All along, the US has been spending between 40 and 50% of the world on defense, leading as the preeminent military superpower while gradually eroding its productive economic base. This peculiar trend continues at a time that US economic preeminence is challenged by China and the rest of the BRIC (Brazil, Russia, India) countries. It is not unusual for an imperial power whose global economic supremacy declines turns to greater reliance on defense as a means of leverage both domestically to keep the status quo and globally to flex its muscle and secure market share.
From the Roman Empire to the British Empire the phenomenon of declining economy and rising military spending and activity is a matter of historical record. There is is something to be said of the logic of defense spending when the civilian economy is in decline, but it is a logic with severe limitations. In the end, decline is inevitable as defense spending actually hastens the decline of the imperial power, whether it is Rome, Great Britain or US. In the course of this century, the US will experience a long economic decline, but I predict that it will hold on to its defense sector, just as previous imperial regimes have done. The result will be that the US becomes even more aggressive militarily and tries to secure market share using its military strength, always with greater economic, political and social costs than benefits.
The end of the Cold War threatened to bring an end to the policy of 'Military Keynesianism', that is, a policy that the US pursued from Truman to Reagan, and it seemed to work in the following respects. Military Keynesianism rested on the assumption of allowing defense to absorb the surplus capital from the civilian economy in order to avoid great fluctuations in the economy. That was back in the 1950 when there was a balance of payments surplus instead of massive public sector deficits.
Reagan decided to resurrect 'Military Keynesianism', but he did so engaging in a two-pronged approach: a) cutting massive welfare state programs; and b) borrowing to support defense. The result was that the US won the Cold War. However, unlike early Cold War "Military Keynesianism" when the US kept its middle class society fairly obedient to the imperial system and its global military and economic network that kept the US economy strong continued to serve both the economy and military establishment, by the 1980s the US middle class began to decline and the defense and diplomatic alliance systems dismantled owing to global realignments arising from new political conditions in Eurasia and East Asia.
The end of the Cold War coinciding with the emergence of China as the world's next economic superpower, as well as the policies of regional economic blocs headed by the EU, but also Japan entailed that Keynesian militarism, pouring the surplus capital into the defense sector, was obsolete as a policy. This is obviously because US federal public debt matches annual GDP, and the economy rests on inordinate borrowing to thrive at current levels.
How has the US justified "Military Keynesianism" in the absence of the Cold War to its own citizens and to the world? The ‘war on terror’ that has been responsible for absorbing the 'peace dividend'. Considering that seven of the world's top defense contractors are US, and considering that the 'defense related contractors' include everything from Coca Cola to outsourced defense and intelligence services, the US under both Republican and Democrat administrations has decided to strengthen the military as a means of keeping the economy strong. But does this work?
First, defense creates the least number of jobs, given that it is capital intensive and not labor intensive. Higher defense spending creates higher unemployment.
Second, defense contributes the lowest percentage of any industry to labor, given that labor costs account for a mere 1.5% of cost for a typical jet fighter, for example.
Third, higher defense spending absorbs capital that would otherwise be devoted to productive enterprises that would in turn create new wealth, as opposed to the parasitic defense sector that merely concentrates capital.
Fourth, the level of corruption in defense-related contracts is much higher than any other, given that arms trade accounts for 40% of all illegal activities on the planet.
Fifth, defense contractors have a stake in higher defense spending across the globe, thus they have a stake in conflict creation and military solutions that keep the defense spending cycle going.
Sixth, the war on terror that has been used as a pretext to increase defense spending has caused the skyrocketing public debt and sharply lower living standards and declining middle class. The reason for this is that almost all of the funds to keep the defense sector going has been borrowed. While there is nothing wrong with borrowing if it is intended to create new wealth, defense spending is not in this category. Moreover, when there is heavy borrowing to support the occasional regional war -Iraq and Afghanistan, for example - the pace of the decline hastens along with economic, social and political consequences.
The economic decline of the US is not inevitable, but in order to contain it there must be a radical political change, a shift that entails the political system takes on the defense sector as well as finance capitalism. That is highly unlikely to take place, because politicians depend on businesses for contributions and media exposure in order to be elected to office and survive while in office.
Responsible scholars not on the payroll of think tanks funded by the defense industry or the Pentagon have warned about this phenomenon, but scholars have zero leverage in politics when compared with defense contractors and banks. Nor is the issue as some reformers have been arguing cutting defense here and there by a few percentage points, for such an approach indicates no will to change directions. The only pressure can come from people organizing to bring pressure from below for wholesale changes in the parasitic political economy. Considering the massive influence of Conservatism and conservative religion in America, the result of grassroots action will be limited to middle class and working class urban areas with limited resources and influence.
Given America's current ideological, institutional and political conditions, it is almost certain that it will witness inevitable gradual decline. Major shifts in the social structure are inevitable as the middle class continues to weaken, thus having an impact on the political landscape with a two-party system that in essence represents capital. In short, American democracy is seriously threatened longer term but fairly safe for the near future.