“The System Is Blinking Red” 2.

The Armed Services Committees of the House of Representatives and the Senate created a “Commission on the National Defense Strategy.”  Eight people were appointed to the Commission by both parties in both committees.  The Commission examined both the current and foreseeable threat environment facing the United States and the military preparedness of the United States to address that environment.  The study makes grim reading.[1] 

First, the threat environment is familiar.  In first place is China; in second place is Russia; and in third and fourth places are Iran and North Korea.  All are aggressive tyrannies.  All devote a much larger share of their national resources to the military than does the United States.  All have grown closer to each other—formal or informal allies—over the last few years.  All are deeply aggrieved with the “rules-based order” fostered by the United States after the Cold War.  “The good old rule sufficeth them, the simple plan, That they should take who have the power, and they should keep who can.”[2]  One is already fully at war, one is using its proxies in war, and the others are using military power in an attempt to intimidate their neighbors, who are American allies.  In short, “the United States faces the most challenging and most dangerous international security environment since World War II.  It faces peer and near-peer competitors for the first time since the end of the Cold War.”  Once upon a time, such actions would have met a powerful American response as a matter of policy.[3] 

Now, “[the] consequences of an all-out war with a peer or near peer would be devastating.  Such a war would not only yield massive personnel and military costs but would also likely feature cyberattacks on U.S. critical infrastructure and a global economic recession from disruptions to supply chains, manufacturing, and trade.” 

Why is this?  The Commission finds American power much reduced and hobbled, all by our own doing.  First, “The Commission finds that DoD’s business practices, byzantine research and development (R&D) and procurement systems, reliance on decades-old military hardware, and culture of risk avoidance reflect an era of uncontested military dominance.”  As a result, “the U.S. military lacks both the capabilities and the capacity required to be confident it can deter and prevail in combat.” 

Second, “the U.S. defense industrial base (DIB) is unable to meet the equipment, technology, and munitions needs of the United States and its allies and partners. A protracted conflict, especially in multiple theaters, would require much greater capacity to produce, maintain, and replenish weapons and munitions.” 

Third, “today’s [DoD workforce and all-volunteer force ] is the smallest force in generations. It is stressed to maintain readiness today and is not sufficient to meet the needs of strategic global competition and multi-theater war.”  “Recent recruitment shortfalls [for the all-volunteer force] have decreased the size of the Army, Air Force, and Navy.” 

Fourth, we aren’t spending on–or raising money for–defense the way we used to when we were conscious of danger.  On the one hand, defense spending as a share of GDP has roller-coastered: in 1965, 6.9 percent; in 1967, 8.6 percent; in 1979, 4.9 percent; in 1983, 6.8 percent; in 1999, 2.9 percent; in 2010, 4.7 percent; and in 2025 it is projected that the US will spend 3 percent.  On the other hand, “Defense spending in the Cold War relied on top marginal income tax rates above 70 percent and corporate tax rates averaging 50 percent.” 

The Commission concludes that “The lack of preparedness to meet the challenges to U.S. national security is the result of many years of failure to recognize the changing threats and to transform the U.S. national security structure and has been exacerbated by the 2011 Budget Control Act, repeated continuing resolutions, and inflexible government systems. The United States is still failing to act with the urgency required, across administrations and without regard to governing party.” 

It offers a series of urgent recommendations that are well worth considering.  But not for too long.  Our enemies can see all these things.  They may not wait. 


[1] See: https://www.armed-services.senate.gov/imo/media/doc/nds_commission_final_report.pdf  The Report was brought to my attention by Walter Russell Mead, “U.S. Shrugs as World War II Approaches,” WSJ, 17 September 2024. 

[2] William Wordsworth, “Rob Roy’s Grave.” 

[3] Bing Videos

“The System Is Blinking Red” 1.

            The Congressional Budget Office (CBO) is required to report on the state of public finances.[1]  The CBO offers credible long-term projections.  They project an average annual growth of 2 percent.[2] 

            In 2001, U.S. government debt held by the public was $3.3 trillion dollars, amounting to 33 percent of Gross Domestic Product (GDP).  Adjusted for inflation, that would be $5.93 trillion in 2024 dollars.

            In 2024, U.S. government debt held by the public is $28 trillion, amounting to 99 percent of GDP.  So the debt has multiplied almost five-fold in real terms, while it has tripled as a share of GDP.  The national debt is growing faster than is the American economy.   

            In 2035, U.S. government debt held by the public is projected to surpass $50 trillion, amounting to 122 percent of GDP.  By 2054, U.S. government debt held by the public is projected to surpass $50 trillion, amounting to 166 percent of GDP.  To further complicate matters, the “reserves” of Social Security are forecast to run out by 2033; the “reserves” of Medicare are forecast to run out by 2036.  Then the federal government will assume responsibility for making up any difference between assets and obligations. 

            From the mid-Seventies to today, interest payments on the national debt averaged 2.1 percent of GDP.  In 2024 it is 3.1 percent of GDP.  In 2033 it will hit 4.1 percent of GDP.  This latter figure is highly optimistic because it assumes that the Trump administration tax cuts of 2017 will expire in 2025.  There is virtually no chance that this will happen.  The interest payment on the debt is growing as a share of GDP. 

            Why does this ballooning debt matter?  The United States government has been cutting taxes and increasing spending for a long time now.  Nothing bad has happened.  Yet.  Many people may assume that creditors will go on lending the government of the United States whatever it needs to fill the deficit.  This is not necessarily so.  While vast, the pool of global savings available to be borrowed by the United States is not infinite.  As the debt grows in tandem with America’s unwillingness to accept fiscal discipline, lenders may conclude that there is a mounting risk of at least partial default.  Rather than stopping lending at all, they may demand a “risk premium” in the form of higher interest rates.[3]  The point of the higher interest rates is for the investor to recover as much of his/her capital as possible before anything goes wrong.  Higher interest payments will crowd-out other spending categories from the budget. 

            This began as problem-solving or vote-buying in an earlier time.  People in both parties now are used to the government giving them things without any immediate cost.  Politicians who argue for austerity—lower spending, higher taxes—will lose elections.  Many people think that this is pathological.  Hard to be puritanical when Puritanism is culturally discredited. 


[1] William A. Galston, “A U.S. National Debt Crisis Is Coming,” WSJ, 18 September 2024.  Sources: Part 1 of Answers to Questions for the Record Following a Hearing on An Update to the Budget and Economic Outlook: 2024 to 2034 (cbo.gov) and Part 2 of Answers to Questions for the Record Following a Hearing on An Update to the Budget and Economic Outlook: 2024 to 2034 (cbo.gov)

[2] By my own calculation, the American GDP grew by 58 percent between 2001 and 2023.  That averages at 2.5 percent per year.  However, the turn against globalization could slow growth everywhere.  GDP (constant 2015 US$) – United States | Data (worldbank.org) 

[3] See: Risk premium – Wikipedia