The National Interest

The National Interest | Bankrupt Empire
by Doug Bandow | 04.19.2010

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Unfortunately, a hyperactive foreign policy requires a big military. America accounts for roughly half of global military outlays. In real terms Washington spends more on “defense” today than it during the Cold War, Korean War and Vietnam War.

U.S. military expenditures are extraordinary by any measure. My Cato Institute colleagues Chris Preble and Charles Zakaib recently compared American and European military outlays. U.S. expenditures have been trending upward and now approach five percent of GDP. In contrast, European outlays have consistently fallen as a percentage of GDP, to an average of less than two percent.

The difference is even starker when comparing per capita GDP military expenditures. The U.S. is around $2,200. Most European states fall well below $1,000. Adding in non-Pentagon defense spending—Homeland Security, Veterans Affairs, and Department of Energy (nuclear weapons)—yields American military outlays of $835.1 billion in 2008, which represented 5.9 percent of GDP and $2,700 per capita.

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The current national debt is $12.7 trillion. The Congressional Budget Office figures that current policy—unrealistically assuming no new spending increases—will run up $10 trillion in deficits over the coming decade. But more spending—a lot more spending—is on the way.

Fannie Mae and Freddie Mac remain as active as ever, underwriting $5.4 trillion worth of mortgages while running up additional losses. The Federal Housing Administration’s portfolio of insured mortgages continues to rise along with defaults. Exposure for Ginnie Mae, which issues guaranteed mortgage-backed securities, also is jumping skyward. The FDIC shut down a record 140 banks last year and is running low on cash. Last year the Pension Benefit Guaranty Corporation figured its fund was running a $34 billion deficit. Federal pensions are underfunded by $1 trillion. State and local retirement funds are short about $3 trillion.

Outlays for the Iraq war will persist decades after the troops return as the government cares for seriously injured military personnel; total expenditures will hit $2 trillion or more. Extending and expanding the war in Afghanistan will further bloat federal outlays.

Worst of all, last year the combined Social Security/Medicare unfunded liability was estimated to be $107 trillion. Social Security, originally expected to go negative in 2016, will spend more than it collects this year, and the “trust fund” is an accounting fiction. Medicaid, a joint federal-state program, also is breaking budgets. At their current growth rate, CBO says that by 2050 these three programs alone will consume virtually the entire federal budget. ...