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Date: Thu May 04 2006 - 18:48:07 EDT
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Social vs. Military Spending: How the Pentagon Budget Crowds out
Public Infrastructure and Aggravates Natural Disasters-the Case of
Hurricane Katrina
by Hossein-zadeh, Ismael
Drake University
ABSTRACT
This paper puts forth (and documents) an argument that the escalating
military spending at the expense of non-military public spending is
steadily undermining the critical national objective of public-
capital formation (both physical and human) and that, if not stopped,
the resulting trend will stint long term productivity and economic
growth, as it erodes both physical and soft/social infrastructure. An
equally high opportunity cost of the colossal Pentagon budget in
terms of forgone or neglected public infrastructure (roads, bridges,
mass transit, dams, levees, and the like) is vulnerability in the
face of natural disasters, as evidenced, for example, by the recent
devastation of Hurricane Katrina.
INTRODUCTION
Prosperity and progress of a people or a nation depends not only on
its ability to create wealth but also on its wisdom to allocate it
judiciously. Due to the unique ability of the armed forces to
appropriate the lion's share of a nation's resources, close scrutiny
of the division of those resources between military and civilian
spending is of crucial importance. The significance of a sensible
allocation of public funds between military and civilian expenditures
goes beyond the immediate or short-term economic impact of such
expenditure. Perhaps more importantly, a disproportionately large and
escalating military apparatus tends to undermine the socio-economic
and political base that is supposed to sustain that apparatus.
U.S. military spending is now the largest item in the federal budget.
(Officially, it is the second highest item after Social Security
payments. But Social Security is a self-financing trust fund. So, in
reality, military spending is the highest budget item.) There is no
question that, due to its enormous size, military spending has
evolved as a crucial part of the U.S. economy. The question is
whether the resulting widespread dependence on military spending by
many workers and businesses is a positive development that needs to
be maintained, or whether it is an unfortunate development that needs
to be reversed or rectified.
In the debate over military spending, proponents of a large military
establishment, especially the powerful beneficiaries of war dividends
and champions of militarism, see nothing wrong or perverse about the
gigantic Pentagon budget. From the fact that large military spending
creates so many jobs and benefits so many businesses, they conclude
that, therefore, the Pentagon's appropriation and spending of public
money is an effective means of job creation and demand stimulation,
and hence of economic growth and prosperity. This view has come to be
known as military Keynesianism, after the renowned British economist
John Maynard Keynes, who argued that under conditions of inadequate
purchasing power the government should spend money in order to jump-
start the stagnant economy by stimulating demand. Proponents of this
view often cite the experiences of Nazi Germany in the 1930s and the
United States in World War II, Korea and Vietnam as evidence of
stimulating or beneficial economic effects of military spending. They
also defend military spending on long-term, productivity-enhancing
grounds: military spending stimulates investment and technical
innovation.
While acknowledging the economic effects of military spending on job
creation, demand stimulation, and technological innovations, critics
of inordinately large military spending argue that such benefits are
often not worth their cost in terms of opportunities forgone or
sacrificed: drain or curtailment of resources that could (and should)
be used for investment in both human capital (such as health and
education) and physical capital (such as roads, bridges, mass
transit, and schools) that could lead to larger economic gains,
especially long-term growth and prosperity. In this view, the
unfortunate addiction to the disproportionately large doses of
military spending needs to be remedied not only because it produces
too many guns and too little butter, but perhaps more importantly, a
top heavy military establishment will be unviable in the long run as
it tends to undermine the economic base it is supposed to nurture.
Furthermore, a large military establishment tends to be baleful to
democratic values, republican principles, and civil liberties. It
will also corrupt politics and policies both at home and abroad.
Perhaps more importantly, to the extent that jobs and livelihoods of
many U.S. citizens have become dependent on military spending, it
represents a regrettable dependence on a business that is geared to
war, death and destruction.
THE MAGNITUTE OF THE PENTAGON BUDGET
The official defense authorization bill for the fiscal year 2004,
signed by President Bush on November 24, 2003, stood at $401.3
billion. This figure exceeds the combined expenditures of the other
20 largest military spenders in the world and is about half of the
world's total military spending. The figure does not include the
costs of wars in Iraq and Afghanistan, which is fast approaching $300
billion. Although the official military budget already eats up the
lion's share of the public money, it nonetheless grossly understates
the true magnitude of the Pentagon budget. The "real national defense
budget," according to Robert Higgs of the Independent Institute, is
approximately 754, not 401.3, billion dollars. The reason for this
understatement is that the official Department of Defense (DoD)
budget excludes not only the cost of wars in Iraq and Afghanistan,
but also a number of other major cost items: the Coast Guard and the
Department of Homeland Security; nuclear weapons research and
development, testing and storage (in the Energy budget); veterans
programs (in Veteran's Administration budget); most military retiree
payments (in the Treasury budget); foreign military aid in the form
of weapons grants for allies (in the State Department budget);
interest payments on money borrowed to fund military programs in past
years (in the Treasury budget); sales and property taxes at military
bases (in local government budgets); and the hidden expenses of tax
free food, housing, and combat pay allowances. After adding these
disguised and misplaced expenses to the official DoD budget, Higgs
concludes: "Thus, the super-grand total in fiscal year 2004 will
reach the astonishing amount of nearly $754 billion-or 88 percent
more than the much-publicized $401.3 billion-plus, of course, any
additional supplemental spending that may be approved before the end
of the fiscal year." Higgs further points out: "Therefore, I propose
that in considering future defense budgetary costs, a well-founded
rule of thumb is to take the Pentagon's (always well publicized)
basic budget total and double it. You may overstate the truth, but if
so, you'll not do so by much" (Higgs 2004).
In relative terms, the official DoD budget of $401.3 billion for the
fiscal year 2004 represents 18.2 percent of the total federal budget
of $2200 billion for the year. The "real national defense budget" of
$754 billion, on the other hand, represents 34 percent of the total
federal budget. But even these inordinately high ratios under-
represent the real share of the defense budget. The reason for this
inaccuracy is that the Social Security budget-which is a trust fund,
and should be treated independent of the federal budget-is included
in the overall federal budget. To the extent that this practice
overstates the size of the federal budget, it thereby also
understates the share taken by the Pentagon budget. For example, if
for the fiscal year 2004 we take the Social Security budget of nearly
$495 billion out of the total federal budget of $2200 billion, the
remainder, which is sometimes called the federal funds portion of the
federal budget, will be $1705 billion. On this adjusted basis, the
ratio of the official DoD budget of $401.3 billion will be 23.5
percent, up from the 18.2 percent calculated on the basis of the
total federal budget. Likewise, the ratio of the "real national
defense budget" of $754 billion on the adjusted basis of $1705
billion will be 44 percent, up from 34 percent (Higgs 2004; see
also "Summary Federal Budget Tables, FY 2004,"
http://www.whitehouse.gov/omb/budget/fy2004/tables.html).
The enormous magnitude of the Pentagon budget can be grasped more
clearly through comparison and contrast. For example, in recent years
the Pentagon has been spending more money than all other
discretionary budget items combined. (These include education,
health, housing assistance, natural resources & environment,
transportation, veterans' benefits, science and space,
training/employment &social services, economic development programs,
and a number of other items.) According to Carlton Meyer, Editor of
G2mil: The Magazine of Future Warfare, "The USA now spends more money
in real dollars (inflation adjusted) on its military than at the peak
of the Vietnam war when some 500,000 GIs were in combat, and more
than during the Cold War when the powerful Soviet Union existed"
(2004). According to the Stockholm-based SIPRI Group, "The United
States led the world in defence spending [in 2003], accounting for 47
per cent of the total, followed by Japan with five per cent and
Britain, France and China, with four per cent each." The 47 per cent
U.S. share of total world military spending in 2003 has since gone up
to nearly 50 per cent (Moore 2004).
In what it claimed to be the first comprehensive accounting of the
costs of the war on the U.S., Iraq, and much of the rest of the
world, the Institute for Policy Studies (IPS), reported on June 24,
2004, that "the 151.1 billion dollars that will have been spent
through this fiscal year could have paid for comprehensive health
care for 82 million U.S. children or the salaries of nearly three
million elementary school teachers . . . the war and occupation will
cost the average U.S. household at least 3,415 dollars through the
end of this year." The report further points out: "If spent on
international programs, the same sum could have cut world hunger in
half and covered HIV/AIDS medicine, childhood immunization, and clean
water and sanitation needs of all developing countries for more than
two years" (Bennis, et al. 2004).
The fact that the Pentagon appropriates and controls more than one-
third of the entire federal budget has allowed it to forge the
largest constituency and/or dependents nationwide. Tens of thousands
of businesses, millions of jobs, and thousands of cities and
communities have become dependent on military spending. While a
handful of major contractors take the lion's share of military
spending, millions more have become dependent on it as the source of
their livelihood. As the late Senator William Fulbright observed some
35 years ago, "millions of Americans whose only interest is in making
a decent living have acquired a vested interest in an economy geared
to war. Those benefits, once obtained, are not easily parted with.
Every new weapons system or military installation soon acquires a
constituency" (Congressional Record; as cited by Lens 1970, pp. 45-
46).
It is not surprising then that not many people are willing to oppose
the continuing rise in the Pentagon budget-even if they might
philosophically be opposed to militarism and large military spending.
Because of the widespread presence of military installations and
production sites nationwide, few politicians can afford not to
support a continued rise in military spending lest that should hurt
their communities or constituencies economically. As Howard Swint,
Democratic candidate for Congress in West Virginia put it, "The all-
powerful cycle of military appropriations, driven by congressional
district-specific military pork as rewarded with campaign
contributions, prevents any meaningful effort towards
demilitarization" (2004). Trade unions seeking to preserve their
members' jobs often find themselves supporting military contracts,
even though they may not be in principle in favor of large military
spending.
MILITARY SPENDING AS ECONOMIC STIMULUS
Military spending represents a major source of demand for the U.S.
national product; indeed, it has remained the largest single source
of demand since World War II. An increase in military spending is
tantamount to injecting purchasing power into the economy, which will
then spur production, investment and employment. Not surprisingly,
major beneficiaries of military spending and their lobbyists often
defend their desire for continued military buildup on the grounds
that military spending stimulates demand, investment, employment, and
technical innovation. Expansion of military spending, even if it is
deficit spending, becomes especially more facile during times of
economic recession. For, during recessionary cycles, the Pentagon's
perennially insatiable appetite for continued expansion of its budget
converges with the conjunctural needs of economic policy makers to
use military spending as a counter-cyclical, recession-fighting
fiscal policy tool in the hope of fending off or ending economic
recession. This explains why, in the post-World War II period, some
of the most drastic increases in military spending have taken place
during periods of economic contraction. For example, when the
immediate postwar economic boom of 1947-48 turned to the 1949-50
contraction, "and business analysts almost universally predicted that
serious recession was imminent," President Truman invoked the Soviet
threat and drastically increased military spending (Cypher 1981, pp.
12-13).
Likewise, the heightened Cold War hostilities of the late 1970s and
early 1980s, which came to be known as the Second Cold War, and the
ensuing expansion of military spending were significantly prompted by
the need to end the long economic stagnation that had started earlier
in the 1970s. Depressed domestic market in the 1970s, combined with
powerful competitors in international markets, had seriously
threatened industries such as steel, autos, shipbuilding, aerospace,
and electronics. Heightened military spending in the late 1970s and
early 1980 proved to be a shot in the arm of these and many other
anemic industries that benefit, directly or indirectly, from such
expenditures. The impact of President Reagan's drastic increases of
military expenditures on national economic recovery can perhaps be
gauged by this observation: "In the second quarter of 1980 the Gross
National Product fell further. . . . Speculation that the economic
situation might duplicate that of 1929 was widespread. Then, almost
as suddenly, the recession of 1980 was over. Few noted that one of
the major reasons for this reversal was the huge jump of roughly $25
billion in new military contracts issued in fiscal year 1980."
Reflecting that close connection between military spending and
economic recovery, Casper Weinberger, the Secretary of Defense at the
time, remarked that arms buildup is "the second half of the
administration's program to revitalize America" (Cypher 1981, p. 15).
A similar connection can be detected between the 2000-2002 recession
and the Bush administration's drastic increases in the Pentagon
budget. It is true that the increases were approved largely to
finance the administration's wars in Iraq and Afghanistan. But the
ease with which they were approved was not unrelated to economic
policy makers' need to stimulate the economy. Commenting on the
economic impact of the heightened military spending under President
Bush, James Cypher of the California State University at Fresno
wrote, "Much of the new [military] spending will go to new
technologies. The information technology sector will probably gain
the most . . . according to Business Week, electronics and
communications components accounted for 40 percent of weapons
purchases. So the jump in military spending will function as an
industrial policy for the information technology and communications
industries, boosting these hard-hit sectors of the U.S. economy"
(Cypher 2002, p. 19).
This is why (in addition to short-term demand and/or employment
boosting) military spending is also defended on long-term,
productivity-enhancing grounds: military spending stimulates
investment and technical innovation. The idea here is that military
spending enhances productivity through technological spin-off:
military spending in research and development and the resulting high
technology arms production will be sooner or later transmitted to the
civilian sector, thereby leading to economy-wide improvement in
productivity. A number of examples are frequently cited in support of
this argument. For instance, in an October 1, 2001 article that
credited military spending for a lot of post-World War II
technological breakthroughs, Business Week wrote: "In fact, defense
spending on research and development has sparked much innovation.
Microchips, radar, lasers, satellite communications, cell phones,
GPS, and the Internet all came out of Defense Dept. funding of basic
research at the Massachusetts Institute of Technology, Stanford
University and national laboratories. There were breakthroughs at IBM
and Bell Laboratories, and all were commercialized by Intel Corp.,
Motorola Inc., and many other corporations."
WEAK/DUBIOUS ARGUMENTS AGAINST MILITARY SPENDING: MILITARY
BUILDUP "CROWDS OUT" NON-MILITARY PRIVATE SECTOR INVESTMENT
"Crowding out" is essentially a conservative, neoclassical/neoliberal
economic theory that is often invoked in economic policy debates to
buttress arguments against social spending. Although the theory was
originally developed by anti-interventionist, conservative economists
and politicians in their campaign against public sector spending in
general, it has been adopted in recent years and decades by many of
their liberal counterparts to argue against large military
expenditures.
The theory makes two closely linked claims. The first claim, which is
sometimes called the "theory of resource diversion," maintains that
public-sector expenditures, military or otherwise, lead to an equal
and offsetting decrease in private investment. That is, because there
is a direct competition for economic resources (financial, labor,
production capacity, etc.) between the public and private sectors,
any spending by the public sector is tantamount to an equal amount of
lost investment by the private sector.
But this argument assumes that the Pentagon and the non-military
private investors always compete over a fixed or finite pool of
financial resources. This claim implicitly assumes that non-military
investors are always short of funds for investment, that they
constantly compete with the Pentagon for the same dollars in
financial markets, and that, therefore, every dollar borrowed and
spent by the Pentagon is a dollar lost in capital markets for non-
military investors. Yet, many corporations and businesses often have
plenty of internal financial resources as a result of their retained
earnings, or undistributed profits; and what they often seek is not
so much capital or credit as it is profitable outlets for investing
their abundant cash (see, for example, Mandel 1975, Chapter 9).
In terms of macroeconomic categories, the "crowding out" argument
implicitly assumes that the overall/national private sector
investment (I) and public sector spending (G) are strictly limited by
the overall/national amounts of savings (S) and tax dollars (T); that
is, (I + G) = (S + T). It follows from this assumption that, given
total national savings (S + T), if G is increased, I must be
decreased accordingly, and vice versa. In this way, a direct trade-
off is established between I and G because the combined source of
their funding (S + T) is implicitly assumed to be given as a fixed
and inflexible amount. But (I + G) = (S + T) is a financing or income-
expenditure equilibrium condition (meaning that, ideally, one should
not go beyond one's means); it is rarely an actual or real-world
state of affairs. In the real world, and in the short- to medium-
term, funding sources of I and G are much more flexible than S, T, or
(S + T). The credit system, the money supply and, hence, the sources
of funding for both I and G are quite flexible in advanced market
economies. For example, during periods of expanding business cycles
and optimistic economic scenarios investors would not be constrained
by the existing pool of national savings, or by the financial
resources of the banking system, because during such periods of
optimism financial institutions' ability and willingness to extend
credit becomes quite flexible-almost unlimited. As one officer of the
New York Federal Reserve Bank has put it, "In the real world, banks
extend credit . . . and look for reserves later. In one way or
another, the Federal Reserve will accommodate them"
(Heilbroner/Galbraith 1990, p. 383).
The claim that the Pentagon and the non-military private sector
always chase a fixed or finite amount of dollars in financial markets
may be true during cycles of economic growth and expansion, when
businesses tend to expand capacity, but not so during cycles of
economic decline or contraction. During periods of economic slowdown
or recessionary cycles, many businesses simply opt for retrenchment
and downsizing, whether they have cash or not. It is usually during
such periods of depressed economic conditions and high unemployment
that efforts to increase military spending have been most successful,
since under such circumstances military expenditures are viewed as
stimulus shots in the arm of the depressed economy. Drastic increases
in military spending in the early 1950s, the early 1980s, and the
early 2000s all came about on the heels of the respective
recessionary cycles of those times. Obviously, the large military
expenditures under such economic conditions do not push or "crowd"
out non-military industrialists from capital or credit markets. On
the contrary, such expenditures might spur them into action by
providing both new purchasing power in the market and opportunities
for profitable investment outlets (Cypher 2002; Wolf 2005; Atesoglu
2004).]
The argument that military spending diverts investment resources away
from the non-military private sector is dubious on yet another
ground: it assumes that increases in the Pentagon appropriations are
financed by increases in taxes on corporate profits and/or high
incomes (i.e., by taxing the financial resources for investment, or
the so-called investable funds). Yet, this is not necessarily the
case. In fact, increases in U.S. military spending since the early
1980s have been accompanied by decreases in taxes on corporate
profits and higher earnings. The U.S. ruling class has diligently
made it certain that increases in the Pentagon budget would not
divert investable resources away from the non-military private
sector. Those increases in the Pentagon budget have been financed,
instead, by cuts in non-military public spending, by borrowing from
the Social Security Trust Fund, and by plunging the nation into debt
and deficit. Indeed, during the last three decades or so, large
Pentagon appropriations have been used as a device to strengthen, not
weaken, the private sector. As Richard Du Boff aptly points out: "For
antigovernment conservatives, military expenditures have acted as a
regulatory mechanism, expanding government support for private
enterprises and limiting the expansion of the federal government for
virtually all non-military purposes" (Du Boff 1989, p. 10).
The second major argument of the "crowding out" theory, in addition
to "resource diversion" argument, is that the resources diverted from
non-military private-sector production to military production do not
generate as many positive or stimulating economic effects (in terms
of employment, economic growth, and technological or productivity
enhancement) as would non-military or civilian production. Robert W.
DeGrasse, an exponent of this view and the author of Military
Expansion: Economic Decline, writes, for example, "Since soldiers and
arms producers do not create goods and services that can be consumed
by others," military spending can be "viewed as an impediment to
economic progress" (1983, p. 55).
Lloyd J. Dumas, another proponent of this view, likewise
writes: "Churches are constructed and bibles are printed not to
provide material well being, but to help fulfill the human need for
spiritual guidance. . . . By the same token, battle tanks and
missiles do not themselves add to the material standard of
living . . . they do not directly contribute to the central purpose
of the economy and so do not have any economic value. It is logical,
then, to classify activities that result in goods or services that do
not have economic value as economically non-contributive" (initial
italics). Dumas further writes, "There is no question that the
production of military goods and services is non-contributive
activity. Whatever else may be said for such products, they do not
add to the present standard of living as consumer goods do, or to the
economy's capacity to produce standard-of-living goods and services
in the future, as producer goods do" (2005, p. 4).
A detailed analysis of the theoretical weaknesses of these and
similar "crowding-out" arguments is beyond our discussion here.
Suffice it to say that such weaknesses stem primarily from
conceptions of what constitutes productive labor or activities and
what constitutes unproductive ones. Arguments that military
production is "economically non-contributive," or unproductive, tend
to view productive activities in an ahistorical sense; that is, in
terms of their general social and economic usefulness. Yet, from a
capitalistic point of view-or, more precisely, from the viewpoint of
capital-any labor or activity that is profitable is also productive,
regardless of what it produces or how its products are used. What
defines productive labor under capitalism is exchange value, not use
value, to borrow Karl Marx's felicitous words.
On empirical grounds, too, the hypothesis that economic effects of
Pentagon-financed investment are smaller than those of non-military
investment has never been conclusively supported by evidence.
Research results of econometric studies of the relationship between
military spending and economic performance, including both cross-
country comparisons and time-series comparisons within the same
country, are at best mixed: there are as many studies that tend to
reject this hypothesis as those that tend to support it. For example
while DeGrasse (1983), Smith and Smith (1983), and Ward and Davis
(1992) found negative links between military spending and economic
performance, Atesoglu (2002), Nordhaus (2002), and Fordham (1998)
found positive links. There are yet other researchers who have found
no or negligible links between military spending and economic
performance (Gold 2005, Payne and Ross 1992, and Kinsella 1990).
A major part of these mixed results seems to be due to the
researchers' choice of the time period, or economic cycle, for their
studies. For instance, researchers who focus on the long cycle of
economic slowdown of the late 1960s through the early 1980s in the
United States tend to attribute the sluggish economic performance of
those years to the large U.S. military spending: "Our analysis
indicates that America's higher share of gross domestic product (GDP)
spent on the military has contributed to the decline in manufacturing
competence." By the same token, from the fact that the economies of
Germany and Japan, two countries with very small military spending at
the time, performed quite strongly during that period, these
researchers conclude that there must be a negative correlation
between military spending and economic growth, technological progress
and productivity enhancement: "Nations with higher military burdens
tend to have lower levels of investment and lower productivity
growth" (DeGrasse 1983, p. 10).
On the other hand, researchers who have focused on the economic
performance of these major industrialized countries in the 1980s and
1990s have come to the opposite conclusion because during those
decades the U.S. and U.K., the two countries with large military
expenditures, enjoyed stronger economic performance than did Germany
and Japan, the two countries with smaller military expenditures.
These researchers further invoke the experiences of Nazi Germany in
the 1930s and of the United States in World War II, Korea and Vietnam
as further evidence that military spending stimulates the economy
(Nordhaus 2002; Wolf 2005; Atesoglu 2004).
A major claim of the "crowding out" theory is that, for equal amounts
of spending, military production does not create as many jobs as
civilian production: ". . . military spending does create employment,
but it actually generates fewer jobs for the buck than equivalent
civilian expenditures" (Bell, et al. 2004). This argument tends to
stand the test of evidence better than other hypotheses of
the "crowding out" theory. For example, a 2002 Congressional Budget
Office report found that every $10 billion spent on weapons generates
40,000 fewer jobs than $10 billion spent on civilian programs (Gold
2002). The main reason that military production creates fewer jobs
than the equivalent civilian investment is that military production
tends to use relatively more capital or equipment and less labor than
most other industries-although not all other industries. A study
conducted in the early 1980s by the Employment Research Associates
showed that military production created roughly 28,000 jobs per
billion dollars of investment. The study also indicated that while
(for the same billion dollars) most civilian industries such as
public works projects and education services created more jobs, there
were also a number of civilian industries such as oil refining and
car manufacturing that created fewer jobs. Overall, the 28,000 arms
production jobs were only "slightly less than the 30,000 jobs created
by the median industry in the Bureau of Labor Statistics' input-
output model" (DeGrasse 1983, pp. 30 and 41). The claim that military
production creates "fewer jobs for the buck than the equivalent" non-
military production is, of course, relevant only to the part of the
Pentagon budget that is spent on its purchases for procurement
purposes, the portion that is spent by its contractors for arms
production. The argument is irrelevant to the part of the Pentagon
budget that goes directly to pay its personnel because government
employment created by military spending is comparable to other types
of federal employment. Money for civil service workers creates
approximately the same number of jobs whether it is spent by the
Defense Department or by other departments.
In brief, the theory that military spending crowds out non-military
private-sector investment and/or production and, therefore, impedes
economic performance is a weak theory. At best, it is inconclusive
and unconvincing; at worst, it is overwhelmed by counter arguments
and evidence that military spending is more likely to be stimulating,
not impeding, an advanced market economy. The argument is based on
dubious assumptions that tend to downplay the "spin-off" and
innovation effects of military spending. It is true that exotica
like "star wars" may be diverting high tech resources, especially the
highly skilled labor force such as engineers and scientists, from
critical civilian resources. But it should also be remembered, once
again, that it was the Cold War era military competition that brought
forth the computer, and the space race gave birth to the
semiconductor. Likewise, "several other key industries-aircraft and
engines, composite materials, communications equipment, scientific
instruments-received their initial stimulus and production runs from
military contracts" (Du Boff 1989, p. 5). It is important to recall
that WW II military spending brought the U.S. economy out of the
lingering effects of the 1930s depression. One should likewise keep
in mind that the drastic military increases of the early 1950s helped
reverse the recessionary cycle of the late 1940s, and the similarly
sweeping increases of the pentagon expenditures of the early 1980s
helped end the 1980-82 recession.
But while the claim that military spending crowds out non-military
private sector investment is dubious, there is no question that it
crowds out non-military public sector spending, that is, spending on
public capital formation, both human and physical capital. This will
be examined next.
MILITARY SPENDING CROWDS OUT PUBLIC, NOT PRIVATE, SECTOR SPENDING: A
REGULATORY MECHANISM TO REVERSE THE NEW DEAL AND REDISTRIBUTE
NATIONAL RESOURCES IN FAVOR OF THE WEALTHY
It follows from the above discussion that what gets pushed out, or
forgone, by military spending is often not private-sector investment
spending but non-military public spending. This includes both
physical capital, or physical infrastructure (such as roads, bridges,
mass transit, schools, drinking water, wastewater, dams, solid waste,
hazardous waste, navigable waterways and energy) and human capital,
or soft/social infrastructure, such as health and education. In other
words, it is often the proverbial butter that gets melted away when a
disproportionately large share of public money is allocated to the
production of guns.
Official macroeconomic figures show that, over the past five decades,
government spending (at the federal, state and local levels) as a
percentage of GNP (gross national product) has remained fairly steady-
at about 20 percent. Given this nearly constant share of the public
sector of GNP, it is not surprising that increases in military
spending have almost always been accompanied or followed by
compensating decreases in non-military public spending. This is, of
course, not fortuitous because instead of financing through
progressive taxation such additions to military spending have been
increasingly accompanied by tax cuts on the wealthy-which have then
forced cuts on non-military public spending in order to close the
budget gaps that are thus created. For example, in the early 1980s,
as President Reagan drastically increased military spending, he also
just as drastically lowered tax rates on higher incomes. The
resulting large budget deficits were then paid for by more than a
decade of steady cuts on non-military spending. Likewise, the
administration of President George W. Bush has been pursuing a
similarly sinister fiscal policy of cutting social spending while
increasing military spending and granting the wealthy huge tax
breaks.
The trade-off between military and civilian components of public
spending was also confirmed by the fact that when, for example, by
virtue of FDR's New Deal reforms and LBJ's metaphorical War on
Poverty, the share of non-military government spending rose
significantly the share of military spending declined accordingly.
From the mid-1950s to mid-1970s, the share of non-military government
spending of GNP rose from 9.2 to 14.3 percent, an increase of 5.1
percent. During that time period, the share of military spending of
GNP declined from 10.1 to 5.8 percent, a decline of 4.3 percent. (Of
course, this did not mean that military spending declined in absolute
terms; it declined only as a ratio of a bigger and bigger GNP, and in
relation to social spending.) That trend was reversed when President
Reagan took office in 1980 (Du Boff 1989, p. 6).
As Reagan embarked on his "rearming of America," as he put it, and
successfully put into effect his notorious supply-side tax cuts for
the wealthy, he also cut non-military public spending to make up for
the resulting budget shortfalls. From 1978 through 1983, real
military spending climbed more than 28 percent, from $161 billion to
$207 billion. During that period, real federal grants to state and
local governments-a major source for investment in public works
projects-dropped 25 percent, from $109 billion to $82 billion. From
1983 through 1988, military spending jumped another 27 percent in
real terms, while federal grants to state and local governments "were
practically unchanged. Thus, in the late 1980s only 13 percent of
state and local government spending was going to public capital
formation compared with an average of 30 percent in the 1950s and
1960s" (Ibid. p. 8).
Although President Reagan's military spending hikes and his supply-
side tax cuts helped turn the stagnant economy of the 1970s into the
expanding cycle of the 1980s, by the same token it also helped create
an imbalance in the opposite direction: insufficient investment in,
hence insufficient formation of, physical public capital such as
highways, bridges, mass transit, waste water facilities, hazardous
waste sites, and the like. The resulting imbalance, or gap, between
the expanding economy and the shrinking investment in public
works/capital "produced a crunch, in the form of an expanding private
economy generating greater demands for public services that cannot be
supplied by a public sector becoming relatively smaller. Its
manifestation is the dilapidated state of the public infrastructure-
streets and highways, bridges, mass transit and railways" (Ibid. p.
7).
In March 2001, the American Society of Civil Engineers (ASCE) issued
a "Report Card for America's Infrastructure," grading 12
infrastructure categories at a disappointing D+ overall, and
estimating the need for a $1.3 trillion investment to bring
conditions to acceptable levels. In September 2003, ASCE released a
Progress Report that examined trends and assessed the progress and
decline of the nation's infrastructure. The Progress Report, prepared
by a panel of 20 eminent civil engineers with expertise in a range of
practice specialties, examined 12 major categories of infrastructure:
roads, bridges, mass transit, aviation, schools, drinking water,
wastewater, dams, solid waste, hazardous waste, navigable waterways
and energy. The report concluded: "The condition of our nation's
roads, bridges, drinking water systems and other public works have
shown little improvement since they were graded an overall D+ in
2001, with some areas sliding toward failing grade." Thomas L.
Jackson, ASCE President, pointed out: "Time is working against our
nation's infrastructure. . . . Since we graded the infrastructure in
2001, our roads are more congested than ever, the number of unsafe
and hazardous dams has increased, and our schools are unable to
accommodate the mandated reductions in class size"
(http://www.asce.org/reportcard/index.cfm?reaction=news&page=5
Commenting on this ominous trend of the nation's infrastructure,
Seymour Melman, emeritus professor of industrial engineering at
Columbia University, wrote, "All this is an important indicator of
the opportunity cost, of what has been forgone, as a consequence of
the Permanent War Economy" (Melman 2003).
Proponents of laissez-faire economics-interchangeably called
neoclassical, neoliberal, or supply-side economists-tend to view
government spending on public capital as a burden on the economy.
Instead of viewing public sector spending on infrastructure as a long-
term investment that will help sustain and promote economic vitality,
they view it as an overhead. In other words, they seem to lose sight
of the indirect, long-term returns to the tax dollars invested in the
public capital stock by focusing on the current, short-term balance
sheets. Yet, evidence shows that neglect of public capital formation
can undermine long-term health of a market economy in terms of
productivity enhancement and sustained growth.
For example, a 1987 study by the Chicago Federal Reserve Bank
concluded that "the rates of return are now higher on public than on
private investment." The study pointed out that there had been a
drastic decline in public capital formation since the 1960s (an
ominous trend that continues to this day): "public investment was as
high as 2.3 of GNP in 1965-69, but by 1980-84 it had fallen to a mere
0.4 percent." The study argued that the decline in public capital
formation paralleled a decline in the rate of profit on private
investment. The reason for this correlation is that as the public
investment on infrastructure is cut, private investors find that
their costs are higher for transportation, water, and so on. Thus a
deficiency of public investment hurts the private sector: "If public
capital formation were to return to its 1953-1969 average of 2.1
percent of GNP, private profitability would rise by over 2 percentage
points. The total national capital stock would be higher, and the
economy would be more productive" (Heilbroner/Galbraith 1990, pp. 299-
300).
Continued increase in military spending at the expense of non-
military public spending has undermined more than physical
infrastructure. Perhaps more importantly, it has also undercut public
investment in soft/social infrastructure such as health care,
education, nutrition, housing, and the like-investment that would
help improve quality of life, human creativity and labor
productivity, thereby also helping to bring about long-term
socioeconomic vitality. Investment in human capital-anything that
improves human capacity and/or labor force productivity, such as
education and health care-is a major source of social health and
economic vitality over time.
Sadly, however, public investment in such vitally important areas has
been gradually curtailed during the past quarter century or so in
favor of steadily rising military spending. Evidence of this
regrettable trend is overwhelming. To cite merely a few
examples: "The war priorities have depleted medical and education
staffs. U.S. medical planning now includes programs to recruit large
numbers of nurses from India." And again: "Shortages of housing have
caused a swelling of the homeless population in every major city.
State and city governments across the country have become trained to
bend to the needs of the military-giving automatic approvals to its
spending without limit. The same officials cannot find money for
affordable housing" (Melman 2003). The New York Times columnist Bob
Herbert reported on 6 February 2003 that, at the time, some 5.5
million young Americans, age 16 to 24, were undereducated,
disconnected from society's mainstream, jobless, restless, unhappy,
frustrated, angry and sad. Commenting on this report, Professor
Seymour Melman of Columbia University wrote: "This population, 5.5
million and growing, is the product of America's national politics
that has stripped away as too costly the very things that might
rescue this abandoned generation and train it for productive work.
But that sort of thing is now treated as too costly. So this
abandoned generation is now left to perform as fodder for well-
budgeted police SWAT teams" (Ibid.)
Ever since the Great Depression (and the concomitant social pressure
from below) forced the New Deal reforms on the U.S. ruling elite,
opponents of social spending were on the lookout to undermine those
and other reforms that were put into effect in the 1950s and 1960s as
part of what came to be known as the "war on poverty." That
opportunity arrived when President Reagan arrived in the White House.
As the opponents of social spending began to put into effect their
supply-side economic policies through the Reagan administration, it
soon became clear that their strategy to roll back the New Deal and
other poverty-reducing reforms was not very far from cynical: drastic
tax cuts for the wealthy along with drastic hikes in military
spending. As this combination created big budget deficits, it forced
cuts in non-military public spending as a way to fill the budget gaps
that were thereby created. Thus, for example, a frustrated but
powerless Senator Ernest Hollings bitterly complained in 1984 that
the combination of raising the Pentagon budget and lowering tax rates
on high incomes had "intentionally created a deficit so large that we
Democrats will never have enough money to build the sort of
government programs we want" (Du Boff 1989, p. 10). David Stockman,
President Reagan's budget director and one of the main architects of
his supply-side tax cuts, implicitly confirmed this cynical policy of
simultaneously raising military spending and cutting taxes on the
wealthy in order to force cuts in non-military government
spending: "Cutting defense had never been my real ideological agenda.
My aim had always been to force down the size of the domestic welfare
state to the point where it could be adequately funded with the
revenues after the tax cut" (Ibid.).
With minor exceptions, the trend that was thus set in motion in the
early 1980s-sustained increases in military spending financed
primarily by sustained cuts in non-military public spending-continues
to this day. The resulting steady decline in social spending has had
dire consequences: increased economic insecurity for many, further
deepening of class divisions, and a considerable slowdown or reversal
of the so-called upward social mobility that appeared so promising in
the immediate few decades after World War II.
Opponents of social spending tend to justify these policies in terms
of market mechanism: that all they want is to keep "government hands
off the people's pocket" and to let the "invisible hand of the market
mechanism" regulate the economy. Yet, their twin policy of tax break
for the wealthy and lion's share of public money for military
industries seems more akin to an iron fist that is designed to
redistribute national resources in favor of the wealthy than the
invisible hand of market mechanism. Aptly calling this strategy
a "regulatory mechanism," Richard Du Boff of Bryn Mawr College,
author of Accumulation & Power, writes:
For over four decades now, the "iron triangle"-Congress, the
Pentagon, and the prime arms contractors-has kept the double-edged
sword of military spending well honed. One edge bolsters aggregate
demand and corporate profits in the economy; the other keeps
resources away from a potentially vigorous and attractive civilian
government sector. For antigovernment conservatives, military
expenditures have acted as a regulatory mechanism, expanding
government support for private enterprises and limiting the expansion
of the federal government for virtually all non-military purposes
(1989).
An ominous-though logical-consequence of the use of the Pentagon
appropriations as a redistributing mechanism of national resources in
favor of the wealthy has been further exacerbation of economic
inequality. Calling this insidious mechanism of resource allocation
in favor of the affluent "redistributive militarism," James Cypher of
California State University at Fresno wrote: "Redistributive
militarism functioned to transfer income from those in the bottom 80
percent of income distribution to those within the top 20 percent
through: (1) an expansion in military procurement of unprecedented
proportions; (2) increasingly lax procurement practices, which
permitted both higher profit margins and a greater volume of business
for arms contractors; (3) a substantive increase in the relationship
between arms buildups and federal deficits." The last point of this
quotation refers to the fact that when military buildup is financed
not through progressive taxation but through borrowing, as has been
done in the U.S. since the early 1980s, it serves to transfer
increasing amounts of public money to the lenders or bondholders of
federal debt "who, overwhelmingly, are to be found within the top 20
percent of the distribution of income." That is, partisans of
militarism tend to finance their continued military buildup not by
paying their "fair" share of taxes but by lending what they do not
pay in taxes to the federal government and, of course, earning
interest (Cypher 1991, pp. 609-610).
When military spending escalated during World War II, President
Franklin D. Roosevelt told the American people, "Not a single war
millionaire will be created in the United States as a result of this
world disaster" (Bell, et al. 2004). Today, however, war and
militarism have become major vehicles to the land of millionaires and
billionaires. Major Pentagon contractors and their CEOs are among the
richest corporations and individuals nationwide. Today's earnings of
the CEOs of major Pentagon contractors, once roughly the same as
their counterparts in other industries, are significantly higher.
From 200l to 2002, defense spending rose by l4 percent, but median
total compensation of CEOs at the 37 largest publicly traded defense
contractors leaped by nearly 79 percent. In 2002, CEOs of major
defense contractors raked in an average of $11.3 million-577 times as
much as the annual earnings of an Army private of $19,600 risking his
or her life in Iraq. These soldiers are obviously not winners, nor
are persons in the reserves and National Guard who are called to
protracted active duty overseas. The real winners are war industries,
their CEOs, and their lobbyists, who are bilking the American
taxpayers. This is a clear vindication of President Dwight
Eisenhower's prescient warning that the "military-industrial-complex
[would] cause military spending to be driven not by national security
needs but by a network of weapons makers, lobbyists and elected
officials" (Ibid.).
Another ominous consequence of the escalating defense appropriations,
combined with deep tax cuts for the wealthy, has been fiscal
difficulties at all levels of government. At the federal level,
budget deficit is fast approaching half a trillion dollars and the
national debt (which is essentially accumulated deficit over time) is
now over seven trillion dollars. This has greatly contributed to the
fiscal crises in many state and local governments and forced drastic
cuts in social and infrastructural spending. As noted earlier, this
is not altogether fortuitous; it is a direct result of the strategy
of simultaneously increasing the Pentagon budget while at the same
time lowering taxes for the wealthy in order to deliberately create
budget deficits and, thereby, force cuts on non-military public
spending. Deliberate and cynical or not, the fact is that this warped
fiscal policy has been devastating to tens of millions of poor and
working people. It has also placed middle and lower-middle classes
under financial stress.
Cuts in federal spending have meant a greater burden on state
governments to meet their budgetary obligations. And while states are
required to make up the shortfalls, they have faced their own
greatest fiscal crises in decades-crises that have been caused by
reduced federal grants, increased costs for homeland security, the
general economic downturn, and federal and state tax cuts. The
National Conference of State Legislatures estimated that between 2001
and 2003 states had to close a cumulative budget gap approaching $200
billion. Because many state income tax rates are linked to federal
rates, state revenues fell in tandem with the federal cuts. But
unlike the federal government that can run large deficits, virtually
all states are required either by their constitutions or laws to have
balanced budgets. Thus, to make up for the shortfalls, states have
been forced to dip into reserve funds, slash basic services and/or
raise taxes and user fees. Typically, states have cut services and
shifted the burden onto cities and towns, adding to the urban crisis
that already afflicts many of them. Hardest hit by cuts in services
are vulnerable populations who are often concentrated in urban areas-
families with disabled members, senior citizens, single mothers and
their children, the working poor and the precarious middle class that
is one paycheck or unpaid hospital bill away from poverty. Moreover,
when state and local budgets are cut, not only are vital programs
affected, but so is a major source of employment: state and local
governments employ one in seven U.S. workers and have been a major
source of job growth (Bell, et al. 2004).
POLICY DISASTERS COMPOUND NATURAL DISASTERS: THE CASE OF HURRICANE
KATRINA
The fact that neglect of public infrastructure can inflict heavy
socio-economic tolls, especially on the economically-vulnerable
social strata, was tragically demonstrated by the destruction wrought
by Hurricane Katrina. In light of the steady cuts of the
infrastructural funding for the city of New Orleans, especially of
the funds that would maintain and/or reinforce the city's levee
system, catastrophic consequences of a hurricane of the magnitude of
Katrina were both predictable and, indeed, predicted. Engineering and
meteorological experts had frequently warned of impending disasters
such as Katrina. Government policy makers in charge of maintaining
public infrastructure, however, remained indifferent to (at times,
even indignant of) those warnings. They seem to have had other
priorities and/or responsibilities: cutting funds from public
infrastructure and social spending and giving them away (in the form
of tax cuts) to the wealthy supporters who had paid for their
elections. It is not surprising, then, that many observers and
experts have argued that Katrina was as much a policy disaster as it
was a natural disaster.
It is important to point out here that not all the policy or
government failures in the face of the Katrina disaster can be
painted as the exclusive product of the Bush administration.
Undoubtedly, the administration played a major role in compounding
the destructive effects of the disaster; but, as pointed earlier, the
roots of government irresponsibility and the origins of the policies
of neglecting public infrastructure descend far back into the past,
into President Reagan's supply-side economics, also known as
Reaganomics. The core of Reaganomics has been to undermine social
safely net programs, to reverse the New Deal and other anti-poverty
programs, and to redistribute national resources in favor of the
wealthy. As noted earlier, simultaneous escalation of the Pentagon
budget and drastic tax cuts for the wealthy has been used as a
cynical strategy in pursuit of this objective: as this combination
creates big gaps in the federal budget, social spending is then
slashed to close such gaps.
The moral of Katrina disaster, as pointed out by George Lakoff of
AlterNet, can be summarized as follows:
It was not just a failure of execution (William Kristol), or that bad
things just happen (Laura Bush). It was not just indifference by the
President, or a lack of accountability, or a failure of federal-state
communication, or corrupt appointments in FEMA . . . or the
inexcusable absence of the National Guard off in Iraq. It was all of
these and more, but they are the effects, not the cause. . . . The
cause was political through and through-a matter of values and
principles. . . . Eliminating as much as possible of the role of
government accounts for the demotion of FEMA from cabinet rank, . . .
for the budget cuts in levee repair, for placing more responsibility
on state and local government than they could handle, . . . and for
the lax regulation of toxic waste dumps contributing to a 'toxic
stew'. . . . This is a failure of moral and political philosophy-a
deadly failure (2005).
More specifically, the primary cause of the Katrina destruction must
be sought in the political and philosophical outlook of supply-side
economics, in the ominous legacy of (extended) Reaganomics-a
philosophy that views government spending in public infrastructure
not as investment in the future of the nation but as an overhead that
needs to be cut as much as possible, a philosophy that ever since the
days of President Reagan has systematically curtailed spending on
public works, thereby making them susceptible to collapse and
destruction.
As noted above, in light of the steady curtailment of the non-
military public spending since the advent of the Reagan
administration, and the resulting erosion of public infrastructure,
engineering and meteorological experts had over the years issued a
number of warnings regarding the vulnerability and the likely
collapse of the New Orleans levee system. But expert advices to head
off the calamity by proactive and/or preventive measures were
ignored. For example, in 1998, after a close call with Hurricane
Georges, a sophisticated computer study by Louisiana State University
warned of the "virtual destruction" of the city by a category four
storm approaching from the southwest. Indeed, ever since the nasty
experience of Hurricane Betsy in September 1965 (a category three
storm that inundated many eastern parts of Orleans Parish that were
drowned by Katrina), the vulnerability of the city to hurricanes has
been intensively studied and widely publicized.
The New Orleans project manager for the Army Corps of Engineers,
Alfred Naomi, had warned for years of the need to shore up the
levees, but corporate representatives in the White House and the
Congress kept cutting back on the funding. The most recent cutback
was a $71.2 million reduction for the New Orleans district in fiscal
year 2006. "I've never seen this level of reduction," Naomi told the
New Orleans City Business paper on June 6. His district
had "identified $35 million in projects to build and improve levees,
floodwalls, and pumping stations," the paper said. But with the
cuts, "Naomi said it's enough to pay salaries but little else."
Naomi wasn't the only one who warned of this disaster. In 2001, the
Federal Emergency Management Agency (FEMA) "ranked the potential
damage to New Orleans as among the three likeliest, most catastrophic
disasters facing the country," wrote Eric Berger in a prescient
article in the Houston Chronicle on December 1, 2001,
entitled "Keeping Its Head Above Water: New Orleans Faces Doomsday
Scenario." In that piece, Berger warned: "The city's less-than-
adequate evacuation routes would strand 250,000 people or more, and
probably kill one of ten left behind as the city drowned under twenty
feet of water. Thousands of refugees could land in Houston" (as
quoted in Rothschild 2005).
Shortly afterwards, the magazine Scientific American published an
account of the flood danger ("Drowning New Orleans", October 2001)
which, like the award-winning series ("The Big One") in the local
newspaper, the Times-Picayune, in 2002, was chillingly accurate in
its warnings.
In June 2003, Civil Engineering Magazine ran a long story by Greg
Brouwer entitled "The Creeping Storm." It noted that the levees "were
designed to withstand only forces associated with a fast-moving"
Category 3 hurricane. "If a lingering Category 3 storm-or a stronger
storm, say, Category 4 or 5-were to hit the city, much of New Orleans
could find itself under more than twenty feet of water." One
oceanographer at Louisiana State University, Joseph Suhayda, modeled
such storms and shared his findings with "emergency preparedness
officials throughout Louisiana," the article noted. "The American Red
Cross estimates that between 25,000 and 100,000 people would die" if
the hurricane floods breached the levees and overwhelmed the city's
power plants and took out its drainage system (Rothschild 2005).
The Philadelphia Inquirer ran a story by Paul Nussbaum
entitled "Direct Hurricane Hit Could Drown City of New Orleans,
Experts Say." It warned that "more than 25,000 people could die,
emergency officials predict. That would make it the deadliest
disaster in U.S. history." The story quoted Terry C. Tuller, city
director of emergency preparedness: "It's only a matter of time. The
thing that keeps me awake at night is the 100,000 people who couldn't
leave."
But government representatives of big business in the White House and
the Congress were not moved by these ominous predictions; the
warnings did not deter them from further cutting non-military public
spending in order to pay for the escalating military spending and for
the additional tax cuts for the wealthy. "The Bush administration's
response to these frightening forecasts was to rebuff Louisiana's
urgent requests for more flood protection: the crucial Coast 2050
Project to revive protective wetlands, the culmination of a decade of
research and negotiation, was shelved and levee appropriations,
including the completion of defenses around Lake Pontchartrain, were
repeatedly slashed" (Davis 2005).
More than precious dollars were diverted to Iraq. In addition, much
of the Louisiana and Mississippi National Guard personnel were also
tied to the war: "Some 6,000 National Guard personnel in Louisiana
and Mississippi who would be available to help deal with the
aftermath of Hurricane Katrina are in Iraq," Pete Yost of AP reported
on August 29. "The war has forced the Guard into becoming an
operational force, far from its historic role as a strategic reserve
primarily available to governors for disasters and other duties in
their home states" (Ibid.)
Not only did the Bush administration and its corporate allies in the
Congress not finance urgent requests for the repair of the
deteriorating public infrastructure, but at times the administration
even punished dedicated civil servants who insisted on the necessity
of such repairs. For example, Mike Parker, the former head of the
Army Corps of Engineers, "was forced to resign in 2002 over budget
disagreements with the White House." Parker drew media attention (and
the White House's ire) in 2002 by telling the Senate Budget Committee
that a White House proposal to cut just over $2 billion from the
Corps' $6 billion budget request would have a "negative impact" on
the national interest. After Parker's Capitol Hill appearance, Mitch
Daniels (former director of the Office of Management and Budget,
which sets the administration's annual budget goals), wrote an angry
memo to President Bush, writing that Parker's testimony "reads
badly . . . on the printed page," and that "Parker. . . [was]
distancing [himself] actively from the administration." Parker "was
forced to resign shortly thereafter" (Vest/Root 2005).
The amount of investment that could reinforce the New Orleans levee
system and save the city from death and destruction pales by the
magnitude of the loss in terms of lives and property. For example,
Alfred Naomi, The New Orleans project manager for the Army Corps of
Engineers, who had drawn up plans for protecting New Orleans from a
Category 5 storm, pointed out soon after Katrina hit: "It would take
$2.5 billion to build a Category 5 protection system, and [now] we're
talking about tens of billions in losses, all that lost productivity,
and so many lost lives and injuries and personal trauma you'll never
get over" (Ibid.).
Some disasters cannot be prevented from occurring. But, with proper
defenses, they can be contained and, therefore, prevented from
destroying lives and property. Katrina was not. It was not "because
of a laissez-faire government that failed to bother to take warnings
seriously," and because of a skewed government fiscal policy "that is
stingy when it comes to spending on public goods but lavish on
armaments and war" (Rothschild 2005). More fundamentally, because,
driven by powerful especial interests, the government has ever since
the advent of Reaganomics in the 1980 been steadily diverting non-
military public spending to military spending and tax cuts for the
wealthy, thereby bringing about a steady erosion of the
infrastructural defense systems against natural disasters.
The fundamental moral of Katrina disaster is unmistakable: contrary
to the dogma of neoliberalism, governments bear vital
responsibilities. These include provision of essential services and
critical public goods that individuals and the private sector would
not provide. They also include the building of a robust public
infrastructure that is necessary for a vibrant economy and a
civilized society. These responsibilities sometimes mean setting
standards and instituting regulations in order to protect citizens
against both natural disasters and failures of a market economy (such
as making buildings earthquake proof, or having basic housing codes,
or requiring factories and cars to limit pollution). Perhaps most
importantly, government responsibilities include investment in vital
public capital formation, both physical capital (such as roads,
bridges, dams, levees, and public transit) and soft, social, or human
capital (such as education and education). Myopic supply-side
calculations, prompted by powerful special interests, tend to view
these expenditures as redundant overheads that need to be curtailed
as much as possible. Sensible, judicious or responsible governments,
however, would view such expenditures as vital investments in the
long-term economic vitality and social prosperity that would more
than offset the short-term costs of those investments.
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