Three Cheers for Defense Cuts

12/20/2011 11:58 am EST

Focus: MARKETS

Igor Greenwald

Chief Investment Strategist, MLP Profits

A smaller military would limit our strategic overstretch and very possibly bring real national security, writes MoneyShow.com senior editor Igor Greenwald.

The death of North Korean dictator Kim Jong Il had South Korean stocks down more than 3% Monday. And though they rebounded a bit today, living next to a hostile, hungry, nuclear-armed rogue state run by a loony family is clearly no fun.

South Korea has been doing this for decades, of course, so has had plenty of time to calibrate a rational response to this existential threat. Last year, it spent 2.7% of its GDP on defense, ranking 22nd on a list compiled by the World Bank—in the same neighborhood as a United Kingdom still punching above its weight, as well as war-torn Sri Lanka.

Meanwhile, South Korea’s chief protector—the US—spent 4.8% of its much larger GDP on the military last year, and followed that up with 4.9% in 2011. Even with North Korean missiles menacing Alaska, this looks like an overreaction.

Only five exceedingly insecure Middle Eastern states devote a larger share of their resources to defense, and their neighborhood is a lot rougher than ours. True, the most powerful nation on Earth is a tempting target for all manner of fanatics and local bullies.

Even so, our military spending amounts to nearly half the planetary total, dwarfing that of any other potential adversary. It’s plainly more than enough to protect Middle East oil, keep China on its toes, and dissuade Mexico from trying to regain lost territories.

Yet we’re about to spend the better part of next year hearing how looming defense cuts will compromise national security.

The Pentagon has reluctantly accepted cuts of $450 billion over ten years, albeit from record levels of some $700 billion annually dictated by the simultaneous occupation of Iraq and Afghanistan. Now defense is in line for another $550 billion or so of cuts over the same decade as a result of the Congressional pledge to shrink the deficit, apparently without cutting benefits or raising taxes.

And so the whining has already begun, led by Defense Secretary Leon Panetta, who’s warned that the looming “sequestration” agreed as part of the compromise over the debt ceiling would leave behind a “hollow force” and even “invite aggression” from US adversaries.

Here’s what Panetta won’t mention:

  • That 66 years since the end of World War II and 20 years after the Soviet empire collapsed, the US still maintains thousands of combat troops in Germany to protect the dominant European power from an unknown foe. Germany deemed its own defense worthy of 1.4% of its GDP last year.
  • That the US is about to spend untold billions to protect Europe from a missile threat, ostensibly from Iran, a poor country with a fraction of Europe’s wealth and military capacity.
  • That Asia is too big and diverse to worry about a Chinese “threat,” especially if the response includes costly exercises in futility like plans to station Marines in northern Australia.
  • That even if sequestration comes to pass, US military spending as a percentage of GDP will still be comfortably above levels seen during the 1990s.
  • That GDP percentages are a yardstick friendly to the generals. Adjusted for inflation, defense spending is running way above levels seen at the peak of the wars in Korea and Vietnam or the Reagan defense buildup.
  • That the Pentagon is still padding its spending by covering the costly retirement benefits offered by contractors.

While congressional oversight committees remain stuffed with inveterate fans of military pork, the tough economic times and weariness with foreign wars have turned the electorate skeptical.

Two of the Republican presidential candidates are arguing forcefully for a smaller military footprint as more practical. And though Ron Paul and Jon Huntsman remain underdogs, they seem to be gaining ground on the frontrunners.

Defense hawks are still squawking, of course. Here’s one case being made for the dire consequences of additional defense cuts. But the comment section of this conservative blog hints that the resisters are now outnumbered. That’s a good sign given the state of the economy and a shortage of strategic enemies.

One problem with maintaining a military large enough to take on the rest of the world is that it opens the door to more “optional” wars. As we’ve just seen, these can prove terribly draining and destabilizing.

Our mammoth defense spending has become a security threat in its own right. We’re not getting paid enough to be the world’s policeman.

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