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Insolvent America

Our response to the oil crises, of the 1970s was dangerously reminiscent of our behavior during the Vietnam war. In both cases, we were profligate. Waging the Vietnam war to contain communist expansion, we expended lives and treasure and spread destruction in a region that was hardly vital to our national interest. In refusing to curb our use of imported oil, we not only put ourselves in economic jeopardy through inflation but we made ourselves dependent on oil supplies far away from us, and controlled by unstable governments adjacent to Soviet forces whose geographical proximity gave them a clear tactical advantage.

Moreover, in becoming so dependent on imported oil we have dangerously extended the range of our vital interests to the point where the security of the Persian Gulf has become for us a matter of life or death. We have neither earned enough abroad to cover the ever higher oil bills for imported oil nor significantly reduced oil imports. Had we been determined to do so, we could have combined higher earnings from the exports of our goods and services with reduced consumption of imported oil through both conservation and substitution, and so counterbalanced the oil price increases.1

We did not do so. We did just the opposite. Our oil imports nearly doubled between 1972 and 1978. Inflation rose along with consumption. As inflation rose, so did the cost of imported oil as the oil-producing countries hiked their prices. These price rises worked as a kind of foreign tax on the United States. They simultaneously reduced our capital for domestic investment, thus slowing growth, while raising the cost of energy even higher and so contributing to higher inflation.2 No explanations will ever suffice to make future generations understand the timidity of politicians who refused to say that the game was over and that we had to conserve oil immediately, even if this meant imposing a stiff gas tax or the draconian solution of gas rationing. Not to do so was folly even less explicable than that of the Vietnam war.

Furthermore, our relations with our allies became gravely strained when we exhorted Germany and Japan in 1977 to stimulate their economies, even at the risk of inflation, in order to buy more US goods, although we had made little serious effort to reduce our own oil dependency. In their eyes we were seen as the worst energy wastrel of all, while, even with their best efforts, continental Europe and Japan will remain for some time to come truly dependent on Persian Gulf oil—Western Europe for about 60 percent of its oil imports and Japan for 70 percent. They are highly vulnerable to any oil cutoff. So are we—but we need not be if we take steps to reduce oil dependency in that part of the world.

The figures revealing our vulnerability to a cutoff of oil supply from the Persian Gulf present us with a fateful paradox: while we increase our reliance on potentially hostile oil producers, we are also in a position to remove this very dependence. At the end of the 1970s, for example, oil consumption was about 49 percent of total US domestic energy consumption. Imported crude oil came to about 45 percent of the oil we consumed. Since Persian Gulf oil made up about 31 percent of these imports, this meant that this oil, highly vulnerable to a cutoff, constituted about 14 percent of total US oil consumption,3 or nearly 7 percent of all the energy America consumes.4 Moreover, since Persian Gulf oil is a dominant portion of the world oil export market, any cutoff from the area affects the price and availability of imported oil anywhere in the world. An American energy program to reduce our dependence on imported oil—and, in particular, Persian Gulf oil—would allow the United States a new freedom of action in countering Soviet or any other threats to the stability of the Persian Gulf region.

Even if the supply of oil from the Gulf were not vital to the United States, it would be vital to our allies in Europe and, especially, to Japan. Thus the Gulf remains a serious geo-strategic US interest, no matter what domestic energy policies we pursue. Nonetheless, by reducing our dependence on imported oil, we ourselves would not be so vulnerable in the Gulf and therefore would be free to act in whatever way might serve our interests in protecting and promoting the oil flow to our allies. Moreover, by eliminating our dependence on Gulf oil, we could then put it to our allies to take the lead in developing policies to ensure their own supply of oil from the region, assuring them that America would back them up by whatever political, economic, and military measures we might deem necessary.

If both our allies and our adversaries—whoever they may be—realize that America is not dependent on Persian Gulf oil, not vulnerable to an oil cutoff, then they will appreciate that we have enormous freedom of maneuver to sustain our allies in their efforts to protect their continuing vital interests. For if it is clearly understood—and it should be—that the security of the European continent, Great Britain, and the western Pacific are vital to the security of the United States, then it must also be understood that we are willing and able to help our allies in the Gulf region if their interests there are truly threatened. This we can do most effectively if we ourselves are free from the constraints that dependence, vulnerability, and industrial weakness impose.

Is it possible for the US to have again a solvent economy? When we became increasingly less competitive in the 1970s—with declining productivity and growing inflation—we did nothing to meet that problem as we continued to finance the growth of factories outside America where labor was cheap, machinery was new, and productivity was rising.5 In this way, American investment abroad not only provided modern technology for other countries but also allowed us, for example, to make our television sets abroad with cheap labor and then sell them to ourselves for less than they would have cost if they were made at home. At the same time, we did not create conditions in the United States to encourage capital formation—from whatever source—that would have promoted investment in new industries and kept America in a high competitive position.

By the end of the decade, our manufactured goods had become less desirable even though many of them had become cheaper to buy. Because we had not invested enough in modernizing our plants, the quality of our durable manufactured goods deteriorated and they were no longer preferred, as they once had been, either abroad or even at home. According to polls, in 1980 nearly 50 percent of Detroit’s engineers believed that the Japanese produced the best cars in the world.6

Our response to losing markets for our goods has been to protect ailing domestic industries, such as the steel and auto industries, by restricting imports through tariffs and quotas and relying on markets at home or within our own sphere of influence that are receptive to our goods. In the long term these policies will produce a world of competing national states or groupings, each of which will impose its own trade barriers, and these barriers will in turn lead to a further deterioration of our domestic industries, freed from the need to confront foreign competition.

In the steel and auto industries, it is not a question of competing with cheap foreign labor for by 1978 the US average earnings were only 6 percent higher than in Germany and Japan.7 It is a matter of efficiency, of worker productivity, of antiquated plants, of poor management committed to quick profits rather than long-term investment, and a government that held gasoline costs at an artificially low level, encouraging automakers to build fuel-inefficient cars. Of the seven major economies in the non-communist world since the mid-1960s—Japan, Germany, France, Italy, Canada, the United Kingdom, and the United States—the American economy has had the lowest annual growth in real gross national product per employed worker, a telling index of American productivity. For example, Japan heads the list with 3.4 percent growth per worker from 1973 to 1979, whereas the United States is at the bottom, with only 0.1 percent, the weakest of the lot in its ability to deliver gains in productivity.8 With declining productivity come higher unit labor costs, since business cannot offset higher payroll costs with increased production per worker. The result is more inflation in retail prices of manufactured goods.

Today the average US plant is twenty years old, compared to the average in Germany of twelve years and in Japan of ten years. One way we can improve our rusting industrial plant and provide employment for workers who otherwise may have to be laid off is to encourage foreign investment in specific sectors—such as the automotive assembly factories that Volkswagen has built in Pennsylvania and Honda is planning in Ohio.9 But encouraging foreigners to restore American productivity is inadequate if we are to improve our competitiveness in the world market. We must be able to compete with products from other industrialized societies; otherwise we will find that our own industrial base will stagnate further.

We still depend on sales of high technology products for many of our export dollars—about 40 percent of our exported manufactured goods at the end of the 1970s.10 Yet though the proportion of US resources devoted to research and development is higher than anywhere else, it is becoming a declining fraction of our gross national product, while it has been rising in Germany, Japan, and France, our main competitors.11 These countries, moreover, have devoted far smaller proportions of R and D to defense than the US and have instead concentrated on research that applies to civilian production—a pattern that helps to explain the relative decline in productivity and competitiveness of the US.12

In these circumstances, a rational strategy for competition among advanced industrial societies would be to look ahead to determine which industries are likely to grow stronger and encourage them. This is what Japan tries to do, whereas the United States moves to protect its weaker ones. When Japan’s annual economic survey indicates where the imports of certain goods are rising, the ministry of trade and industry concludes that such goods made in Japan represent a dying industry. For example, over the past few years the Japanese have come to believe that their transistor radios are a dying industry. When an industry like this appears on the endangered list, the bankers refuse to extend increasing credit to manufacturers of transistors, since they may not get their money back. Particularly if the economy is growing too fast—with resulting inflation—and banks see the need to cut lending, they will stop lending first to endangered companies like the ones that make transistor radios.

The United States, like Italy and Great Britain, tends to do the opposite, protecting endangered industries in order to prevent unemployment. But Japan’s policy cannot be imported to America. The United States has a far stronger trade union movement than Japan does and a vaster, far less homogenous population, including large numbers of unskilled workers, and huge industrial regions that cannot simply be abandoned except at great financial and social costs.13 It also has a welfare system that encourages the unemployed worker to remain unemployed.

Consider an unemployed welfare client in the South Bronx wearing a shirt made in Central America or India because the shirt factory in his neighborhood had to close down in the face of this kind of foreign competition and no comparable work was available. Like the country at large, he is consuming without producing, using imports he can’t pay for out of his own productivity. It is simplistic to say that the marketplace will provide new jobs for him, for his skills may not be up to working in a higher technology industry than the shirt factory. Under these circumstances would it not be better to employ the worker—and make sure his after-tax wage is higher than his welfare or unemployment payments—even if this means subsidizing a local shirt factory so that it can compete with goods produced by cheap labor abroad?

In the near term, this may be the only rational choice. But we have agreements with other nations that make this difficult, and, too often, the temporary becomes permanent. Moreover, we have traditionally had a mobile labor force, and policy should be directed at increasing its movement both in location and it skills. Nonetheless, for workers faced with unemployment because of competition from newly industrializing countries of the third world, as well as from rich industrial societies, some form of protectionism may be needed until new work opportunities can be found and workers trained for this purpose. At the same time, to avoid stagnation, the government should provide incentives for modernizing our industrial plant so that new industries can spring up.

In both cases, in America today we end up either subsidizing workers in a factory whose goods are being undersold by competition from poor countries, or subsidizing workers through unemployment or welfare payments, or—in the worst case—extending credits to industries that seek shelter from healthy competition from nations whose standards of living approach our own.

Even if industry and labor show enough common sense to agree on a policy that would encourage new industries and remodel the old, no such policy can be successful in improving our performance abroad unless we first bring inflation under control. With inflation, our trade balance grows worse as we consume higher priced imports—and, in particular, imported oil. With increasing inflation, any incentive to save disappears, thus reducing the nation’s source of funds—as distinct from the supply of printed money—available for industrial investment, which, in turn, restricts the improvements in productivity we claim to be seeking.

Instead of seeking solutions at home, we have preferred to use the fact that with 75 percent of all world business conducted in dollars we can still inflict our trade and budget deficits on the rest of the world. For a time, then, both nations and individuals may still have to accept our dollars, but they have recently been turning them in for German marks—or for the traditional hedge against disaster, gold—because they have lost confidence in America’s ability to manage its economy. The grave doubts that they feel about the American economic performance make foreigners—both adversaries and friends—equally uncertain of America’s ability to achieve its political goals. And so, if we are to pursue an effective foreign policy, we must not only define our goals but define them according to our means.

Here the dangers to the US of a huge increase in arms should be clear. To strengthen our economy, our first goal must be to reduce our spending on overseas oil, in particular oil from the unstable Middle East. Until we have an effective energy policy, we can’t rebuild our industrial base and thus regain our ability to conduct a flexible foreign policy. Yet while we do little or nothing about oil, we are determined to increase defense spending during a period of increased and probably prolonged tension with the Soviet Union. Defense costs are likely to rise beyond expectations over the next few years, as they did during the Vietnam war.

For fiscal 1982, beginning in October 1981, the outgoing Carter administration requested defense appropriations totaling nearly $200 billion, and the Reagan administration was committed to ask for the authority to increase spending by about 10 percent over this amount. Over the next five years, through fiscal 1986, Carter’s defense blueprint called for cumulative spending up to $1.27 trillion. Moreover, while Carter proposed increasing defense spending by about 5 percent a year in real dollars, some Senate Republicans advocated at 7 percent increase. Assuming a 10 percent rise in inflation—2 percent less than the forecast for 1981—the costs for such a Republican program could rise to nearly $330 billion per year by the end of Reagan’s first term,14 and some projections are even higher. In addition, Carter’s budget request provided no allowance for increased costs of fuel—costs that will be asked for later. Nor does defense spending, since it is based on a contract being fulfilled rather than on competition for profits, generally improve productivity. What this can mean is a higher federal deficit under Reagan, higher unemployment in nondefense industries, and a greater inflation rate than ever, because military spending does not increase the supply of US-produced goods available to the consumer.

Thus we shall continue to rely on imports to maintain our standard of living. If we do not expand our exports, that reliance will increase any balance-of-payments deficits. The greater the resulting deficits the more likely foreigners are to move their reserves out of dollars. This, in turn, can force the Federal Reserve Bank to raise interest rates to attract foreign capital in the hope of strengthening the dollar, as it did in 1980. High interest rates, however, hurt nondefense investment. Moreover, such high rates anger our allies, who then have to raise their own interest rates to prevent their currencies from being drained away. Meanwhile, politicians, reacting to pressures from all sectors of the electorate, demand a return of low interest rates; as soon as this happens, the dollar weakens again on the foreign exchanges and adds to inflation as we import goods that cost more and more with dollars worth less and less. The cycle begins again.15

In effect we would be returning to the Vietnam economic syndrome. Like the Johnson administration, the American governments of the 1980s may choose to increase spending for military hardware without seriously raising taxes—or, equally, if not more important, dramatically cutting energy consumption. The result of such a policy will be more inflation, and a far more troubled economic environment than we experienced in the 1960s.

Even in the short term, it is questionable whether we can readily support a newly developing cold war along the lines now being projected. Only a drastic shift from civilian to military priorities could accomplish this. How will the United States mobilize the industrial capacity to produce the hardware the defense budget calls for? In defense, as in other industries, the underlying industrial base has continued to deteriorate since the Vietnam war.16 The situation in defense inventories is so serious that in the weeks immediately following the Soviet invasion of Afghanistan the administration could not have kept its promises to furnish Pakistan with $400 million in hardware without stripping the US armed forces of tanks, artillery, helicopters, and other matériel.17

Beyond the inadequacies of our industrial base lies a serious debate among defense specialists over what we need for the defense of our vital interests, which raises a fundamental question of how we can afford to pay for it. In short, what are we willing to give up to get what? A study by the Heritage Foundation, a conservative and influential think tank, calls for a major drive for added nuclear strength, including building the MX mobile missile, in order to prevent US land-based missiles from becoming vulnerable to a Soviet first strike, which would theoretically become possible in the mid to late 1980s. In addition, President Reagan and his advisers have talked of reviving the program for the advanced B-1 bomber, going ahead with the construction and deployment of the cruise missile and the “neutron bomb,” and the need for a three-ocean navy so that we can have substantial naval forces in the Indian Ocean as well as in the Pacific and Atlantic. Added to that is the immediate need to shore up our sagging conventional forces. The costs of such a program are likely to far exceed even the 7 percent increase already proposed—and all this at a time when the new administration promises to reduce inflation and aim for a balanced budget.

Even to begin to achieve these defense goals would require our spending a much greater percentage of our gross national product on defense than we now do—which runs to just under 6 percent of GNP. Professor Robert W. Tucker, in an article entitled “America in Decline,”18 notes that in 1944, defense spending was 45 percent of our gross national product, and in 1954, 14 percent. He believes we can certainly spend between 8 and 10 percent of our GNP on defense, a level “well below the portion spent during the years of the early 1950s” when “the dangers we face today are markedly greater than those we faced in an earlier period.” But the dangers of inflationary pressures with such a defense establishment are also very great, as Tucker himself admits; and as we have seen, the productive forces of this country have suffered serious decline relative to those of other countries since the 1950s.

In order to reduce the prospect of inflation, which could disastrously weaken America’s economy and hence its ability to provide a large part of Western security needs, a more modest program is clearly needed. But in the face of the recent buildup of Soviet forces, what kind of defense program would avoid sacrificing our economy to an inflationary military buildup while at the same time providing the most efficient defense possible for a country whose resources are not limitless?

James Fallows and others have cogently argued that in order to improve our “real defense,” and in view of our finite resources, each path we choose should eliminate several others.19 He and other analysts have sharply challenged the need for many of the new weapons systems that the new administration may well want to build. Their most striking and strongly argued suggestion is for abandoning, or ceasing to improve, land-based intercontinental missile systems, such as the Minuteman, precisely because of their vulnerability. This would mean not building the mobile—and therefore less vulnerable—MX missile, a saving of between $30 and $100 billion, according to various estimates. The US could still rely on the two other legs of our “nuclear triad”—long-range bombers carrying nuclear weapons, clearly less vulnerable than fixed, land-based missiles, and nuclear missile submarines, “the least vulnerable weapons system” because of its extreme mobility and almost perfect concealment under the oceans. 20

To save vast sums of money as well as increase our strength relative to the Soviets, we could build, as some defense specialists have argued, cheap minisubmarines that carry only a few missiles each, deploying them from 100 to 300 miles from our coastline, where we would have excellent communications and maximum protection from Soviet antisubmarine forces. This fleet would supplement our longer range, ocean-going submarines, save considerable money, and provide a nearly invulnerable strategic weapon system. It would be dangerous not to explore such programs fully and openly before undertaking huge investments in land-based strategic weapons.

It would also be dangerous to accept current claims that the US and its allies are generally falling behind the Soviet Union in their military power. Despite the Soviet Union’s new military strength and its evident ability to project military power far from its shores, the US is not at present in a position of overall military inferiority. In nuclear forces in 1980, the United States outgunned the Soviet Union by approximately 10,000 nuclear warheads to Moscow’s 6,000. The Soviets have more combat aircraft but our aircraft are of better quality. The Soviet Union’s navy is growing but it does not possess the fire power we have.21

According to the 1979 Strategic Survey of the London-based International Institute of Strategic Studies, the United States and its NATO allies spend more money for defense than do the USSR and its Eastern European satellites—by $180 billion to $160 billion. If we add the Japanese contribution, the Western advantage is even greater. Moreover, about one quarter of the Soviet defense effort is directed at China. As for America’s share in NATO’s expenses, in 1979 the United States was spending about 5 percent of its gross national product on defense while its NATO allies were spending an average of 3.5 percent. Since Western Europe’s industrial capacity is almost equal to America’s, this arrangement could and should be revised. If the other NATO nations, as well as Japan, were to spend the same percentage of GNP on defense, the overall alliance defense expenditure would increase by 36 percent or $67.6 billion.22 Such a program would be of help in reducing the US military budget; and the US economy would obviously benefit strongly if the allies took over an even greater share of the costs of their defense. But the prospect of this happening is far more unlikely than its proponents seem to realize.

By constantly urging the allies to bear an ever greater burden for their defense we also run the risk of making the allies no longer believe in the validity of the American nuclear guarantee. If this were to happen—and the allies provided for practically all of their own defense—German and Japanese military power would almost certainly revive. A fully remilitarized West Germany would surely dominate the Continent, endangering the alliance in Europe which is based on a balance of power among France, Britain, and West Germany. Nor do we want to see a rearmed Japan seeking primacy in the Pacific. This means that we must continue to pay most of the price for the security of both Germany and Japan. Yet we must convince the Europeans and the Japanese that we can pay the price—since we do not want their resources denied us, their bases unavailable, their policies possibly in dangerous conflict with our own, and so find ourselves isolated.

Our defense needs in the period just ahead lie far less in the strategic realm than in the conventional. The United States should not continue to be in a situation where so many of its troops are earmarked for the NATO region that we must subtract from these forces to meet contingencies elsewhere. To protect our vital interests, particularly in the Persian Gulf, we need a convincing number of well-equipped mobile troops who could intercede if the main oil-producing countries were about to fall under control hostile to the US and to its allies. The very existence of such forces would provide the most effective assurance that they would not have to be used.

This does not mean that the US should set up permanent bases for ground forces in the Middle East; that such bases would really be useful remains to be shown. Nor does it mean that the US should return to a policy of global intervention in which it would be committed to fight land wars throughout, for example, the southern parts of Asia, Africa, and Latin America. Our interests in these regions may justify diplomatic assistance and economic aid to governments that can make good use of it but not the sort of military adventure that so weakened the US in the past.

Two well-informed defense experts, Barry Posen and Stephen Van Evera, have suggested four major reforms to improve the combat-readiness of our undermanned, undertrained, underpaid troops, which the chief of staff has called “a hollow army.”23 They recommend better maintenance of older weapons systems; more equipment “prepositioned” in Europe; shifting more army manpower from support to combat roles; and the production of more simply designed equipment. These are not proposals for huge new weapons systems but for changes toward a more convincing fighting force. Again, it would be irresponsible to embark on an arms buildup without fully exploring such concrete reforms.

With respect to conventional arms, it must be said that our claim that we outdistance the Soviets in quality of weapons, if not quantity, is certainly hollow. For example, the current US tank, the M60, appeared in 1950. Though the Soviets enjoy a five to one superiority in tanks, since 1965 they have also introduced four new models, each one a significant improvement over the last. By the time the United States produces its radically new XM-1 tank in 1982 at the earliest, the Soviets will probably be deploying a new and improved version of their current model. In most instances, it would be far better for the United States to improve progressively its conventional weapons rather than spend years on devising brand-new replacements using high technology. Less complex and more practical weapons in greater numbers are what we need if we are to show convincingly that we have the forces to prevent land warfare from breaking out in either Europe or the Persian Gulf.

Under current conditions, one of the swiftest—though not necessarily the cheapest—ways to improve the quality of our conventional forces would be to have a low-paid conscript army in the service of the national interest with highly paid noncommissioned and commissioned officers. Under an all-volunteer army system, we simply do not possess the army reserves needed to reinforce or replace troops on the battle-field in any prolonged engagement. Paradoxically, while we have tried to make up for our lack of numbers by relying on a mechanized “capital-intensive” army, this has meant depending on highly trained soldiers and the immediate use of reserves from the homeland. Army Reserve units have declined in strength, since they were formerly sustained by men enlisting as an alternative to active service and by veterans serving out a four-year reserve obligation after two years on active duty. The situation is even worse in the Individual Ready Reserve where individuals are designated as replacements until full-scale mobilization goes into effect. William Hauser, in analyzing the nature of the hollow army, concludes, “Because of increased reliance on reserves, the nation’s strategic commitments cannot be met in wartime. This is the central strategic issue which erodes strategic policy.”24

In considering levels of defense spending, we are confronted with the image we have of ourselves as the other superpower, the guardian of the West. Clearly, we are still the leading opponent of the Soviet Union, whose pretensions to world leadership inevitably conflict with our own. Yet we appear confused over the definition of our vital interests and unwilling to do what is necessary to defend them. Nothing more starkly revealed the Carter administration’s confusions than the statements surrounding the enunciation of the Carter Doctrine after Afghanistan. At first, the president declared the Persian Gulf region (not carefully defined) as vital to American interests, saying that the United States would repel an assault on the area by any means necessary—including military force. But less than a week later, he admitted that neither “at this time [nor] in the future [do] we expect to have enough military strength and enough military presence to defend the region unilaterally.” In these two statements, Carter inadvertently summed up the devastating gap between our commitments and our capacities that I have been describing.

In a visit to the Soviet Union in 1980, I talked to a number of Soviet officials and academicians whose awareness of America’s economic difficulties led them to conclude that we would be unwilling to keep up a high level of defense spending in the decade ahead. They see us repeating once again our experience with Vietnam and the oil crisis—an unwillingness to make the sacrifices necessary to strengthen our economy. In this respect they believe that we will demand both guns and butter and, if necessary, resort to the printing press to provide them. The Soviets, too, see us lagging behind in productivity and believe it will become more and more difficult for us to compete in the world market. To do so, after all, requires considerable investment in new industries to develop competitive products for export and they believe this is not likely to happen if we keep up a high level of military spending in order to rival their own military buildup. High military spending may also require cuts in social services that, they feel sure, will further strain the social fabric of the United States. Of course, one way to maintain the public sector is to borrow more, but this—if Americans continue to be unwilling or unable to consume less but produce more—would intensify inflation and weaken the system still further.

Under the Soviet analysis, the strain on the US economy will become so great that there will be calls to decrease military spending and for new initiatives on our part to reopen the road to detente. The Soviets simply do not believe that Americans possess the political will to repair the economy. In their view American defense spending will probably be determined less on an assessment of Soviet power than on how much the politicians feel can safely be taken away from the American consumer without losing his vote.

What the Soviets fail to understand is that US military spending may increase precisely because the United States perceives a threat from the Soviet Union and will rearm even if this results in significant cuts in the social sector, less investment for new industries, or even higher inflation. To assume that a troubled economy will lead the government to disarm is dangerous wishful thinking, with little historical basis. Indeed, Germany did just the opposite in the 1930s. But the Soviet analysis does reinforce the need for the United States to show that it will not act as it did in Vietnam and during the oil crisis but rather will have the political will to reform and repair its economy. This would mean ending the process by which the US goes further into debt through unrestricted consumption; and it would also mean raising the productive level of our industry. If we do so, choices among the different ways to improve the military establishment could be made without unduly straining the economy—especially if vast military projects such as the MX and its mobile basing system are cut back or eliminated. The road back to détente should be a path chosen rather than one forced upon us by our inability to arrive at a reasonable consensus on domestic and foreign policy.

There is a hard reckoning for an insolvent foreign policy. Commitments, in the final analysis, can only be validated by war. Insolvency, as Walter Lippmann pointed out, means that “preventable wars are not prevented, that unavoidable wars are fought without being adequately prepared for them, and that settlements are made which are the prelude to a new cycle of unprevented wars, unprepared wars, and unworkable settlements.”

(This is the second part of a two-part essay on “Insolvent America.”)

  1. 1

    David P. Calleo, “Ford’s Recovery,” a draft chapter presented at the Lehrman Institute, January 30, 1980, pp. 7-8, from his forthcoming book The Imperious Economy: U.S. Policy at Home and Abroad, 1960-1980

  2. 2

    See The Washington Post, January 22, 1980; see also Robert Stobaugh and Daniel Yergin, “Energy: An Emergency Telescoped,” Foreign Affairs, “America and the World 1979.” 

  3. 3

    Monthly Energy Review, US Department of Energy, February 1980. 

  4. 4

    According to John Sawhill, Testimony before the Senate Foreign Relations Committee, February 20, 1980, 31 percent of total US petroleum imports came from the Persian Gulf. 

  5. 5

    Growth in productivity has gone down from an average rate per year of about 3 percent for the thirty years after World War I to about half that rate in the late 1970s. Inflation has risen from just under 1 percent in 1960 to just over 12 percent in 1980. 

  6. 6

    The Wall Street Journal, March 30, 1980, p. 31. 

  7. 7

    The Federa Reserve Bank of New York’s Quarterly Review, Winter 1979/1980, p. 24. 

  8. 8

    Economic Report of the President, January 1980, p. 85, OECD data; in The Wall Street Journal, February 29, 1980. 

  9. 9

    Federal Reserve Bank of New York, op. cit., p. 28. 

  10. 10

    John Volpe, “Technological Change as a Determinant of US Competitiveness,” Assessing US Competitiveness in World Markets (Washington: International Division, Chamber of Commerce of the United States, 1979), p. 8. 

  11. 11

    Ibid., p. 11. 

  12. 12

    See Science and Technology: Promises and Dangers in the Eighties. President’s Commission for a National Agenda for the Eighties. Report of the Panel on Science and Technology, Promises and Dangers (US Government Printing Office, 1980), pp. 22-27. 

  13. 13

    See The Economist (London), “Japan Survey,” February 1980, pp. 23-29; see also Felix Rohatyn, “Reconstructing America,” The New York Review of Books, March 5, 1981. 

  14. 14

    See The New York Times, January 16, 1981; The Washington Post, January 16, 1981; Newsweek, January 19, 1981. 

  15. 15

    See Business Week, January 21, 1980, p. 84. 

  16. 16

    See Business Week, February 4, 1980, p. 80. 

  17. 17

    Ibid., p. 81; See also Stanley Karnow, “The Hidden Costs of the Carter Doctrine,” Baltimore Sun, February 4, 1980, p. 12. 

  18. 18

    Robert W. Tucker, “America in Decline: The Foreign Policy of Maturity,” Foreign Affairs, “America and the World 1979,” pp. 476-477; see also The Wall Street Journal, “Hard Choices on Defense Spending,” January 21, 1981. 

  19. 19

    See James Fallows, “Muscle-Bound Superpower,” The Atlantic, October 1979; see also The Boston Study Group, The Price of Defense (Times Books, 1979). 

  20. 20

    See Herbert Scoville, “America’s Greatest Construction: Can It Work?” The New York Review of Books, March 20, 1980; see also Sidney Drell, SUM, Arms Control Today, September 1979. 

  21. 21

    See Adam Yarmolinsky, “Military Balance: About Equal,” The New York Times, February 4, 1980. The figures on numbers of nuclear warheads came from the Times, Sept. 21, 1980, p. 58. 

  22. 22

    See Barry R. Posen and Stephen W. Van Evera, “Overarming and Underwhelming,” Foreign Policy, Fall 1980, pp. 100-101. 

  23. 23

    Quoted in The New York Times, September 9, 1980, p. A1. 

  24. 24

    See William Hauser, from a forthcoming article, “A Hollow Army?” Foreign Affairs, Spring 1981.