Everybody agrees that inflation is now Public Enemy No. 1, but unfortunatley there is little agreement on what causes it.
It's blamed on countless things. The White House has one list, Congress another, and the Federal Reserve Board still another. The business community also has a list of its own. Yet, in a negative way, they are all alike in that they uniformly shrink from putting the finger on the single most inflationary factor in our society: the huge, wasteful, non-productive. U.S. military clossus, along with the staggering deficits that have accompanied it.
It is a pipe dream to keep on talking about licking inflation and balancing the budget as long as military spending continues unbridled. Wage and price controls might help, but it's doubtful that even they could keep inflation effectively in check if defense expenditures go on as projected.
When Carter was campaigning for the presidency, he rightly said, "When you spend money for defense you don't spend it on education, on health, or other services or goods. And I think the shift away from weapons toward peacful goods and services in the long run is favorable for world peace, and also you get more jobs per dollar spent."
He promised to cut the defense budget (then running around $100 billion a year) by 5 percent, but now it is 1978 and the budget calls for $126 billion. Carter has turned thumbs down on the B1 bomber and a new nuclear carrier, but he has added new weapons of his own. In the next fiscal year the Pentagon budget is expected to be in the $133 billion to $139 billion range. By 1983 it will probably be $173 billion or more. The autoritative Center for Defense Information (CDI) forsees a figure of $180 billion by then.
Instead of raising additional revenues to pay for those soaring expenditures, Congress and the president have cut taxes, ensuring further deficits exceeding the peak ones of World War II. Nobody understood better than then - President Eisenhower the inflationary costs of such a policy. "The military establishment," he said, "not productive of itself, necessarily must feed on the energy, productivity and brain power of the country, and if it takes too much, our total strength declines."
The Center for Defense Information notes that, over the years, the United States has been spending a smaller portion of the military budget on the defense of America. About 70 percent of that budget, the CDI reports, "now goes to defend our allies and project our power overseas." Actually, there are currently 27,000 more U.S. servicemen and women abroad than a year ago."
One reason the inflation rate in Japan and West Germany is so well in hand is that they spend so much less on defense than the United States. In relation to gross national product, the Japanese military expenditure is about one-fifth of America's
The ever-rising U.S. defense budget today reflects not so much congressional fear of Russia as fear of unemployment and the closing of costly but needless military installations in their states and districts. Most economists, however, see military spending as a poor job-creator, compared with equal expenditures on civilian needs.
The growth of U.S. inflation is easy to trace. It began with the Vietnam War. Prior to that, in the earlier Kennedy-Johnson years, the range of inflation was merely 1 to 3 percent. It started climbing when Lyndon Johnson, fearing public hostility to higher taxes to pay for his unpopular war, quietly turned to deficit financing on a large scale.
President Nixon did the same, only on a more grandiose scale. Even after U.S. withdrawal from Vietnam, the military budget kept rising generating an unprecedent deficit of $175 billion in the last years of the Nixon-Ford era. Meanwhile, the inflation rate went steadily up, finally reaching rate of 12 percent. The ensuing recession reduced it some, but today it is still hovering near the dangerous double-digit level.
Can the fat in the military budget be cut without impairing the muscle? Only a few days ago the Brookings Institution found that the Pentagon could save over $900 million a year by eliminating overpayment of its blue-collar workers. A presidential commission recently called for an overhaul of the military pension system, saying $10 billion per year could be save that way.
Pentagon officials themselves admit that Navy finances are in a shambles, with cost overruns on new ships totaling more than $6 billion. Another recent study by two former high Pentagon officials found that $40 billion could be saved over the next few years by selective reduction of forces and cancellation of certain new weapons systems.
The really significant savings, however, will not be realized until the "momentum of the arms race" has been arrested. That means, first, the restoration of detente, then new agreements with Russia that substantially cut back strategic arms and, finally, serious attention to general disarmament, which some experienced statemen believe is not as impractical as it may sound.