The need to overhaul Social Security goes far beyond financial considerations. The current system, if left untouched, will decimate the United States military.
With defense spending at a record $437 billion in fiscal year 2004, it may seem that the U.S. military is drowning in money. But viewed as a percentage of gross domestic product, the U.S. is allocating far less to defense than it has historically. As a result, the military has been forced to fight in Iraq with too few troops and has little left over to deal with potential threats from Iran or North Korea.
The unspoken reason is that spending on Social Security, Medicare and Medicaid has crowded out defense spending for decades. And this trend is expected to get more pronounced with time.
If spending on Social Security and other entitlements is allowed to grow as projected, within decades the U.S. will begin to resemble European welfare states that are so burdened by social programs that they cannot properly finance their defense forces.
In the 1960s, the U.S. devoted an average of about 9 percent of its GDP to defense spending. This dipped to 4 percent in the 1990s. A recent report by the Congressional Budget Office concluded that post-Sept. 11 increases to the U.S. military budget did little to change the long-term shift toward spending on entitlements. Longer life spans, the retirement of baby boomers and rising healthcare costs will ensure that entitlement spending grows faster than defense spending in the coming decades.
By 2022, according to the CBO report, the U.S. will only be allocating 2.8 percent of its GDP to defense spending, about half as much as it will be spending on Social Security alone. To put this level of defense spending in perspective, it is almost as low as the 2.6 percent spent in 2003 by those “cheese-eating surrender monkeys,” the French.
Some may note that France has a much smaller GDP than the U.S. and argue that this is an unfair comparison. Point taken. But the U.S. will not be the world’s largest economy forever. While estimates may differ on the exact year, at some point in the next half-century, China will likely overtake the U.S.
Given that the amount of people China has of military age exceeds the entire population of the U.S. and that it already owns nuclear weapons, the threat posed by a hostile regime in Beijing could dwarf any current threat posed by Islamic fundamentalists.
But by the time any such threat surfaces, it will be too late to shift spending back to the military. The reason why entitlements such as Social Security present a special danger is that spending on them is mandatory, leaving the government handcuffed during a national crisis.
When America marshaled its resources toward fighting World War II, the federal government was able to boost defense spending from 18 percent of the federal budget in 1940 to 90 percent of the budget in 1945. Such fiscal agility would be impossible today, because mandatory spending gobbles up more than half of the budget.
Unlike Social Security spending, spending on defense is classified as discretionary, so it is often an easy target for politicians looking to save money. The surpluses of the late 1990s, for instance, were achieved not by any soul-searching about the size of government, but because politicians took advantage of the end of the Cold War to cut back on defense spending.
People who acknowledge that there is a tradeoff between Social Security spending and military spending may still argue that Social Security is more important. But protecting citizens from foreign threats should be seen as a primary function of the federal government. Governments are created to do what private enterprise cannot. While it is possible to fund retirement within a free market, there can be no private sector substitute for the U.S. military.
President Bush’s plan to add private accounts to Social Security is not an ultimate solution to the entitlement crisis, but at least it is a start. Americans have avoided any serious debate on entitlements for far too long, and this would be a step toward acknowledging that a problem exists.
Many defense hawks are concerned that an emphasis on changing Social Security could distract President Bush from pursuing a more aggressive foreign policy in his second term. But reforming the nation’s failed retirement system should be seen as a crucial front in the policy of preemption.
Philip Klein, a former Reuters financial reporter, is a journalist based in New York. His articles have appeared in The New York Times, The Los Angeles Times and The Boston