Saturday, 18 June 2011

Raising military spending now would threaten economic stability

It is an axiom that defence is the first duty of government but who or what is the greatest threat now? Traditionally, the enemy has been seen as foreign governments, and latterly terrorist organisations but there is another enemy, insidious, ignored but potentially far more destabilising and it always lurks within -- economic irresponsibility.

When an economy collapses spectacularly then also the social fabric dependent on it is rent asunder, leading to grave social unrest if not revolution and intractable government. Just such a crossroads is dangerously close now but if it is to be averted then military spending must be reined in now, regardless of foreign war commitments.

Robert Gates, the outgoing US Defence Secretary, was right to chasten some NATO member countries for paying nothing at all towards the Libyan fracas, despite all having signed up for the intervention. What was not said, however, was the reason for the wrist slapping. It was not simply that is seems unfair for America to shoulder the lion's share of NATO's costs. It has been doing that for many years and currently contributes 75% of total costs. It is that America can no longer tolerate free loaders because its own economy is stricken by vast military spending over the last decade.

Such spending is remorselessly bleeding the country dry and laying the foundation for serious global economic instability. The US debt is currently stated as 64% of GDP but that does not include off balance sheet items like Medicare and Fannie and Freddie, which if added would see the ratio soar to 500%. With figures like these it is hardly surprising that a recent poll showed that about half of all Americans believe that their country will default. This feeling was doubtless raised by Standard & Poors more recent downgrading of the outlook for the US debt.

Britain is further down the road to economic disruption than America, and labour unrest over necessary Government cutbacks and pension reforms is already set to explode this summer. As in America, a laissez faire attitude to casino-style economics and spendthrift government was combined with high military spending on foreign wars. The 10-year war in Afghanistan has cost Britain at least £6 billion, not including the care costs of maimed service personnel, and widows' pensions. Currently, Afghanistan is estimated to be costing the coalition forces $2 billion a week and in the first nine years of war cost at least $105 billion.

Robert Gates seemed to express surprise that the mightiest military alliance in history (NATO) is only 11 weeks into an operation against a poorly-armed Libyan regime in a sparsely populated country before running short of munitions. Given the Afghanistan experience, where the Taleban are far less well-armed and fewer in number, that is a curious reflection.

The grave risk now is that these wars will generate more strident calls for increased military spending at a time when economic problems at home cannot possibly justify such calls on the public purse. The London Times in a leading article banged the jingoistic drum by calling for more military spending while portraying China as the coming bogeyman for world stability as it raises its defence spending by nearly 13% this year. The Chinese government, for all its faults, deserves better than that odious branding, especially in view of its contribution towards global fiscal stability through purchase of US Treasury assets and keeping inflation rates low. That said, China would do well to rein in such military spending to conserve its resources for the appalling costs of future, inevitable, natural calamities.

It must be indisputably clear that now is not the time to raise military spending by countries tackling serious, home-grown economic problems that, if not solved by debt reductions, will engulf the countries in civil strife or worse. As Paul Ryan, the new Republican Chairman of America's House of Representatives Budget Committee said, if the US did not get its finances in order "We will have a European situation on our hands and possibly worse. The consequences of not tackling the mounting debt burden would be dire. We would have the riots in the streets. We will have the defaults. We will have all those ugliness problems." If nothing changes, investors will grow nervous and refrain from buying Treasuries. Such action would send interest rates soaring and the contagion would spread to Europe, where national debt defaults grow more likely by the day.

Between that and global prosperity is nothing more substantial than the filament of confidence, which if snapped would usher in not disaster but catastrophe. It is the enemy within that can be the most dangerous enemy of all.