece was the third biggest arms importer after China and India. And over the past 10 years its military budget has stood at an average of 4% of GDP, more than £900 per person. If Greece is in need of structural reform, then its oversized military would seem the most logical place to start. In fact, if it had only spent the EU average of 1.7% over the last 20 years, it would have saved a total of 52% of its GDP – meaning instead of being completely bankrupt it would be among the more typical countries struggling with the recession. 

So, what is driving this military spending—well just as German and French banks have been among the biggest lenders to the Greek state, German and French arms producers have been among the biggest arms sellers to the Greek state.  As the Guardian article explains:

In the five years up to 2010, Greece purchased more of Germany’s arms exports than any other country, buying 15% of its weapons. Over the same period, Greece was the third-largest customer for France’s military exports and its top buyer in Europe. Significantly, when the first bail-out package was being negotiated in 2010, Greece spent 7.1bn euros (£5.9bn) on its military, up from 6.24bn euros in 2007. A total of £1bn was spent on French and German weapons, plunging the country even further into debt in the same year that social spending was cut by 1.8bn euros. It has claimed by some that this was no coincidence, and that the EU bail-out was explicitly tied to burgeoning arms deals.

Greece has finally begun to reduce its military spending, but the cuts in the military budget have been far smaller than those in social programs.  In fact, Greece remains in the top spot in the EU for spending on the military as a percentage of GDP and is still one of the world’s biggest weapons importers.

An article in the German press offers the following picture of how military spending is being handled relative to social programs:

In 2010 the military spending budget should have been cut by only 0.2 percent of economic output, or by €457 million. That sounds like a lot, but the same document proposed to cut back on social spending by €1.8 billion. In 2011, according to the EU Commission, Greece was to strive for “cutbacks in defense spending”. The Commission, though, didn’t make it explicit.

The Greek Parliament was quick to exploit this freedom. The 2012 budget proposes cuts to the social budget of another nine percent, or about €2 billion. The contributions to NATO, on the other hand, are expected to rise by 50 percent, to €60 million, and current defense spending by up to €200 million, to €1.3 billion – an increase of 18.2 percent.

And the German Federal Government’s stance? According to a spokesman, responding to an enquiry, the German government supports “the policy of consolidation of the Greek Prime Minister Papademos. The government’s guiding assumption is that the Greek government will, on its own responsibility, contemplate meaningful cuts in military spending.”

On June 17, Greece will hold national parliament elections.  As the Washington Post explains: 

Let’s recall the background. Greece owes a whole bunch of money it can’t repay. In February, the country received a $140 billion bailout from the IMF, the European Central Bank, and the European Commission. In exchange, Greece is supposed to make a bunch of sharp spending cuts. Greek voters don’t like this, given that their country’s economy is already in tatters. But if they don’t accept further austerity, they might not get the bailout. . . . So that’s the context for the upcoming Greek parliamentary elections.

The two parties leading in the opinion polls are Syriza (Coalition of the Radical Left), which rejects the austerity agreement and is promoting a restructuring of the Greek economy (of course, more is at issue than just military spending), and Nea Dimokatia (New Democracy), which has basically endorsed the status quo.  Here is an article that provides some background on the main parties contesting the upcoming election and here is a statement of Syriza’s program for economic transformation.  The statement is well worth reading; it includes policies that would be helpful for people in many countries.

Who Needs Government Anyway

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Representative Paul Ryan (Wisconsin), the chairman of the House Budget Committee, recently put forward his party’s budget plan.  Dean Baker reports on the Washington Post story which says of the plan that it “calls for spending cuts and tax changes that would put the nation on course to wipe out deficits and balance the budget by 2040.”  He notes that unfortunately the Post forgot to mention that the plan also largely does away with the government.  

The following table comes from the Congressional Budget Office analysis of the Ryan budget plan.  

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In 2011, spending on “health care” came to 5 percent of GDP, spending on “social security” equaled 4.75 percent of GDP, and spending on “other mandatory and defense and nondefense discretionary spending” totaled 12.5 percent of GDP.  Congressional Budget Office estimates are that by 2040, the Ryan plan will have reduced spending on “other mandatory and defense and nondefense discretionary spending” to 4.75 percent of GDP.  By 2050, that category will be down to 3.75 percent of GDP. 

As Baker explains:  

The defense budget is currently over 4.0 percent of GDP and Representative Ryan has indicated that he wants to leave it at this level. That would leave little for the Justice Department, Education Department, Park Service, education, transportation and everything else government does in 2040 and nothing in 2050. That fact would have been worth pointing out in this article. 

It is worth adding that the Congressional Budget Office noted in its report that “The amounts of revenues and spending to be used in these calculations for 2012 through 2022 were provided by Chairman Ryan and his staff.”  In other words, the Congressional Budget Office has taken no position on whether Ryan’s plan would actually produce the balanced budget it predicts.  This outcome is especially questionable since his plan projects increases in revenue along with cuts in taxes.  The Congressional Budget Office just extended the plan’s assumed values into the future using standard modeling procedures.   

At some point we really need to get serious about the destructive nature of private profit driven economic activity and the importance of strengthening the capacity of the state to regulate and redirect economic activity in line with majority needs. 

Written by marty

March 23rd, 2012 at 4:51 pm

Tax Dollars And The War

without comments

Here is a short (less than 4 minute) video that illustrates the fact that 53% of our tax dollars, conservatively estimated, go to finance our military.   

[youtube] http://www.youtube.com/watch?v=kFeduoDWKj4 [/youtube]

And here is a link to a recent study by Robert Pollin and Heidi Garrett-Peltier on the employment effects of military spending versus alternative domestic spending priorities, in particular investments in clean energy, health care, and education.

The authors first examine the employment effects of spending $1 billion on the military versus spending the same amount on clean energy, health care, education or tax cuts.  The chart below shows their results. 

defense.jpg

Moreover, even though jobs in the military provide the highest levels of compensation, the authors still find that “investments in clean energy, health care and education create a much larger number of jobs across all pay ranges, including mid-range jobs (paying between $32,000 and $64,000) and high paying jobs (paying over $64,000).”

Let’s see if these facts come up in the next Congressional budget debate.

Written by marty

December 19th, 2011 at 5:37 pm