Cut ‘Defense’ Spending by 75%

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Obama has not cut defense spending during his first term. Under Obama, defense spending has been (in billions) $794 in 2009, $847.2 in 2010, $878.5 in 2011, and $902.2 in 2012. It's slated to be $901.4 in 2013.

Mitt Romney wants to increase defense spending substantially. Romney speaks only of increasing defense spending further.

Barney Frank wants to reduce defense spending significantly. He says "We could easily save more than $200 billion without in any way endangering our security." He also says "Let’s bring the troops home." He's on the right track, only he is not radical enough.

Harry Truman cut defense spending by very large amounts after World War II. Defense spending during that war peaked out at $93.7 billion in 1945. By 1947, it was down to $22.8b. In 1948, it was $19.7b.

The Truman reductions in defense spending in percentage terms were over 75 percent. Cuts of this size can be done again today without loss in security. Whatever dangers and threats America faces in 2012 are not worse than in 1947 and 1948.

In the late forties, the West viewed Communist governments in Eastern Europe, in East Germany, in China and in other places in Asia and the world as major threats. The Soviet Union and Red China developed the atomic and hydrogen bombs. These views led to budget increases and a war in South Korea. Consequently, the U.S. government took defense spending back up to the $50b. level.

That resurgence was unnecessary. Today we know that the economic success of communism/socialism in all of these countries was greatly exaggerated, and that they were not the threats that the U.S. government supposed they were. Today we know that the Austrian economist Ludwig von Mises was absolutely correct, decades earlier, in analyzing and then forecasting the impossibility of a successful socialist economy. We know that these systems were prolonged by underground capitalism, by western food and other aid, and by food grown on small private plots of land.

This being the case, we can say with great assurance that today there is no remotely comparable threat to U.S. security in the form of terrorism or anything else. Furthermore, whatever threat there is could be reduced to a mere flyspeck by more enlightened U.S. policies.

Peaceful growth is a magnet that reduces threats to America. The only possible economic system that's consistent with widespread progress and peaceful growth is capitalism. Wherever there is some degree of progress, there is some degree of capitalism. Wherever there is some degree of capitalism being hampered by governments, there will be found negative effects on progress. Huge swaths of the world have moved in the direction of free markets and private property rights. They have moved, however haltingly, slowly and imperfectly toward peaceful growth via capitalism. This movement and global transformation reduces threats to America. This is the movement that the U.S. needs to recognize explicitly and encourage. It needs to do this at home as much as abroad.

The engine of peace, justice and security is not armaments. It is not drones. It is not wiping out terrorists. It is not a worldwide network of military bases. It is not continual warfare. It is not the imposition of sanctions. It is not in fomenting revolutions. It is not in choosing some nations as allies and others as enemies. It is not in making alliances with other nations that make them virtually protectorates of the U.S.

If the U.S. government would aim its own policies away from military structures and methods and toward free markets and capitalism, then it would reduce the possible threats even more. The U.S. is a leading government. It can encourage global win-win situations with appropriate economic policies at home and abroad.

Higher real incomes result from capital accumulation in free markets with secure property rights. This process produces goods in demand. Welfare goes up.

By contrast, taxes remove capital from the private sector where it can do some good and send it to Washington where it's wasted on useless defense spending.

A 75 percent cut in defense spending accompanied by a tax cut that returns the money to the private sector will provide a huge stimulus to economic growth. Returning the money via tax cuts is absolutely essential to generate growth, because then the money can, if desired, go into capital accumulation. Merely shifting defense spending into other categories of government spending like education and social spending will be totally useless in generating economic growth since these forms of spending, being consumption financed by taxes, do not create capital goods and economic growth.

I have chosen 75 percent in this article because Harry Truman did this. By comparing his era to ours, I hoped to make clear that we know such cuts are feasible because today's threats are no worse than in his days. What America did two generations ago can be done again. Furthermore, defense cuts are but one step among many that can get America on the right track.

Michael S. Rozeff [send him mail] is a retired Professor of Finance living in East Amherst, New York. He is the author of the free e-book Essays on American Empire: Liberty vs. Domination and the free e-book The U.S. Constitution and Money: Corruption and Decline.

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