Sometimes things are wrong in the world and we think we know how to fix them. For example, we know that we’re polluting the atmosphere and we know that if hybrid cars became mandatory around the world, pollutant levels would drastically fall. We know the problem, we know the solution. But what about situations when we know something is wrong in the world and the solution we’d like to propose would make things even worse? This is the case with US military spending.

Personally I would love to think that the US would drastically cut their military spending. Being the only military superpower in the world why do they need to be so much further ahead of the others? In 2003, the US military budget was $380bn, compared to just $150bn spent by all EU countries combined. Well, the more I think about it the more I come to the conclusion that their need to be a military superpower is due more to economic reasons than geopolitical ones.

I am reminded of John Hinckley, the crazy young man who tried to kill Ronald Reagan to impress Jodie Foster, the actress. I believe the US needs to show their power around the world as a way to impress other countries, and convince them to continue hoarding US currency. Allow me to explain. The US has the worst spending habits of any nation in the world: it’s budget deficit was $402bn in 2004 and it’s growing. It’s trade deficit is enormous as well. So how does the United States manage to continue its deficit saga? By convincing other countries around the world, mostly Asian countries, to hold on to its currency, the US dollar. And they do, in absurd ways. China and Taiwan alone hold over a trillion dollars in US reserves. Why do these countries hold these reserves? What is it that impresses them about a country of spendaholics? What makes them trust a country that consumes much more than it saves? Its military power! If you are in the business of overspending and need to generate trust around the world in order to continue your consumer binge, you don’t need to “show them the money.” Showing them “the power” has proved to be enough. With the military power of the US it is hard to conceive other nations threatening action to collect on their debts should the US default. Conclusion: so long as the US continues to spend like there’s no tomorrow, it should continue building up an army that will prevent anyone from ever collecting.

The US needs to maintain its positiom as a military superpower in order to convince other nations to continue to hold the dollar as its main foreign currency reserve, in spite of its enormous trade and budgetary deficits.

Follow Martin Varsavsky on Twitter: twitter.com/martinvars

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Antoin O Lachtnain on May 26, 2005  · 

Hernán L. Romay on May 27, 2005  · 

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