Written by Thomas Magstadt   

The OWS movement is right to focus on Wall Street and the financial services industry as the proximate cause of our current discontents. Wall Street is at once the symbol of greed and the instrument of the big commercial banks and "wealth managers" that feed on – and are fed by – greed. As we all know now, banks and investment firms engaged in extremely risky behavior with our money, plunging the country into a prolonged recession, and causing great pain across the length and breadth of middle-class America, while reaping fabulous rewards, some virtually tax-free, in the form of multi-million-dollar bonuses, perks, deferred compensation, stock options, and "golden parachutes".

But there's another big piece of the puzzle that deserves closer public scrutiny, namely the massive US defense budget. The economic conundrum we face at present is rooted in the past, including a tax system that redistributes wealth upward from the middle class to the wealthy and, consequently, the relentless growth in both public and private debt.

Onerous private debt only exacerbates the problems arising from a shrinking labor market. Burgeoning public debt places severe limits on what government can do to stimulate growth and makes efforts to do so (for example, the Obama stimulus) risky and potentially counter-productive.

The Plutocrats who control Wall Street and bankroll the Wingnuts who kill all attempts at tax reform and oppose everything that has anything to do with social justice in Congress would have us believe that the big problem with the federal budget is entitlements – Social Security and Medicare. That's pure rubbish. There are two much bigger problems, one on the revenue side, namely the skewed federal tax laws that let corporations and the super-rich pay way too little, and one on the spending side. The mother of all expenditure-related debt problems is the defense budget.

At least 95 percent of the national debt is war-related. The Defense Department absorbs 25-30 percent of the federal budget, depending on what's being counted and who's counting. Two-thirds (68 percent) of all federal government civil and military employees are involved in national security and war related activities. If you add the $100 billion or more for the two wars we are still fighting, the $80 billion for the intelligence budget, and various other defense-related expenditures, that figure is actually much higher – roughly one-half the entire federal budget for the period 2002-2008.

In terms of money circulation and markets, the multiplier effect of military spending is far less than many other forms of capital investment, nor is the arms industry structured to compete in the civilian economy.

The defunct Soviet Union developed two distinct economies with two distinct sets of quality control standards. In his best-selling book, The Russians (1976), Hedrick Smith wrote about "the split-level nature of Soviet society" in which the domestic and military economies "operate on a different system from the rest of the economy." Today, much the same can be said of the United States.

We, too, have a split-level society based on a self-perpetuating war economy that similarly "operate[s] on a different system from the rest of the economy". The domestic economy is characterized by structural unemployment, public and private debt, deteriorating infrastructure, and the outsourcing manufacturing and various services.

The military-industrial economy foreshadowed in President Eisenhower's farewell address a half-century ago, however, presents a very different picture. Defense contractors are thriving, while the federal government is busy throwing good money after bad in Iraq and Afghanistan; paying for the defense of NATO countries, plus Japan, and Korea; and deploying hundreds of thousands of active-duty military personnel at hundreds of bases around the globe.* The US governments also contracts with a growing number of private security contractors to augment military operations in places like Iraq and Afghanistan.

Much of the money spent in the name of national security and war-waging goes to private corporations through hundreds of thousands of procurement contracts (around 400,000).

For FY2002 through FY2008, nearly half of all federal expenditures went to eight federal departments and agencies involved in national and homeland security – including the servicing of war-incurred debt. The "military-industrial complex" has corporate and defense tentacles reaching into virtually every political constituency. DOD alone maintains nearly 5,500 bases and military sites in the U.S. and around the world.

Meanwhile, our NATO allies have made deep cuts in defense spending, and most are falling short of the minimum NATO requirement of 2 percent of GDP spent on defense. Ironically, 2 percent of GDP is what the US spends on the maintenance and upgrading of its aging infrastructure. The EU, in contrast, spends 5 percent, and China spends at least 10 percent.

The bifurcation of the US economy has its roots in World War II and the intense postwar superpower rivalry. The emerging rivalry in the New World Order is between the United States and China – and the rules have changed.

The challenge China poses is very different from the one the Soviet Union did. China is leading with its strength – economic power – and building a first-rate military on that foundation. Meanwhile, the U.S. blithely continues to throw money at the military and run up ever bigger deficits as though there is no relationship between the soaring national debt and national security.

Most experts agree that a single minded obsession with building military muscle was a major cause of the Soviet Union's collapse. Armaments plus an ill-conceived war in Afghanistan proved to be the Soviet empire's undoing. They may also prove to be our own.

*A 2007 estimate put the number at 737, but it's impossible for any outside observer to know for certain.