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1980 AEI Economist 1 (1980)

handle is hein.amenin/aeieco1980 and id is 1 raw text is: the a economist American Enterprise Institute for Public Policy Research, January 1980 National Security and the Economy Herbert Stein In the golden age, thirty years ago, we were all certain that the U.S. economy made a decisive contribution to our national security. This contribution came in several ways: The unequalled productive capacity of the United States would enable us to support a defense force that no one else could match. We could afford the defense we required and still satisfy the nondefense needs of our population on a scale never before imagined. * We could provide the economic assistance to build up the capabilities of those countries that shared our national security interests, which meant, essen- tially, Western Europe. We could limit the economic development of our enemies-the Communists-by denying them access to goods and technology that we controlled. We were invulnerable to external economic pressure because we had within our borders almost all the resources needed for our economic growth. * We could provide economic assistance to the less developed, and nonaligned, countries which would help to create stability within and among them and to make them friendly toward us or, at least, desirous of maintaining our friendship toward them. The obvious success of our political-economic system in meeting the needs of our population would make other countries want to emulate us, which would be a force for peace and friendship with us. In the end, the attractiveness of our economic performance might even induce in the Soviet Union changes of internal and external policy which would reduce its threat to us. This confidence in our economy as the bulwark of our national security began to erode in the 1960s, and the process of erosion speeded up in the 1970s. Al- though defense expenditures as a share of the gross na- tional product (GNP) or of the budget declined, argu- ment over whether we could afford those expenditures became more acute. Our foreign policy became in- creasingly dominated by fear of an interruption of oil supplies from abroad. The greatly increased economic strength of Western Europe and Japan, which we had fostered, made them more independent of us politi- cally and raised new sources of friction. In an effort to obtain trade advantages, we felt obliged to relax trade The loss of confidence in the economy, over the course of thirty years, coincided with the change in the national mood from 'We can!' to 'We can't!' restrictions against the Communist countries, which we had thought were of national security advantage to us. We came to expect popular movements around the world to be anti-Western and anti-capitalist. The low point in this decline of confidence was probably reached around the first half of 1979. The economy had come to be regarded not as a source of strength but as a source of weakness and vulnerability. The loss of confidence in the economy, over the course of thirty years, coincided with the change in the national mood from We can! to We can't! Undoubtedly, there was much that was naive and shortsighted in our view of the economics of national security thirty years ago. We were looking at a balance of world economic power which resulted in part from the war devastation of Europe and Asia and which could not be expected to last. Our own independence of imported supplies was an unusual situation for a major power and would diminish, especially as our own growth increased our demand for raw materials and our own policy promoted open exchange. Our notions of the connections between economic aid and eco- nomic development, and between development and political solidarity, were too simple. But, still, the reaction to a feeling of economic weakness went too far. What we should have learned is not that our economy is weak or that economic strength doesn't matter but that economic strength is The AEI Economist/

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