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US Manufacturing: Guns R Us?

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Reader Jason Pl pointed out this post from Jon Taplin, which starts with the less than cheery chart on US durable goods production courtesy Floyd Norris. As you can see, the only growth biz is military:

Military contracting procedures means that work will stay with domestic players. So one could take the cynical view that the US has been willing to cede every kind of manufacturing we could, and defense contracting is by nature off that list.

But does this split have to do with bona fide security concerns? Yes and no. Why have we let chip manufacture go overseas? We are outsourcing more of our chip manufacturing to China (Taiwan is the biggest single foreign fabricator, which may explain China’s keen interest in reasserting control). Trade in advanced technology products is heavily weighed in favor of China.

Taplin gives a dystopian view:

We have so hollowed out our industrial plant that the only thing we are now producing is weapons of war. The great British Historian Arnold Toynbee’s theory about the decline of the Roman Empire has lessons for our current age.
The economy of the Empire was basically a Raubwirtschaft or plunder economy based on looting existing resources rather than producing anything new. The Empire relied on booty from conquered territories (this source of revenue ending, of course, with the end of Roman territorial expansion) or on a pattern of tax collection that drove small-scale farmers into destitution (and onto a dole that required even more exactions upon those who could not escape taxation), or into dependency upon a landed élite exempt from taxation. With the cessation of tribute from conquered territories, the full cost of their military machine had to be borne by the citizenry.

This I know. We cannot continue on this course of decline.

Yves here. I have to interject. “Cannot continue?” I see tremendous inertia as far as the path we are on is concerned. We not only have bread and circuses, have version 2.0, with offerings targeted by income level and age group. Back to Taplin:

While many of the elite escape taxation with their brilliant “tax shelter” accountants, the middle class (Rome’s “small scale farmers”) are being asked to shoulder the economic burden of empire.

Shortly after the election President Obama made it clear that the chokehold of the Military Industrial Complex over our economy was not going to change on his watch–…After all, with 4% of the world’s people why shouldn’t we spend 45% of the world’s military spending?

While Obama makes symbolic cuts in the Military budget, the House threw in 550 new earmarks into a $636 Billion Military Budget. Lyndon Johnson thought we could have both Guns and Butter, but he was wrong. Both Jimmy Carter and Bill Clinton were afraid to take on the Military Industrial Complex that the Republicans have always favored. Eisenhower was right that continuing on this disastrous course is a form of generational theft. According to Catherine Lutz the U.S. Military has “909 military facilities in 46 countries and territories.” This is truly insane. We need to bring the personnel on these bases home and start selling off the precious foreign real estate to help liquidate our massive debt.

I have only one question–Where is the national politician with the courage to say we no longer have to act as the unpaid policeman of the world?

My simplistic view is quite different. Our economic power is past its sell-by date. US leadership is deeply committed to maintaining whatever hold on global authoirty that we can. Nukes and a big navy, which makes us the only country that cna land a large army, are very helpful in that regard. How do you think our little chats with China over what we owe them would go if were weren’t the world’s sole superpower?

If we don’t manage our way out of our debt mess, we may wind up in the long run having to sell our “precious foreign real estate.” Maybe it’s time for someone to tell the DoD that failure to rein in Wall Street will create a security risk.

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28 comments

  1. Ina Pickle

    Yves, that is a revolutionary idea. . . perhaps literally. Why not pit the two biggest lobbying machines against each other? Hmmm . . . . .

    I've been thinking that I need to reread Gibbons. Seems timely.

  2. Human Head

    "I have only one question–Where is the national politician with the courage to say we no longer have to act as the unpaid policeman of the world?"

    He's in the Senate. Goes by the name of Ron Paul. You know, the one that was derided as crazy, in favor of the Serious and Respectable Candidates (read: owned) in the last election.

  3. cindy

    China would be keen to regain Taiwan even if it were just a pile of rocks a la Tibet.

    As for national security, one has to ask whether maintaining "all spectrum" hegemony really is in the best interest of the American people. Soviet Union went down this way, and we all know how that ended.

    "The power of a nation ultimately derives from its economic production" , Chapter 1, The Art of War.

  4. GregL

    I don't think we own our foreign bases; we are merely granted permission to operate bases on the land owned by the host government.

    In other words, there is no cash value to downsizing our overseas bases and upsizing domestic facilities.

  5. kievite

    Gregl: "there is no cash value to downsizing our overseas bases and up-sizing domestic facilities."

    Not true. Leases are often very expensive. Saving on a lease is a net saving. Plus transportation costs for people and equipment which soon might be greater the lease costs.

  6. VG Chicago

    America pays rent on most of its foreign bases. And that in addition to various “gifts” (i.e., foreign aid) and bribes to local politicians. Many times the US military also needs to build up the infrastructure around those bases, so the host country gets free freeways and airports. Therefore, comparing America to the Roman Empire is misguided. Of course, there are some similarities, but the models are very different. While the Romans were plundering their colonies, we now have to pay them – the flow of wealth is in reverse.

    As far as the steady deindustrialization of the nation, there may be some good news over the horizon. I am told by some of my contacts in the software development industry that over the past year they have seen a tremendous amount of projects formerly outsourced to places like India, China, and Russia, are now returning to the United States. Not only is the work ethics in those countries dismal, but American salaries have been stagnating for so long, they are quickly becoming competitive with those from the Thirds World.

    Vinny G. – “no nonsense common sense”

  7. But What do I Know?

    ""Where is the national politician with the courage to say we no longer have to act as the unpaid policeman of the world?""

    For same reason as Treason doth never prosper–there isn't one–because if any politician says it, he (she) will not be a "national" politician anymore. . . (BTW, Ron Paul is in the House.)

    A strategic retreat which successfully maintains the morale of the troops and allows the generals to remain in charge is one of the most difficult maneuvers to pull off, because even if you do it right you won't get any credit for it and it looks and feels as though you have lost. Small wonder that no politician has the stomach for it.

  8. "DoctoRx"

    I agree with Yves rather than Taplin. Unfortunately Obama insists on escalation in the Af-Pak region. The war machine keeps getting fed even by the allegedly anti-war candidate. Just like LBJ who escalated in Viet Nam after posing as the peace candidate in 1964.

    Seignorage is among other benefits our reward for being the world's sole major empire. Short-term I don't think the costs of empire are as large as commenters are saying. China's not close to replacing us. What happens to the Chinese miracle if the US/West Europe/Japan stopped investing in China? It's $2 T in Forex reserves are less than $1000 per citizen. The US just pledged or spent $23.7 Trillion (say) on the bailouts. IMO China needs the "West" more than the West needs China.

    While I agree w What Do I Know 11:29 AM about the difficulties of doing so, I believe the US needs to steadily shrink its foreign presence both because it's not right morally and will collapse someday anyway.

  9. soulmatic09

    @VG

    "Many times the US military also needs to build up the infrastructure around those bases, so the host country gets free freeways and airports. Therefore, comparing America to the Roman Empire is misguided."

    Actually, the analogy is apt. When Romans took over, they would install aqueducts, bridges, circuses, and other infrastructure projects. Part of the reason the Roman Empire was able to grow so large was because some societies welcomed the investment, technology, and military protection that came with them.

  10. Siggy

    That first graph is interesting. Who did we sell/ship all those aircraft to? Set Gibbons aside for the moment and consider the Civil War. Consider WWI and WWII (The Last Good War?). There are two aspects of result, winning the war and winning the peace. As to winning the war the winner wins because he has a superior industrial complex to support his effort, not because he is tactically superior. In fact there is good indication that you can be tactically inferior,but with a superior industrial complex you can still win. Now as to winning the peace, the opportunity for failure is enormous. At the end of WWI, the demand for reperations put Germany in a Box that made the WWII virtually a foregone conclusion. In the current era there have been three wars we didn't have to fight. Korea would have become a communist state and in that occurance would have imploded upon itself. Viet Nam had been a tribal feud for over 200 years. Now that it is communist and on its own it has limited ties to China and its survival rests on its three rice crops a year. Our current adventures in Iraq and Afghanistan are all about oil. What if we let the people of those countries duke it out among themselves and simply said to them, hey we're happy to buy your oil? What would happen, well we might not be able to go to Paris and sell a bunch of fighter planes and assorted military hardware. Oh and btw, that computer you use to blog is driven by a chip that was invented to run missle targeting systems. It was created in the 1950's by the military industrial complex. My point is that military exports are not all bad nor are they all good. We can export them all we want so long as we maintain a strong civilian industrial base along with our military competence. Our concerns today relate to our need to rethink our banking and financial systems and to discover what it is that we can manufacture and export along with our superior bombs and bullets.

  11. Anonymous

    I feel the need to take exception with the following statement by VinnyG, above: "While the Romans were plundering their colonies, we now have to pay them – the flow of wealth is in reverse."

    While our government may pay for leases for military bases on others soil, to say that the flow of wealth is in reverse belies any mention of the effects of American imperialism on these countries. I find it hard to believe that our trickle down economic fig leaf is providing much wealth for the citizens of foreign countries. We go into other countries and our mega engineering and construction companies get raw materials at rock bottom prices and build infrastructure that they turn around and charge ursury fees for use from the countries public. If you want to know what we do to other countries economic systems, read the Shock Doctrine.

    psychohistorian

  12. ronald

    President Carter tried to curb U.S. selling arms overseas and was met with a large wave of congressional and private resistance. This resistance was expressed via the MSM and became an important element in his 2nd term defeat. With Carter gone, war making vested interests regained control and has grown beyond there greatest dreams. The Carter lesson has not be lost on the political establishment!

  13. DownSouth

    @psychohistorian

    Agreed.

    Another text that fleshes out your argument is Greg Grandin's Empire's Workshop: Latin America, the United States and the Rise of the New Imperialism.

    Another is Carlos Fuentes' The Buried Mirror:

    Our perception of the United States has been that of a democracy inside and an empire outside: Dr. Jekyll and Mr. Hyde. We have admired democracy; we have deplored empire. And we have suffered the actions of this country, which has constantly intervened in our lives in the name of manifest destiny, the big stick, dollar diplomacy, and cultural arrogance.

    Now that America's oligarchs have run out of places outside the U.S. to exploit, having milked the globe for all it's worth, the American people have become the next targets for colonization. Most foreigners would probably be laughing their asses off at this–after all, what goes around comes around–if the consequences of doing so were not so dire for the rest of the world.

  14. tom a taxpayer

    Yes, perhaps now the Army needs to roll tanks into lower Manhattan and demand the surrender of Goldman Sachs and the other Wall Street enemy combatants whose taxpayer-supported risk-taking creates National Security risk. Federal and State prosecutors are just nibbling around the edges, but have not yet brought a Racketeer Influenced and Corrupt Organizations Act (RICO) prosecution to attack the Command-and-Control Center on Wall Street. Congress, the Obama administration, and the Federal Reserve are actively aiding and abetting the Wall Street enemy combatants, and forcing taxpayers to bail out and resupply the Wall Street enemy army.

    So, it looks like the U.S. Army may be the last resort. The one organization left standing who can rein in Wall Street.

  15. Anonymous

    Since there is absolutely no hope whatsoever that the franchise or the use of any other parliamentary device will ever change the existing order, looking to systemic collapse and wholesale reconstuction is the only promise that remains for the people of the United States. The arms lobby together with AIPAC – like the look alike drug and financial lobbies – so own and intimidate the White House and Congress that the only useful comparison is to the Mafia and the construction industries in NYC. In this respect one should view the extant systemic crisis as containing the germ of this recontruction. The machinations of reptiles like Obama, Geithner and Summers, the idiotic attempts at recovering and maintaining a lost illusion, are the material of a final death rattle, the first stage of which will be the inevitable defeat of the Af/Pak imperialist adventure. It will surely take time but it will just as surely happen.

    Lavrenti Beria

  16. Phillip Huggan

    It depends what you spend $ on. An Army biolab helped invent technology that analyzed Colony Collapse Disorder. Renovating home bases now is timely given unemployment. But there is also the Iraq spending that prototyped IEDs used in Afghanistan, that mandated more expensive Armour and more expensive road operations. If no Iraq there is maybe no need to order bottom-armoured vehicles, could throw the contract towards Veterans Affairs or storing nuclear waste or cyber security or whatever other large federal DoD Agency you can think of that doesn't work against itself…

    I'd go with the solution of efforting to keep Republicans out of office to keep military spending low. Good future surrogates for todays PNAC Holy War are making DoD responsible for R+D-ing new low footprint food supply and water supply solutions (they already do this for electricity). Obama seems to want to make nuclear proliferation a priority so I'd think this means lots of focus on waste storage solutions (to my knowledge reprocessing is alternative), enough to open up new nuclear waste storage University or DoD wings. It would also mean ranking CCS-compatible coal plants, nuke plants, and breeder reactors in terms of Homeland Security.

  17. mrmetrowest

    Large military assets, like aircraft carriers, are of no use against an advanced, nuclear armed adversary. They're only useful for overawing third world countries.

    Ships are big, slow and easy to spot. Against a country with ballistic missile technology, they'd all be underwater in short order. With small nukes, you only have to get a missile nearby to neutralize a whole carrier group.

    Of course, the US could threaten nuclear retaliation in such a scenario, but so could our adversary. So we're back to a MAD standoff, where we've been for the last half century or so.

    That huge spending ramp-up after 2001 is to protect us against goat-based forces in Afghanistan, and a smallish bunch of Middle Eastern fanatics who would most effectively be controlled by police and intelligence agencies.

    But you can never have too many weapons when you're fighting imaginary enemies.

  18. Anonymous

    mrmetrowest,

    "But you can never have too many weapons when you're fighting imaginary enemies."

    Now you're being cynical. You know darn well that that could only happen if we allowed ourselves to be joined at the hip with a tiny nation whose ethnic cleansing of her neighbors had nothing to do with National Socialism. Silly you.

  19. jlivesey

    "At the end of WWI, the demand for reperations put Germany in a Box that made the WWII virtually a foregone conclusion."

    Really? Then, a) Why did the much larger reparations that Germany imposed on France in 1870 not have the same effect? And, b) exactly how did reparations manage to do this when Germany never actually go around to paying them?

  20. Yves Smith

    jlivesey,

    Niall Ferguson discusses at considerable length in the second volume of his books on the Rothschild family how the Rothschilds undertook a major bit of financial engineering that had the effect of greatly lowering the cost of the 1870s reparations. Ferguson regards it as their crowning achievement.

    Read Keynes' Economic Consequences of the Peace. He was at the negotiations, and quit in disgust. It was very clear that Germany would not be able to make the payments.

    The German hyperinflation was the direct result of the reparations.

    Germany also suffered far more damage to its productive capacity in WWI than France did in the short 1870 conflict.

  21. Dave Raithel

    RE Human Head: Stopped clocks are right twice daily. A well worn cliche. Still true.

  22. Dave Raithel

    More generally: Confer Bowles, et al "After The Wasteland", which demonstrated that the US became a "garrison state economy" sometime in the mid-80's. What is a "garrison state economy?" It's when 1 of 11 jobs depends upon threat, force, intimidation, coercion, incarceration, coralling – all the factor inputs (prisons and jails, Kevlar, firearms, pepper spray, uniforms, vehicles used to conduct such, gasoline to run such vehicles, and etc. etc. etc.) When you get good at something, well, export it …

    And some people say there is no such thing as surplus repression…

  23. Jonathan

    I'd be very interested what the approximate values of military vs non-military spending are.

    Obviously the chart is extreme, but how close are the numbers?

    I'd hazard a guess that military spending might be 8-10% of the economy, but I'd be interested to know from someone informed.

  24. run75441

    yves:

    Would the question be better served or asked if we pondered on how to go from an economy whose growth is based upon the creation of wealth from the passage of paper as opposed to manufacturing omething that has value?

    It may be the war machine is something undesireable; but, what is the alternative? More W$ and paper value?

  25. profnickd

    Yves,

    The national security spending graph is interesting but quite misleading — total spending on national security as a percentage of GDP is what is relevant.

    Stated another way: what we want to know is the impact or burden of national security spending today, not the gross amount, even if converted to constant dollars.

    What the facts tell us is that we are spending today approximately half of what was spent in JFK's administration for national security, as measured by the impact of national security spending on GDP.

    To wit: national security spending as a percentage of GDP was 9% in 1963 — today it is slightly less than 5%.

    http://www.heritage.org/Research/Features/BudgetChartbook/Defense-Spending-on-the-Decline-Despite-War-on-Terror.aspx

  26. profnickd

    Re: Jonathan @10:08

    Non-defense spending at the federal level is vastly more than defense spending.

    The total proposed 2010 budget by President Obama is about $3.6 trillion.

    Total national security spending — which includes defense, homeland security, etc. — is about $707 billion.

    But three social welfare programs alone — Social Security, Medicare, and Medicaid — are over $1.5 trillion in spending, and of course this doesn't count any other entitlements (i.e., food stamps) or discretionary spending (i.e., NASA).

    http://www.gpoaccess.gov/usbudget/

    http://www.heritage.org/Research/Budget/upload/SR_63.pdf

  27. Karl Fredrik Forsberg

    Does anyone of you know the percentage of total value added in industry which is derived from military production?

    I know that the value added in american manufacturing was 1600 billion dollars in 2008 and probably maybe 1400-1500 billion dollars today. (according to national association of manufacturers).

    How much of this is due to the military? 10%? 15%?.

    It seems to me it could be pretty substantial with a military budget of 651 billion dollars + hidden expences in other departments.

    If anyone of you know please answer!

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