Reports from the Economic Front

a blog by Marty Hart-Landsberg

Category Archives: Military Spending

Join Koreans In Opposing THAAD Deployment

The US government, with the approval of the South Korean government, wants to locate a Terminal High Altitude Area Defense (THAAD) anti-missile system in South Korea.  Growing numbers of South Koreans oppose this.  They fear that the anti-missile system, which is largely aimed at China and Russia, will only increase military tensions and fuel a new arms race in the region as well as worsen relations with North Korea.  Those living close to the proposed location for the THAAD battery worry about the long term health effects of the associated high-intensity radar system.  Their fears and worries are well founded.

no-war

While the anti- THAAD struggle is big news in Korea, little is known about it in the United States.  This is unfortunate because the U.S. effort to expand its military presence in the Asia-Pacific region also has real consequences for people in this country.  For example, the resulting militarization will lead to ever higher levels of U.S. military spending, draining resources away from needed social programs.  And, of course, it increases the risk of a new war.  In short, it is in the interest of people living in the United States to join with people in South Korea to oppose the THAAD deployment in South Korea.

Therefore, several U.S. based organizations have joined in coalition under the banner of “Stop THAAD in Korea and Militarism in Asia and the Pacific.”  Its demands are simple:

  • We urge the U.S. government to rescind its decision on THAAD deployment in South Korea.
  • We urge the U.S. government to pursue all possible avenues for reducing tensions on the Korean peninsula by re-engaging in diplomacy with North Korea.
  • We urge the U.S. government to resolve conflicts in the Asia-Pacific region peacefully, through diplomacy and dialogue.

The coalition’s website, http://stopthaad.org/, includes a longer statement of purpose and links to articles that analyze both the political aims and consequences of the proposed THAAD deployment and the growth of the resistance movement in South Korea.  As you will see, close to 100 organizations have already endorsed the coalition’s demands.

As a first action, the coalition is organizing candlelight vigils in select U.S. cities in solidarity with candlelight vigils taking place in South Korean cities; information about them can also be found on the website.

 

Opposing US Militarism In South Korea

The militaristic nature of the Obama administration pivot to Asia is fully on display in South Korea.  While rarely discussed in the United States media, the South Korean government recently agreed to let the US military station a Terminal High Altitude Area Defense (THAAD) battery in the South Korean city of Seongju.  The decision has been strongly criticized by the governments of China and Russia, and fiercely resisted by the people of Seongju.

The US and South Korean governments claim that the battery is needed to help defend South Korea from a possible North Korean missile attack.  However, it is far more likely that this decision is part of a broader US effort to strengthen its regional missile defense system and first-strike capacity against China and Russia.

As the Korea analyst Gregory Elich explains, this system is not designed to counter any likely North Korean threat:

The missiles in a THAAD battery are designed to counter incoming ballistic missiles at an altitude ranging from 40 to 150 kilometers. Given North Korea’s proximity, few, if any, missiles fired by the North would attain such a height, given that the point of a high altitude ballistic missile is to maximize distance. Even so, were the North to fire a high altitude ballistic missile from its farthest point, aimed at the concentration of U.S. forces in Pyeongtaek, it would require nearly three and a half minutes for THAAD to detect and counter-launch. In that period, the incoming missile would have already fallen below an altitude of 40 kilometers, rendering THAAD useless. In a conflict with the South, though, North Korea would rely on its long-range artillery, cruise missiles, and short-range ballistic missiles, flying at an altitude well below THAAD’s range.

It is also far from certain that the system even works reliably despite Department of Defense approved test results.  As Elich points out, “the tests failed to replicate real-world scenarios, so claims made about THAAD’s effectiveness are unproven.”

So, what is the gain for the US in securing South Korean government willingness to host the system?  The THAAD battery also comes with a powerful radar system that has two different modes of operation.  The first, the terminal mode, is designed to detect incoming missiles and direct counter-missiles.  The second, the forward-based mode, is designed to cover a much wider area and is connected to the US-based missile defense system.  “[I]n forward-mode a radar at Seongju would be capable of covering much of eastern China, as well as missiles fired from further afield as they fly within its detection range.”  In other words, used in forward-mode, the THAAD radar system would greatly enhance the US military’s ability to track and destroy Chinese and Russian missiles, an ability that would significantly contribute to US first-strike capabilities by compromising Chinese or Russian capacities to launch a counter-strike.

Thus, the effort to establish a THAAD battery in South Korea is best understood as a part of the broader US effort to ring China and Russia with missiles and radar systems.  The Global Network Against Weapons and Nuclear Power in Space has declared October 1-8 “Keep Space for Peace Week.”  In concert with that effort they published the following poster which highlights the aggressive nature of US policy.

ksfpw16

The Obama administration is well aware that South Koreans do not want to be dragged into a US confrontation with China or Russia and so it appears likely that the US and South Korean governments conspired to win popular support for the battery by encouraging South Koreans to believe that its sole purpose was to reduce the likelihood of a North Korea missile attack.  However, things haven’t worked out as the two governments hoped.

Growing numbers of South Koreans are actively organizing in opposition to the battery.  The resistance in Seongju grew so strong that the government was forced to announce that it would consider an alternative location.  But the residents of Seongju, joined by a wider social movement, are demanding that the government renounce its willingness to host the battery.

Seongjuprotests

The resistance has been spirited and creative as highlighted in this report from the blog Zoom in Korea:

The online “We the People” petition against THAAD deployment surpassed its goal of 100,000 signatures on August 10. The Seongju residents gathered for their 29th nightly candlelight vigil that evening were beaming with joy. The emcee shouted, “What day is today?” and the residents shouted back in unison, “The day we reached 100,000!” According to the White House petition website, any petition that garners 100,000 signatures in 30 days triggers an official response from the White House within 60 days of the date that the goal is reached.

To be sure, waging an online petition campaign in Seongju was no easy task. Most residents don’t have computers nor read English. The petition requires an email verification step, but most didn’t have email accounts. College students set up booths at the nightly candlelight vigils and patiently helped older residents through the process, starting with opening an email account.

The residents made clear that they are not appealing for sympathy from the White House. The petition campaign was a process of organizing the entire country beyond Seongju to demand that the United States rescind its THAAD decision and exert pressure on the White House.

“Until when do we hold the rain ceremony?” asked Lee Jae-dong, the chair of the Seongju branch of the Korean Peasants League and the emcee of the nightly candlelight vigils.  “Until it rains!” replied the crowd. “Until when do we fight THAAD deployment?” he asked. “Until it’s rescinded!” replied Seongju residents in unison.

In August, a Veterans for Peace delegation traveled to South Korea to meet with Koreans resisting the deployment and to learn more about how best to build solidarity.  Two members of the delegation were denied entry into the country by South Korean authorities.

We need to do our part in this struggle and not just out of sympathy for Koreans.  The THAAD deployment, if successful, can only heighten tensions in the Asia-Pacific region and strengthen those forces in the US that seek to further militarize our own foreign and domestic policies.

North Korea In The News

The North Korean government claims to have detonated a hydrogen bomb on January 6, 2016,  its fourth test of a nuclear weapon since 2006.  Most analysts believe that what was actually tested was a less powerful atomic bomb or perhaps a “boosted-fission weapon.”

Regardless, the media is full of stories questioning Kim Jung-un’s motives or sanity and discussing the possibility of the UN placing yet more sanctions on North Korea.

As for motives, here is what the New York Times thinks its readers should know:

What might North Korea be trying to accomplish with its threats?

In the past, United States administrations and South Korean governments managed to tamp down periodic heightened tensions with North Korea by offering concessions, including much-needed aid, in return for the North’s promising to end its nuclear weapons programs. Many analysts believe that North Korea is again seeking aid and other concessions, while some suggest that it merely wants to be recognized as a nuclear state, like Pakistan.

Still others suggest that the North genuinely fears an attack by the United States or South Korea and views the warnings as deterrence. Highlighting a perceived threat from abroad is also a favorite tool the North Korean government uses to ensure internal cohesion in an impoverished country that has experienced enormous privation, including devastating famine and continuing pervasive hunger.

Missing from all the discussion about North Korea is the actual history of US-North Korea relations.  That is unfortunate, to say the least, since that history would make clear that the US has repeatedly offered and then just as quickly withdrawn its concessions even when the North has complied with US demands.  It would also make clear that the North has always sought and been responsive to meaningful US overtures.  There is no big mystery about what North Korea wants.  It wants a peace treaty ending the Korean War and normalized relations with the US.

As for that history, I think much of what needs to be known can be found in the following previously published May 2, 2013 blog post.

The Need To Work For Peace On The Korean Peninsula

This long post examines the causes of and offers a response to the dangerous escalation of tensions on the Korean peninsula.

While the details of U.S.-North Korean relations are complex, the story is relatively simple.  In brief, the U.S. government continues to reject possibilities for normalizing relations with North Korea and promoting peace on the Korean peninsula in favor of a dangerous policy of regime change.  Unfortunately, but not surprisingly, the U.S. media supports this policy choice with a deliberately one sided presentation of events designed to make North Korea appear to be an unwilling and untrustworthy negotiating partner.

As a corrective, in what follows I offer a more complete history of U.S -North Korean relations, focusing on the major events that frame current tensions over North Korea’s nuclear program.  This history makes clear that these tensions are largely the result of repeated and deliberate U.S. provocations and that our best hope for peace on the Korean Peninsula is an educated U.S. population ready and able to challenge and change U.S. foreign policy.

Historical Context

Perhaps the best starting point for understanding the logic of U.S.-North Korean relations is the end of Korean War fighting in 1953.  At U.S. insistence, the fighting ended with an armistice rather than a peace treaty.  A Geneva conference held the following year failed to secure the peace or the reunification of Korea, and U.S. demands were the main reason for the failure.

The United States rejected North Korean calls for Korea-wide elections, supervised by a commission of neutral nation representatives, to establish a new unified Korean government, a proposal that even many U.S. allies found reasonable.  Instead, the U.S. insisted, along with South Korea, that elections for a new government be held only in the North and under the supervision of the U.S. dominated United Nations.  Needless to say, the conference ended without any final declaration, Korea divided, and the United States and North Korea in a continuing state of war.

Up until the late 1980s/early 1990s, an interrelated, contentious but relatively stable set of relationships—between the United States and the Soviet Union and between North Korea and South Korea—kept North Korean-U.S. hostilities in check.  The end of the Soviet Union and transformation of Russia and other Central European countries into capitalist countries changed everything.

The loss of its major economic partners threw North Korea’s economy into chaos; conditions only worsened the following years as a result of alternating periods of flood and drought.  The North Korean government, now in a relatively weak position, responded by seeking new trade and investment partners, which above all required normalization of relations with the United States.  The U.S. government had a different response to the changed circumstances; seeking to take advantage of the North’s economic problems and political isolation, it rejected negotiations and pursued regime change.

It is the interplay of U.S. and North Korean efforts to achieve their respective aims that is largely responsible for the following oft repeated pattern of interaction: the North tries to force the United States into direct talks by demonstrating its ability to boost its military capacities and threaten U.S. interests while simultaneously offering to negotiate away those capacities in exchange for normalized relations.  The United States, in turn, seizes on such demonstrations to justify ever harsher economic sanctions, which then leads North Korea to up the ante.

There are occasional interruptions to the pattern.  At times, the United States, concerned with North Korean military advances, will enter into negotiations.  Agreements are even signed.  But, the U.S. rarely follows through on its commitments.  Then the pattern resumes.  The critical point here is that it is the North that wants to conclude a peace treaty ending the Korean War and normalize relations with the United States.  It is the U.S. that is the unwilling partner, preferring to risk war in the hopes of toppling the North Korean regime.

The Framework Agreement, 1994-2002

The U.S. government began to raise public concerns about a possible North Korean nuclear threat almost immediately after the dissolution of the Soviet Union.  These concerns were driven by many factors, in particular the U.S. need for a new enemy to justify continued high levels of military spending.  Colin Powell, then head of the Joint Chiefs of Staff, explained in testimony to Congress that with the Soviet Union gone, the United States was running out of enemies.  All that was left, he said, was Fidel Castro and Kim Il Sung.

The North had shut down its one operating reactor in 1989 for repairs.  In 1992, the CIA claimed that the North used the shutdown to reprocess plutonium and was now in possession of one or two nuclear weapons, a claim disputed at the time by the State Department.  The North also denied the claim but offered to settle U.S. nuclear concerns if the United States would enter into normalization talks.

The Clinton Administration rejected the invitation and began planning for war.  War was averted only because of Jimmy Carter’s intervention.  He traveled to North Korea and brokered an agreement with Kim Il Sung that Clinton reluctantly accepted.  The resulting 1994 Framework Agreement required the North to freeze its graphite-moderated reactor and halt construction of two bigger reactors.  It also required the North to store the spent fuel from its operating reactor under International Atomic Energy Association (IAEA) supervision.

In exchange, the U.S agreed to coordinate the building of two new light water reactors (which are considered less militarily dangerous) that were to be finished by 2003.  Once the reactors were completed, but before they were fully operational, the North would have to allow full IAEA inspections of all its nuclear facilities.  During the period of construction, the U.S. agreed to provide the North with shipments of heavy oil for heating and electricity production.

Perhaps most importantly, the agreement also called for the United States to “move toward full normalization of political and economic relations” with the North and “provide formal assurances to the DPRK against the threat or use of nuclear weapons by the United States.”

Tragically, although rarely mentioned in the U.S. media, the U.S. government did little to meet its commitments.  It was repeatedly late in delivering the promised oil and didn’t begin lifting sanctions until June 2000.  Even more telling, the concrete for the first light water reactor wasn’t poured until August 2002.  Years later, U.S. government documents revealed that the United States made no attempt to complete the reactors because officials were convinced that the North Korean regime would collapse.

The Bush administration had no use for the Framework Agreement and was more than happy to see it terminated, which it unilaterally did in late 2002, after charging the North with violating its terms by pursuing nuclear weapons through a secret uranium enrichment program.  Prior to that, in January 2002, President Bush branded North Korea a member of the “axis of evil.”  In March, the terms of a new military doctrine were leaked, revealing that the United States reserved the right to take preemptive military strikes and covert actions against nations possessing nuclear, biological, and chemical weapons as well as use nuclear weapons as an option in any conflict; North Korea was listed as one of the targeted nations.  In July, President Bush rejected a North Korean request for a meeting of foreign ministers, calling Kim Jong Il a “pygmy” and a “spoiled child at the dinner table”

It is certainly possible that North Korea did begin a uranium enrichment program in the late 1990s, although the Bush Administration never provided proof of the program’s existence.  However, what is clear is that the North did halt its plutonium program, allowing its facilities to deteriorate, with little to show for it.  The failure of the United States to live up to its side of the agreement is highlighted by the fact that North Korea’s current demands are no different from what it was promised in 1994.

The North Korean government responded to the Bush administration’s unilateral termination of the Framework Agreement by ordering IAEA inspectors out of the country, restarting its plutonium program, and pledging to build a nuclear arsenal for its defense.

Six Party Talks, 2003-7

Fearful of a new war on the Korean peninsula, the Chinese government organized talks aimed at deescalating tensions between the United States and North Korea.  The talks began in August 2003 and included six countries—the United States, North Korea, South Korea, Japan, China, and Russia.  Two years of talks failed to produce any progress in resolving U.S.-North Korea differences.  One reason: the U.S. representative was under orders not to speak directly to his North Korean counterpart except to demand that North Korea end its nuclear activities, scrap its missiles, reduce its conventional forces, and end human rights abuses.  The North, for its part, refused to discuss its nuclear program separate from its broader relations with the United States.

Finally, in mid-2005, the Chinese made it known that they were prepared to declare the talks a failure and would blame the United States for the outcome.  Not long after, the United States ended its opposition to an agreement.  In September 2005, the six countries issued a Joint Statement, which was largely a repackaged Framework Agreement.  While all the countries pledged to work towards the denuclearization of the Korean peninsula, most of the concrete steps were to be taken by the United States and North Korea “in a phased manner in line with the principle of ‘commitment for commitment, action for action’.”

Unfortunately, the day after the Joint Statement was issued, the United States sabotaged it.  The U.S. Treasury announced that it had “proof” that North Korea was counterfeiting $100 bills, so called super notes, an action it said amounted to war.  It singled out the Macao-based Banco Delta Asia, which was one of North Korea’s main financial connections to the west, for supporting the country’s illegal activities, froze its dollar accounts, and warned other banks not to conduct business with it or service any North Korean dollar transactions.  The aim was to isolate North Korea by denying it access to international credit markets.  The charge of counterfeiting was rejected by the North, most Western currency experts, and even China and Russia who were given a presentation of evidence by the U.S. Treasury.  However, fearful of possible U.S. retaliation, most banks complied with U.S. policy, greatly harming the North Korean economy.

The timing of the counterfeit charge was telling.  The U.S. Treasury had been concerned with counterfeit super notes since 1989 and had originally blamed Iran.  The sum total identified was only $50 million, and none of the notes had ever circulated in the United States.  This was clearly yet another effort to stop normalization and intensify economic pressure on North Korea.

The North announced that its participation in Six Party talks was contingent on the withdrawal of the counterfeit charge and the return of its Banco Delta Asia dollar deposits.  After months of inaction by the United States, the North took action.  On July 4, 2006, it test-fired six missiles over the Sea of Japan, including an intercontinental missile.  The U.S. and Japan condemned the missile firings and further tightened their sanctions against North Korea.  In response, on October 8, 2006, North Korea conducted its first nuclear test.  Finally, the U.S. agreed to reconsider its financial embargo and the North agreed that if its money was returned and it received energy supplies and economic assistance it was willing to once again shutdown its nuclear facilities, readmit international inspectors, and discuss nuclear disarmament in line with steps toward normalization of relations with the United States.

The Six Party talks began again in December 2006 but the process of securing implementation of the Joint Statement was anything but smooth.  The U.S. chief negotiator at the talks announced in February 2007 that all frozen North Korean deposits would be unfrozen and made available to the North within 30 days; the North was given 60 days to shut down its reactor.  However, the Treasury refused to withdraw its charges, and no bank was willing to handle the money for fear of being targeted as complicit with terrorism.  It took the State Department until June 25 to work out a back-door alternative arrangement, thereby finally allowing the Six Party agreement to go into effect.

The Six Party Agreement, 2007-9

As noted above, the Six Party agreement involved a phased process.  Phase 1, although behind schedule because of the U.S. delay in releasing North Korean funds, was completed with no problems.  In July 2007, North Korea shut down and sealed its Yongbyon nuclear complex which housed its reactor, reprocessing facility, and fuel rod fabrication plant.  It also shut down and sealed its two partially constructed nuclear reactors.  It also invited back IAEA inspectors who verified the North Korean actions.  In return, the U.S. provided a shipment of fuel oil.

Phase 2, which began in October, required the North to disable all its nuclear facilities by December 31, 2007 and “provide a complete and correct declaration of all its existing nuclear programs.”  In a separate agreement it also agreed to disclose the status of its uranium enrichment activities.  In exchange, the North was to receive, in stages, “economic, energy, and humanitarian assistance.” Once it fulfilled all Phase 2 requirements it would also be removed from the U.S. Trading with the Enemy Act and the State Sponsors of Terrorism list.

North Korean complaints over the slow delivery of fuel oil delayed the completion of this second phase.  However, in May 2008, North Korea completed the last stage of its required Phase 2 actions when it released extensive documentation of its plutonium program and in June a declaration of its nuclear inventory.  In response, the U.S. removed North Korea from its list of state sponsors of terrorism.

However, the U.S. government failed to release the remaining promised aid or end the remaining sanctions on North Korea.  It now demanded that North Korea accept a highly intrusive verification protocol, one that would open up all North Korean military installations to U.S. inspection, and made satisfaction of Phase 2 commitments dependent on its acceptance.  The U.S. was well aware that this demand was not part of the original agreement.  As Secretary of State Rice stated, “What we’ve done, in a sense, is move up issues that were to be taken up in phase three, like verification, like access to the reactors, into phase two.”

The North offered a compromise—a Six Party verification mechanism which would include visits to declared nuclear sites and interviews with technical personal.  It also offered to negotiate a further verification protocol in the final dismantlement phase.  The U.S. government rejected the compromise and ended all aid deliveries.

In February 2009, the North Korea began preparation to launch a satellite.  South Korea was preparing to launch a satellite of its own in July.  The North had signed the appropriate international protocols governing satellites and was now providing, as required, notification of its launch plan.  The Obama administration warned the North that doing so would violate sanctions placed on the country after its nuclear test.  In response, the North declared that it had every right to develop its satellite technology and if the U.S. responded with new sanctions it would withdraw from the Six Party talks, eject IAEA monitors, restart its reactors, and strengthen its nuclear deterrent.

The North launched its satellite in April.  In June, the U.S. won UN support for enhanced sanctions, and the North followed through on its threat.  In May the North conducted a second nuclear test, producing yet another round of sanctions.

Recent Events

In April and December 2012 the North again launched earth observation satellites.  Although before each of these launches the U.S. asserted that these were veiled attempts to test ballistic missiles designed to threaten the United States, after each launch almost all observers agreed that the characteristics of the launches—their flight pattern and the second stage low-thrust, long burntime–were what is required to put a satellite in space and not consistent with a missile test.

After the December launch, the only successful one, the U.S. again convinced the Security Council to apply a new round of sanctions.  And in response, the North carried out its third nuclear test in February 2013.  The North Korean Ministry of Foreign Affairs pointed out that there have been “more than 2,000 nuclear tests and 9,000 satellite launches” in the world, “but the UN Security Council has never passed a resolution prohibiting nuclear tests or satellite launches.”  The Security Council responded to the North’s nuclear test by approving stricter sanctions.

In addition to sanctions, the U.S. has also intensified its military provocations against the North in hopes of destabilizing the new North Korean regime led by Kim Jung Un.  For example, in 2012, U.S.-South Korean military analysts conducted the world’s largest computerized war simulation exercise, practicing the deployment of more than 100,000 South Korean troops into North Korea to “stabilize the country in case of regime collapse.”  As part of their yearly war games, U.S. and South Korean forces also carried out their largest amphibious landing operations in 20 years; 13 naval vessels, 52 amphibious armored vehicles, 40 fighter jets and helicopters, and 9,000 U.S. troops were involved.

As part of its March 2013 war games, the U.S. flew nuclear-capable B-2 Stealth bombers over South Korea; these are also the only planes capable of dropping the 30,000-pound Massive Ordnance Penetrator bomb, which was developed to destroy North Korean underground facilities.  Nuclear-capable B-52 bombers also flew over South Korea, dropping dummy munitions.  The United States also sent the nuclear-powered submarine USS Cheyenne, equipped with Tomahawk missiles, into Korea waters.

The North Korean government responded to these threats in three ways.  First, the content of their declarations changed.  In particular, they began to focus their own threats on the U.S. as well as South Korea.  For example, the government stated, “If the US imperialists brandish nuclear weapons, we — in complete contrast to former times — will by means of diversified, precision nuclear strike in our own style turn not just Seoul, but even Washington, into a sea of fire.”  It also asserted, for the first time, that its nuclear weapons were no longer negotiable.  At least, not “as long as the United States’ nuclear threats and hostile policy exist.”

Second, the government put North Korean forces on full alert, including all artillery, rockets, and missiles.  Kim Jong Un announced that the country would “answer the US imperialists’ nuclear blackmail with a merciless nuclear attack.”  Finally, it announced, in April, that it would restart its uranium enrichment program and its Yongbyon reactor.

What Lies Ahead

The Obama administration has adopted what it has called the doctrine of “strategic patience” in dealing with North Korea.  But as made clear from above, in reality the U.S. has continued to pursue an aggressive policy towards North Korea, motivated by the hope that the regime will collapse and Korean reunification will be achieved by the South’s absorption of the North, much like the German experience.

The consequence of this policy is ever worsening economic conditions in the North; continuing military buildup in the United States, Japan, China, and both North and South Korea; a strengthening of right-wing forces in South Korea and Japan; and the growing threat of a new war on the Korean peninsula.  There are powerful interests in Japan, South Korea, and the United States that are eager to further militarize their respective domestic and foreign policies, even at the risk of war.  Tragically, their pursuit of this goal comes at great cost to majorities in all the countries concerned, even if war is averted.

The North has made clear its willingness to enter direct talks with the United States.  It is only popular pressure in the United States that will cause the U.S. government to change its policy and accept the North Korean offer.  It is time for the U.S. government to sign a peace treaty finally ending the Korean War and take sincere steps towards normalization of relations with North Korea.

 

Taxes and Militarism

Tax day has come and gone.  And there is indeed a lot to complain about: our corporations and the wealthy have successfully minimized their own tax responsibilities, leaving us to support a powerful and profitable military-national-security-industrial complex at the expense of needed public services and social programs.

Let’s start with who pays taxes.  Individuals and corporations both pay income taxes to the federal government.  However, as the chart below shows, corporations have been able to take advantage of increasingly lenient income tax laws and a corporate friendly globalization process to significantly lower their tax obligations.  If we add payroll taxes which are paid by individuals to support specific programs like Social Security and Medicare, the overall individual contribution is approximately 80% and the corporate share about 11%.

ind_and_corp_tax_line_chart_large

Lower corporate taxes were supposed to unleash the power of the market and make us all better off.  Unfortunately, but not surprisingly, all they have done is boost corporate profits at the public expense.

Of course, income tax burdens are not equally divided among individuals.  In fact, our federal income tax code has become increasingly favorable to higher income earners.  As the next chart shows, the top marginal income tax rate has been dramatically reduced.  The top marginal tax rate was 50 percent in the mid-1980s and even higher in the 1950s.  Currently, the top rate is 39.6 percent; it is paid by individuals making more than $406,750 and couples making more than $457,600.  And then there are tax breaks that disproportionately benefit top income earners.

11economist--folbre2-blog480

The combination of more income going to top earners, lower top marginal tax rates, and specially crafted tax breaks cannot help but reduce federal tax revenues and drive up our federal deficits.

The payment of income taxes is one thing—how the federal government uses the money it receives is another.  As we see next, military related activities absorb a heavy share of federal spending.

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Direct spending on the military accounted for 27 cents of every dollar spent.  Including spending for veterans benefits and approximately two-thirds of the interest on the federal debt adds another 16.05 cents, which brings the overall military total to 43.05 cents out of every dollar spent.  This is a conservative estimate because it does not include spending on activities that fall under the broader heading of national security such as homeland security and certain “foreign aid” expenditures.  No wonder our infrastructure and social programs are starved for funds.

Federal spending can be divided into non-discretionary and discretionary items.  In the case of the former, spending is mandated by law, such as payment of the national debt.  In the case of the latter, the federal government has discretion in how it spends our tax money.  Looking just at discretionary spending reveals even more clearly the dominant position of the military in our budget priorities.

discretionary-desk

Moreover, political pressure keeps working to push the military share higher.  Both House and Senate budget proposals call for spending some $530 billion on defense in Fiscal Year (FY) 2016.  That is the most that can be spent without triggering automatic spending cuts due to sequestration.  But – happily for the military – there is an exception to the sequestration process.

The exception allows Congress to authorize unlimited spending for current military operations or what is officially known as Overseas Contingency Operations.  House and Senate proposals include more than $90 billion under this heading.  Significantly, there is no similar exception when it comes to spending on non-military, discretionary items.  Apparently our non-military needs don’t rise to the same level of urgency as our military ones.

A few key changes in the tax code and federal spending priorities and a better 2016 tax day is not hard to imagine.

The Federal Budget In Pictures

The following charts, taken from a National Priorities Project post, highlight our federal budget priorities.

As the post explains:

President Obama recently released his fiscal year 2016 budget proposal. Budgets are about our nation’s priorities: What are we going to spend money on? How are we going to raise the money we want to spend?

Though the budget ultimately enacted by Congress may look very different from the budget request released by the president, the president’s budget is important. It’s the president’s vision for the country in fiscal year 2016 and beyond, and it reflects input and spending requests from every federal agency.

 Here’s a look at the overall proposed budget:

2016-budget-chart-total-spending2_large

 

2016-budget-chart-discretionary-mandatory-interest-on-debt2_large

 

Here’s a look at the allocation of discretionary tax dollars:

2016-budget-chart-discretionary_large

 

Here”s a look at the relative balance of military and non-military discretionary spending over time:

2016-budget-chart-military-non-military-discretionary_large

 

Here’s a look at the structure of taxes supporting federal spending:

2016-budget-chart-individual-corporate-tax-line-chart_large

Still The World’s Top Military Spender

According to the Stockholm International Peace Institute, the United States remains the world’s top military spender. In fact, U.S. military spending equals the combined military spending of the next ten countries.  And most of those are U.S. allies.

Top 15

Although declining in real terms, the U.S. military budget remains substantial and a huge drain on our public resources.  As the following chart shows, military spending absorbs 57% of our federal discretionary budget.

discretionary spending

 Notice that many so-called non-military discretionary budget categories also include military related spending. For example: Veteran’s Benefits, International Affairs, Energy and the Environment, and Science.   We certainly seem focused on a certain kind of security.

 

America: Land Of The Surveilled and Imprisoned

America stands out for the high share of its labor force that is employed in what economists Samuel Bowles and Arjun Jayadev call “guard labor.”

There are now more people working as private security guards than high school teachers.

The following graph highlights the number of “protective service workers” employed per 10,000 workers and the degree of income inequality in the year 2000 for 16 countries.  The United States is tops on both counts.

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Two things stand out from this graph beyond U.S. “leadership.”  The first is the relationship between the share of protective service workers and inequality.  As Bowles and Jayadev comment:

In America, growing inequality has been accompanied by a boom in gated communities and armies of doormen controlling access to upscale apartment buildings. We did not count the doormen, or those producing the gates, locks and security equipment. One could quibble about the numbers; we have elsewhere adopted a broader definition, including prisoners, work supervisors with disciplinary functions, and others.

But however one totes up guard labor in the United States, there is a lot of it, and it seems to go along with economic inequality. States with high levels of income inequality — New York and Louisiana — employ twice as many security workers (as a fraction of their labor force) as less unequal states like Idaho and New Hampshire.

When we look across advanced industrialized countries, we see the same pattern: the more inequality, the more guard labor. As the graph shows, the United States leads in both.

The second is the rapid rise in the U.S. share of guard labor and inequality from 1979 to 2000.

For those who like definitions: The category protective service workers includes those employed as Private Security Guards, Supervisors of Correctional Officers, Supervisors of Police and Detectives, Supervisors of all other Protective Service Workers, Bailiffs, Correctional Officers and Jailers, Detectives and Criminal Investigators, Fish and Game Wardens, Parking Enforcement Workers, Police and Patrol Officers, Transit and Railroad Police, Private Detectives and Investigators, Gaming Surveillance Officers, and Transportation Security Screeners.  Inequality is measured by the gini coefficient; the higher the number the greater the degree of inequality.

As noted above Bowles and Jayadev have explored broader measures of guard labor.  One such measure adds members of the armed forces, civilian employees of the military, and those that produce weapons to those employed as protective service workers.  The total was 5.2 million workers in 2011.

One can only wonder in what ways and for whom this large and growing dependence on guard labor represents a rational use of social resources.

Cutting Through The Budget Nonsense

The media continues to direct out attention to deficits and debt as our main problems.  Yet, it does little to really highlight the causes of these deficits and debts.

The following two figures from the Center on Budget and Policy Priorities help to clarify the causes.  It is important to note that the projections underlying both figures were made before the recent vote making permanent most of the Bush-era tax cuts.

Figure 1, below, shows the main drivers of our large national deficits: the Bush-era tax cuts, the wars in Iraq and Afghanistan, and our economic crisis and responses to it.  Without those drivers our national deficits would have remained quite small.

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Figure 2, below, shows the main drivers of our national debt. Not surprisingly they are the same as the drivers of our deficits.

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Significantly, the same political leaders that scream the loudest about our deficits and debt have little to say about stopping the wars or reducing military spending and are the most adamant about maintaining the Bush-era tax cuts.  That is because, at root, their interest is in reducing spending on non-security programs rather than reducing the deficit or debt.

Some of these leaders argue that the tax cuts will help correct our economic problems and thereby help reduce the deficit and debt.  However, multiple studies have shown that tax cuts are among the least effective ways to stimulate employment and growth.  In contrast, the most effective are sustained and targeted government efforts to refashion economic activity by spending on green conversion, infrastructure, health care, education and the like.

While Republicans and Democrats debate the extent to which taxes should be raised, both sides appear to agree on the need to reign in federal government spending in order to achieve deficit reduction.  In fact, federal government spending has been declining both absolutely and, as the following figure from the St. Louis Federal Reserve shows, as a share of GDP.

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In reality, our main challenge is not reducing our deficit or debt but rather strengthening our economy, and cutting government spending is not going to help us overcome that challenge.  As Peter Coy, writing in BusinessWeek explains:

It pains deficit hawks to hear this, but ever since the 2008 financial crisis, government red ink has been an elixir for the U.S. economy. After the crisis, households strove to pay down debt and businesses hoarded profits while skimping on investment. If the federal government had tried to run balanced budgets, there would have been an enormous economy wide deficit of demand and the economic slump would have been far worse. In 2009 fiscal policy added about 2.7 percentage points to what the economy’s growth rate would have been, according to calculations by Mark Zandi of Moody’s Analytics. But since then the U.S. has underutilized fiscal policy as a recession-fighting tool. The economic boost dropped to just half a percentage point in 2010. Fiscal policy subtracted from growth in 2011 and 2012 and will do so again in 2013, to the tune of about 1 percentage point, Zandi estimates.

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If we were serious about tackling our economic problems we would raise tax rates and close tax loopholes on the wealthy and corporations and reduce military spending, and then use a significant portion of the revenue generated to fund a meaningful government stimulus program.  That would be a win-win proposition as far as the economy and budget is concerned.

Scaling The Fiscal Cliff

With the election over, the news is now focused, somewhat hysterically, on the threat of the fiscal cliff.

The fiscal cliff refers to the fact that at the end of this calendar year several temporary tax cuts are scheduled to expire (including those that lowered rates on income and capital gains as well as payroll taxes) and early in the next year spending cuts are scheduled for military and non-military federal programs.  See here for details on the taxes and programs.

Most analysts agree that if tax rates rise and federal spending is cut the result will be a significant contraction in aggregate demand, pushing the U.S. economy into recession in 2013.

The U.S. economy is already losing steam.  GDP growth in the second half of 2009, which marked the start of the recovery, averaged 2.7% on an annualized basis.  GDP growth in 2010 was a lower 2.4%.  GDP growth in 2011 averaged a still lower 2.0%.  And growth in the first half of this year declined again, to an annualized rate of 1.8%.

With banks unwilling to loan, businesses unwilling to invest or hire, and government spending already on the decline, there can be little doubt that a further fiscal tightening will indeed mean recession.

So, assuming we don’t want to go over the fiscal cliff, what are our choices?

Both Republicans and Democrats face this moment in agreement that our national deficits and debt are out of control and must be reduced regardless of the consequences for overall economic activity.  What they disagree on is how best to achieve the reduction.  Most Republicans argue that we should renew the existing tax cuts and protect the military budget.  Deficit reduction should come from slashing the non-military discretionary portion of the budget, which, as Ethan Pollack explains, includes:

safety net programs like housing vouchers and nutrition assistance for women and infants; most of the funding for the enforcement of consumer protection, environmental protection, and financial regulation; and practically all of the federal government’s civilian public investments, such as infrastructure, education, training, and research and development.

The table below shows the various programs/budgets that make up the non-security discretionary budget and their relative size.  The chart that follows shows how spending on this part of the budget is already under attack by both Democrats and Republicans.

Unfortunately, the Democrat’s response to the fiscal cliff is only marginally better than that of the Republicans.  President Obama also wants to shrink the deficit and national debt, but in “a more balanced way.”  He wants both tax increases and spending cuts.  He is on record seeking $4 trillion in deficit reduction over a ten year period, with a ratio of $2.50 in spending cuts for every $1 in new revenue.

The additional revenue in his plan will come from allowing tax cuts for the wealthy to expire, raising the tax rate on the top income tax bracket, and limiting the value of tax deductions.  While an important improvement, President Obama is also committed to significant cuts in non-military discretionary spending.  Although his cuts would not be as great as those advocated by the Republicans, reducing spending on most of the targeted programs makes little social or economic sense given current economic conditions.

So, how do we scale the fiscal cliff in a responsible way?

We need to start with the understanding that we do not face a serious national deficit or debt problem.  As Jamie Galbraith notes:

. . . is there a looming crisis of debt or deficits, such that sacrifices in general are necessary? No, there is not. Not in the short run – as almost everyone agrees. But also: not in the long run. What we have are computer projections, based on arbitrary – and in fact capricious – assumptions. But even the computer projections no longer show much of a crisis. CBO has adjusted its interest rate forecast, and even under its “alternative fiscal scenario” the debt/GDP ratio now stabilizes after a few years.

Actually, as the chart below shows, the deficit is already rapidly falling.  In fact, the decline in government spending over the last few years is likely one of the reasons why our economic growth is slowing so dramatically.

As Jed Graham points out:

From fiscal 2009 to fiscal 2012, the deficit shrank 3.1 percentage points, from 10.1% to 7.0% of GDP.  That’s just a bit faster than the 3.0 percentage point deficit improvement from 1995 to ’98, but at that point, the economy had everything going for it.

Other occasions when the federal deficit contracted by much more than 1 percentage point a year have coincided with recession. Some examples include 1937, 1960 and 1969.

In short, we do not face a serious problem of growing government deficits.  Rather the problem is one of too fast a reduction in the deficit in light of our slowing economy.

As to the challenge of the fiscal cliff—here we have to recognize, as Josh Bivens and Andrew Fieldhouse explain, that:

the budget impact and the economic impact are not necessarily the same. Some policies that are expensive in budgetary terms have only modest economic impacts (for example, the 2001 and 2003 tax cuts aimed at high-income households are costly but do not have much economic impact). Conversely, other policies with small budgetary costs have big economic impacts (for example, extended unemployment insurance benefits).

In other words, we should indeed allow the temporary tax rate deductions for the wealthy to expire, on both income and capital gains taxes.  These deductions cost us dearly on the budget side without adding much on the economic side.  As shown here and here, the evidence is strong that the only thing produced by lowering taxes on the wealthy is greater income inequality.

Letting existing tax rates rise for individuals making over $200,000 and families making over $250,000 a year, raising the top income tax bracket for both couples and singles that make more than $388,350, and limiting tax deductions will generate close to $1.5 trillion dollars over ten years as highlighted below in a Wall Street Journal graphic .

However, in contrast to President Obama’s proposal, we should also support the planned $500 billion in cuts to the military budget.  We don’t need the new weapons and studies are clear that spending on the military (as well as tax cuts) is a poor way to generate jobs.  For example, the table below shows the employment effects of spending $1 billion on the military versus spending the same amount on education, health care, clean energy, or tax cuts.

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And, we should also oppose any cuts in our non-security discretionary budget. Instead, we should take at least half the savings from the higher tax revenues and military spending cuts–that would be a minimum of $1 trillion–and spend it on programs designed to boost our physical and social infrastructure.  Here I have in mind retrofitting buildings, improving our mass transit systems, increasing our development and use of safe and renewable energy sources like wind and solar, and expanding and strengthening our social services, including education, health care, libraries, and the like.

Our goal should be a strong and accountable public sector, good jobs for all, and healthy communities, not debt reduction.  The above policy begins to move us in the right direction.

The Role Of Government In The Economy

A big debate is underway about fiscal multipliers.  Sounds esoteric but it is not—it reveals that economics is far from an exact science and the outcome appears to confirm what most working people thought, which is that government spending can help an economy grow.

A fiscal multiplier is an estimate of the economic impact of a change in government spending.  The debate was triggered, surprisingly enough, by a small box in the International Monetary Fund’s annual publication, World Economic Outlook.  There, the International Monetary Fund (IMF) admitted that its previous estimates of fiscal multipliers were too low.

Here is what the IMF chief economist Olivier Blanchard wrote:

The main finding, based on data for 28 economies, is that the multipliers used in generating growth forecasts have been systematically too low since the start of the Great Recession, by 0.4 to 1.2, depending on the forecast source and the specifics of the estimation approach. Informal evidence suggests that the multipliers implicitly used to generate these forecasts are about 0.5. So actual multipliers may be higher, in the range of 0.9 to 1.7.

As part of the attack on the role of government in the economy, many economists, prior to the Great Recession, argued that fiscal multipliers were roughly equal to 1.  That meant a 1% reduction in government spending would likely cause a 1% decline in GDP, and a 1% increase in government spending would likely generate a 1% increase in GDP.

As the Great Recession got under way, many economists, including those at the IMF, began arguing for substantially lower multipliers, on the order of 0.5%.  On the basis of this reduced value, many forecasters argued for the benefits of austerity.  Debt was seen as a major problem and if fiscal multipliers were only 0.5%, a $1 cut in government spending would reduce debt by $1 but GDP by only 50 cents.

Well, after watching how austerity policies collapsed many economies around the world, especially in Europe, the IMF acknowledged that it had badly misjudged the size of the fiscal multiplier.  As Cornel Ban explains:

In contrast [to its previous low estimates], the October 2012 WEO found that in fact [fiscal multipliers] ranged between .9 to 1.7 (the Eurozone periphery is closer to the higher end of the range), an error that explained the IMF’s extremely optimistic growth projections for countries who front-loaded fiscal consolidation.  Assuming the multiplier was 1.5, a fiscal adjustment of 3 percent of GDP-as much as Spain has to do next year- would lead to a GDP contraction of 4.5 percent. It was momentous finding and those who had been skeptical of the virtues of austerity felt vindicated.

Barry Eichengreen and Kevin H O’Rourke provide additional evidence for large fiscal multipliers, in fact for larger multipliers than those proposed by the IMF.  According to them:

The problem is that standard theory doesn’t tell us much about the precise magnitude of the multiplier under [current] conditions. The IMF’s analysis, moreover, relies on observations for only a handful of national experiences. It is limited to the post-2009 period. And it has been criticized for its sensitivity to the inclusion of influential outliers.

Fortunately, history provides more evidence on the relevant magnitudes. In a paper written together with Miguel Almunia, Agustin Bénétrix and Gisela Rua, we considered the experience of 27 countries in the 1930s, the last time when interest rates were at or near the zero lower bound, and when post-2009-like monetary conditions therefore applied (Almunia et al. 2010).

Our results depart from the earlier historical literature. Generalizing from the experience of the US it is frequently said, echoing E Cary Brown, that fiscal policy didn’t work in the 1930s because it wasn’t tried. In fact it was tried, in Japan, Italy, and Germany, for rearmament- and military-related reasons, and even in the US, where a Veterans’ Bonus amounting to 2% of GDP was paid out in 1936. Fiscal policy could have been used more actively, as Keynes was later to lament, but there was at least enough variation across countries and over time to permit systematic quantitative analysis of its effects.

We analyze the size of fiscal multipliers in several ways. First, we estimate panel vector regressions, relying on recursive ordering to identify shocks and using defense spending as our fiscal policy variable. The idea is that levels of defense spending are typically chosen for reasons unrelated to the current state of the economy, so defense spending can thus be placed before output in the recursive ordering. We also let interest rates and government revenues respond to output fluctuations. We find defense-spending multipliers in this 1930s setting as large as 2.5 on impact and 1.2 after the initial year.

Second, we estimate the response of output to government spending using a panel of annual data and defense spending as an instrument for the fiscal stance.

Here too we control for the level of interest rates, although these were low virtually everywhere, reflecting the prevalence of economic slack and ongoing deflation. Using this approach, our estimate of the multiplier is 1.6 when evaluated at the median values of the independent variables.

These estimates based on 1930s data are at the higher end of those in the literature, consistent with the idea that the multiplier will be greater when interest rates do not respond to the fiscal impulse, whether because they are at the lower bound or for other reasons. The 1930s experience thus suggests that the IMF’s new estimates are, if anything, on the conservative side.

 Some economists remain unconvinced—in fact, some actually argue that government spending is incapable of creating jobs.  The economist Robert J. Samuelson was so upset to read a New York Times editorial which claimed that government spending creates jobs that he had to respond:

In 35 years, I can’t recall ever writing a column refuting an editorial. But this one warrants special treatment because the Times’ argument is so simplistic, the subject is so important and the Times is such an influential institution.

Here is the nub of his argument:

it’s true that, legally, government does expand employment. But economically, it doesn’t — and that’s what people usually mean when they say “government doesn’t create jobs.”

What the Times omits is the money to support all these government jobs. It must come from somewhere — generally, taxes or loans (bonds, bills). But if the people whose money is taken via taxation or borrowing had kept the money, they would have spent most or all of it on something — and that spending would have boosted employment.

In other words, because the government relies on the private sector for the money it spends, the jobs created by its spending cannot be a net addition to the economy.  Said differently, jobs supported by public spending are not real jobs.  There is a lot that can be said, but here is Dean Baker’s response:

Samuelson tells us that if the government didn’t tax or borrow or the money to pay its workers (he makes a recession exception later in the piece) people “would have spent most or all of it on something — and that spending would have boosted employment.”

Again, this is true, but how does it differ from the private sector? If the new iPhone wasn’t released last month people would have spent most or all of that money on something — and that spending would have boosted employment. Does this mean that workers at Apple don’t have real jobs either?

The confusion gets even greater when we start to consider the range of services that can be provided by either the public or private sector. In Robert Samuelson’s world we know that public school teachers don’t have real jobs, but what about teachers at private schools? Presumably the jobs held by professors at major public universities, like Berkeley or the University of Michigan are not real, but the jobs held at for-profit universities, like Phoenix or the Washington Post’s own Kaplan Inc., are real.

How about health care? Currently the vast majority of workers in the health care industry are employed by the private sector. Presumably these are real jobs according to Samuelson. Suppose that we replace our private health care system with a national health care service like the one they have in the U.K. Would the jobs in the health care no longer be real? . . .

How about when the government finances an industry by granting it a state sanctioned monopoly as when it grants patent monopolies on prescription drugs. Do the researchers at Pfizer have real jobs even though their income is dependent on a government granted monopoly? Would they have real jobs if the government instead paid for research out of tax revenue and let drugs be sold in a free market, saving consumers $250 billion a year?

Robert Samuelson obviously thinks there is something very important about the difference between working for the government and working in the private sector. Unfortunately his column does not do a very good job of explaining why. It would probably be best if he waited another 35 years before again attacking a newspaper editorial.

If people are confused about how our economy works, or doesn’t work, it is no wonder.