Military Power and the Economy
By Matania Ginosar
What does the American economy has to do with Israel? A substantial amount! A strong economy allows the US to posses a powerful military capability that can influence world events. Israel depends on US military power and economy to a major extent. In fact, without US economic ties and the US military umbrella Israel could have a significantly more demanding task to survive economically and militarily.
My key arguments are: A strong American economic base is mandatory to support a strong military power. (The USSR did not have this economic base and had to drop from the arms race.) As long as the US desires to be the most powerful military power in the world, or even share power with another one or two nations, we must have a strong economy. Unfortunately, the strength of our economy is declining at an accelerated rate and thus our future is cloudy. This decline in US economic strength, in my view, could be detrimental to global economic and political stability. With all our considerable national deficiencies, I prefer a world with strong US power. I do trust the American people and our system of government more than that of other nations.
Let's look first at some of American economic facts:
Our Gross Domestic Product, GDP, all goods and services in the US, is 13 Trillion dollars, that is 13,000 billion. ($43,000 per capita.) We are the largest global economic power, almost 25% of the global economy. This gives us the ability to spend $440 billion (3% of GDP) on our military, nearly half of all the world's combined military budget. Military spending, contrary to common belief, is a drain on the economy since it produces almost nothing that benefits our population, except, obviously, national security. But from an economic point of view it is a waste. Garbage collectors keep our communities clean; teachers educate our society, but military budgets produce airplanes that at best are not used in wars.
However, our national wealth is in a steady decline. Consider our following economic problems:
1. We buy from other nations, mainly Asia, much of what we consume, eliminating good US jobs. We used to make over 90% of what we consumed; in the last fifteen years we are producing only 75% of our consumption- A huge drop! Therefore causing a $800 billion balance of payments deficit, 6% of our GDP! This year foreigners will own $800 billion more of our national wealth. They already own a noticeable portion of US businesses and properties. Result? Lower standard of living in US.
2. Our national debt is $8.5 Trillion, (65% of GDP), and growing,; that is $28,000 per every man, woman and child. That is a heavy burden for current and future generations, why? Interest alone is $300 billion a year. This is a major portion, 12%, of the Federal budget. Recently Congress and the president approved another tax cut of $70B, mostly for the wealthy. "They've been cutting taxes and adding spending," says Robert Bixby, head of the Concord Coalition, a nonpartisan fiscal restraint group, "That's the disconnect. There is just no relationship between spending policy and tax policy." Only 22% of the public trust Congress now.
3. Every dollar increase in the cost of a gallon of gas reduces our economic growth by one percent
4. Toyota just replaced General Motors as the biggest global automaker. GM is losing billions and closing plants.
5. Cost of Middle East and Afghanistan wars is substantial and not expected to disappear soon.
6. In the next 5 years our Baby Boom generation is starting to retire, dropping the experience base of our managerial and trained personal by a significant amount. For example, average age of petroleum engineers is 54. The average faculty age of Nursing colleges is 52 while nurses are in great demand. There is a international competition for English speaking qualified nurses.
7. Our national saving rate is zero. People live from paycheck to paycheck, often buying lots of trivia. Three quarter of the US economy is consumer spending. The public can not increase its spending without negative consequences. The Federal, State and personal debts are at all time high.
8. Housing price boom- is a false wealth. It is inflation; same goods costing more. The ratio of average family income to average house cost used to be 4 to 1, now it is 8 to 1. It is beyond the ability of most expected home buyers to buy a home.
9. Our ability to innovate is declining. We are short on useful education. Our high school students are low in science education compared to many other countries. We are short of engineers and have too many lawyers and MBA's graduates. About 60% of our PhD students come from other countries. They used to stay here, benefiting the US, many are now returning to their countries. Our R&D budget is proportionally miniscule compare to other countries. Our national ability to develop new technologies is diminishing. Developing new computer games and gadgets does not add to our scientific or medical capabilities.
10. Medical national expenditures are 14% of total GDP and rising, while 45 millions are uninsured.
11. The unemployment rate is low, however, this is misleading; a lot of high income jobs are replaced by low income jobs. The income of the middle class has not improved for years and that of the low income sector has declined.
What are some of the implications of our national economic deficiencies? We lack resources to benefit our society. We are facing the following needs: (You can add your own)
1. Forty five millions Americans do not have health insurance.
2. Social Security and Medicare are under funded. We can not continue to pay current level benefits.
3. Our infrastructure is literally crumbling: defective roads, highways and bridges. Deteriorating National Parks: Negligible maintenance and little new facilities. Insufficient budget for education. The homeless are not taken care off.
4. Inadequate flood protection in populated areas, such as Mississippi and California Central Valley.
5. We have negligible funds to prepare for the potential Avian Flu Pandemic. The US death toll could be more than a million and federal allocation is $7B. Simply ridiculous.
6. Inadequate fresh water storage. For example: California dam's storage has just three years capacity, at most. Weather fluctuation demands a minimum of five years capacity. We are short of fresh water, example: storage in Lake Powell, (behind Glen Canyon Dam,) a main reservoir on the Colorado river that supplies fresh water to several states, is a hundred feet below normal.
7. US contribution to help the third world is proportionally low. We need to help the underprivileged world population to fight disease, reduce starvation, over population, AIDS and other massive problems. It is not only good for them; it is beneficial directly to us.
8. Other critical economic problems: Over dependence on fossil fuels, especially foreign oil.
Energy is one of the most critical ingredients for economic growth. The exceptional growth of our national wealth in the last century was largely fueled by ready availability of low cost oil. We can not replace oil for some time to come. But can we reduce its consumption?
Contrary to common perception, the main problem of fossil fuels is creation of immense amounts of global warming gases, mainly CO2, that have already caused significant global weather changes, which will continue to accelerate in significance. Most climate experts agree that global warming is already here and will cause disturbing changes in global climate that will negatively impact the global population- including the US. It will increase sea level elevations, cause larger hurricanes, floods, and significant weather instabilities. But this critical subject will not be discussed here. See Harvard Magazine for excellent discussion and pictures: http://www.harvardmagazine.com/lib/06mj/pdf/0506-40.pdf
We consume 25% of global oil supply, 20 million barrels a day out of 83 million, (we produce 7 million barrels). The peak of global oil production is expected in the next five years, and with it shortages and ever higher prices. Our reliance on oil is expensive to our economy and causes serious political and military problems both for us and the global economy.
The American public complains, but is not interested in making any sacrifice to reduce our dependence on foreign oil. If we seriously wanted to reduce our dependence, Congress and presidents would have done it. We get the government we want- a government that caters to the wish of the ill informed, poorly educated public.
Compare our reaction to Europe and Japan when OPEC increased the price of oil from $2 to $12 per barrel three decades ago. The governments of Europe and Japan increased the cost of gas to $4 a gallon to curtail the use of this diminishing resource. The US did almost nothing to date.
The last time we increased the fuel efficiency laws of cars was in 1982.
The unwillingness to accept undesirable reality and act on it is shared equally by both Republican and Democratic administrations. We the people are the cause, our way of life is spend now, think later.
What can be done realistically? I will sketch here just a few of many issues.
It is almost impossible to change our national mood of waste and self interest that is the core of the American economic spirit for many decades if not longer. A national catastrophe may be needed!
Most of the public is uninterested in events that they are unwilling to see. Part of the reason is poor education. Most of our students are ill educated in national and global affairs; do not grasp basic math, or numerical relationships. A generally intelligent committee chair of the California Legislation could not grasp that when you have million solar systems and each one costs $25,000, the total cost would be 25 billion dollars. He told me in front of the committee that it is impossible and laughed. And I have already explained it to his key assistant in a private meeting; he did not grasp it either! These are the people who make our laws and budgets!
Some of the steps needed but may not occur in the near future:
Sustained national drive to increase energy efficiency in transportation, housing and industry. Increasing Energy efficiency is the only approach that can be implemented rapidly at very low costs, and therefore, provides the maximum benefits.
Reducing our national debt by reversing the tax reductions of the last few years and taxing people according to their ability to pay. This will allow us to direct more funds to our critical national needs.
However, these are not appealing to many people. Most people want tax cuts, not tax increases. When I mentioned to Congressman Bob Matsui a few years ago (we are sadden by his loss) that I would gladly pay taxes to give our government the ability to improve our society, he told me that he is very glad to hear it. He said that every one is pushing him to cut taxes, but continue to expect government assistance.
The emphasis on energy efficiency is unappealing, it is too mundane. Most environmentalists are romantics who wish idealistic solutions, appealing solutions, such as Hydrogen fuels- unaware that you must spend energy to make Hydrogen - where will this energy come from?
Or another dream, Solar Systems on every roof- impractical, immensely expensive and, dollar per dollar as much as 40 times more expensive than simple attic insulation. If eventfully the practical solar technology would be developed, it would make impact decades from now. Increasing home insulation is not popular, but it can cut our energy for heating and cooling by 50% immediately.
I do not have the answer, national change of lifetime attitudes are extremely difficult to reverse, as I have already mentioned. But each of us must tell this to your family and friends, write letters to the editor, and challenge your three Congresspersons to help secure our future, rather than help destroy it. And, do cut your energy consumption even if it is not easy!
from the June 2006 Edition of the Jewish Magazine