Becoming the arsenal of democracy again
The newly elected Republican House of Representatives and the Federal Reserve still are acting as though inflation is the country’s most important economic challenge. This is hard to understand because despite rising prices in some areas the Consumer Price Index stopped rising in July 2022 and has been stable since. The most important economic and geopolitical challenges the U.S. faces in 2023 are not rising prices and public debt but Russia’s war in Ukraine and threats from China.
The virulent hostility of Russia’s Vladimir Putin toward the West is a dangerous economic as well as geopolitical problem. So is China’s military buildup, its aggressiveness toward Taiwan and in the South China Sea, and its head long modernization that threatens to leave the U.S. in the dust. Facing these potentially existential challenges, the U.S. needs to speed up investment, growth, and modernization, not stomp on the brakes.
Confronted by threats in Europe and Asia, Republicans should be joining President Biden in efforts to protect the Free World by increasing private and government investments in a wide range of areas. Instead, they are hyping a fading post-COVID inflationary episode to gain political points. Worse, their calls for government retrenchment are a recipe for U.S. decline or even defeat.
Twice in the 20th century the U.S. put its enormous resources to work and rapidly surmounted challenges from aggressive foreign powers. If the U.S. gets its growth-rate up again, it also could reduce domestic divisions and mitigate potentially destabilizing changes in the nature and location of work, climate change, rural-urban tensions, race and gender issues that are roiling American politics. The U.S. cannot do this, however, if Republicans convince their supporters that the country is too indebted to take on these big problems, which is what they would have Americans believe.
Recent history underlines America’s immense capabilities. It already is sending transition fuels like liquified natural gas to friends in Europe and Asia being squeezed by Russia. It also is supporting Ukraine with large quantities of military and non-military aid. Here at home, there are frequent announcements of new finds of rare earths, lithium and similar assets needed to grow and modernize the economy to compete with China. Supply chains will take time and investment to develop, but President Biden’s Infrastructure Investment and Jobs Act and private sector efforts are starting to kick in.
This kind of investment and transformation is what the U.S. does best. The country rapidly surmounted threats from autocratic regimes twice in the 20th century, making itself into what President Franklin Roosevelt called “the arsenal of democracy.” In 1917 and 1940 there also were domestic forces fighting against “preparedness” as there are today. These had to be overcome to preserve freedom, and overcome they were. The key to these successes was the country’s long-recognized “commercial” culture that encourages innovation, and private and government investment to finance needed projects.
U.S. army-navy spending jumped from slightly less than half a billion dollars in 1916 to $3.4 billion in 1917 and $8.6 billion 1918, huge sums in those days. The surge led to a roughly 40 percent increase in industrial production. New industrial facilities were created on the Tennessee River in Alabama to make nitrate-based munitions. This government investment became the core of TVA that helped modernize a dozen Appalachian and Southern states. There also was a surge in food production. The number of Americans under arms went from less than 200,000 in 1916 to 2,000,000, and far from impoverishing us, these efforts led to higher wages, agricultural prosperity, and improved living standards. Faster growth is always good for ordinary Americans.
The U.S. entered World War I in April 1917 after it had been raging in Europe since August 1914. By the war’s end in November 1918, America’s allies, France, Great Britain and Italy had suffered 2.4 million military dead, and Czarist Russia another 2 million. Germany and its allies suffered 4.8 million more. U.S. dead totaled 117,000, much fewer than those of our allies, but our military and economic contributions were decisive in winning the war in 1918.
The U.S. made terrible economic mistakes after the war. It insisted at first that the allies repay war debts that were owed to the government, banks, and financiers despite the disproportionate loses and destruction these allies had suffered. The allies in turn sought the money to pay these debts from “reparations” from defeated Germany. The economist John Maynard Keynes told politicians at the Paris Peace Conference in 1919 that Germany could not possibly pay the sums demanded and that these loans should be forgiven. Governments and bankers did not listen until years later. Mishandling of war debts and reparations and the further mishandling of private debt incurred during the 1920s had much to do with the Great Depression and World War II. The failure of political leaders to understand how government can manage debt without strangling the economy is again a problem in the U.S. today.
In World War II, America again became what President Franklin Roosevelt called “the arsenal of democracy.” War spending ended the Great Depression and put to work American resources that had been idle and unused all through the Great Depression. Roosevelt battled the Isolationists who argued among other things that the U.S. could not afford to spend money to fight the Nazis and Japanese Imperialists. He prevailed and mobilization for war rapidly transformed the American economy again. The U.S. mobilized between 13 million and 16 million men and created whole new industries in a year or two. They produced 300,000 airplanes, 100 times as many as in 1939, and huge numbers of ships and other equipment. Unemployment disappeared and women and minorities found jobs in war industries.
The U.S. also provided vast amounts of equipment to its allies from 1940 to 1945. It sent, for example, tons of equipment to the USSR through Iran and the dangerous northern Soviet port of Murmansk. Ninety-five thousand American military and civilians were needed in the Middle East just to handle this flow of equipment. All told the U.S. sent the USSR 400,000 jeeps and trucks, 18,200 airplanes, 1,900 locomotives, and 7,000 tanks. Millions of tons of food also were sent to war-ravaged friends. The point in 2023 is that if the U.S. invests to put to use its unmatched resources as it did after 1917 and 1940, it should be able to deal with today’s serious but hopefully more modest challenges from Russia and China while improving life at home as well.
American leaders post-1945 had learned from the disastrous experience with debt management after World War I. Most aid to the allies after 1940 was under the Lend-lease program and was simply written off when the war ended: No problem. The Marshall Plan after the war also was generous and helped Europe rebuild. If there were any adverse consequences from writing off these debts, no one speaks of them today. Indeed, America’s generous treatment of that debt is one of the reasons U.S. post-war alliances have fared so well for 80 years.
The U.S. in 2023 is facing foreign and domestic challenges greater than any it has faced since the Cuban Missile Crisis and World War II. Patriotism today is to invest enough in military and civilian modernization to convince the world that democracies can stand up to autocracies and win the future. Pretending that the country cannot afford to do so because of exaggerated fears of inflation and debt is to learn nothing from 20th century history.
Paul A. London, Ph.D., was a senior policy adviser and deputy undersecretary of Commerce for Economics and Statistics in the 1990s, a deputy assistant administrator at the Federal Energy Administration and Energy Department, and a visiting fellow at the American Enterprise Institute. A legislative assistant to Sen. Walter Mondale (D-Minn.) in the 1970s, he was a foreign service officer in Paris and Vietnam and is the author of two books, including “The Competition Solution: The Bipartisan Secret Behind American Prosperity” (2005).
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