The Number One National Security Threat

This article by Malik Ahmad Jalal has been published in the Harvard National Security Journal.

The budget deficit is the number one national security threat to the United States, Chairmen of the Joint Chiefs of Staff Michael Mullen warned at a jam-packed Harvard Institute of Politics Forum back in November 2010.

As senior most officer in the U.S. armed forces, Admiral Mullen is necessarily involved in all national security matters. From watching his involvement in my home country of Pakistan, where the close cooperation between the U.S. intelligence and Pakistan military in South Waziristan was made possible due to his efforts to achieve a better operational and strategic alignment with Pakistan Army, I believe that Admiral Mullen has established himself as a terrific operational commander and a thoughtful and strategic-minded military leader. His credentials suggest that his assertion about burgeoning budget deficits be taken seriously.

Moreover, Admiral Mullen’s assertion is borne out by history. Historically, great powers have declined after over-extending themselves fiscally and financially, undercutting their military capabilities. This is a phenomenon that historian Paul Kennedy famously referred to as “imperial overstretch.” One school of thought argues that building military superiority at any cost is key to maintaining power and influence. However, deeper analysis suggests that it was not military defeats per se, but rather, careless spending, accumulation of excessive debt — often as a result of expensive and fruitless military campaigns — and eventual default that were the reasons behind the ultimate decline of great powers.

For example, at the end of World War II, Great Britain’s interest servicing obligation amounted to 44% of its revenues. This completely drained its capacity to counter an ascendant United States or to maintain control of its colonies. Similarly, the Ottoman Empire over-extended itself by signing fifteen external borrowing agreements in 1854, coinciding with the start of the Crimean War. The Ottomans failed to rein in budget deficits and experienced financial bankruptcy in 1876. This set the empire on path of slow decline. The loss of agency and freedom of action as a result of reliance on creditors emboldened its colonies to revolt and eventually hampered its capacity to defend its territories. To take an even earlier example, the sinking of the Spanish Armada and Spanish defeat in wars to maintain control over Spain’s Dutch Colony by themselves did not cause the collapse in Spanish power; rather it was repeated defaults on its debt obligations that finally led to its demise.

These are important lessons for U.S. policy-makers on decline of powerful nations.

By depressing tax revenues, the recent financial crises worsened an already negative budget deficit position in the United States. The deficit in 2009 was $1.4 trillion, a $960 billion increase from the deficit in 2008 and according to the Congressional Budget Office’s alternative fiscal scenario, public debt could rise to 87 per cent of GDP by 2020. As a result of the deteriorating fiscal situation, the Treasury Secretary has requested Congress to increase the limit of debt, with the outstanding gross national debt already at $13.95 trillion, only $335 billion below the $14.3 trillion debt limit. The urgency and the potential of undermining U.S. credibility at home and abroad is highlighted by the Treasury Secretary comments that a failure to increase the limit in time would force the Treasury to default on legal obligations and payments to bondholders here and abroad “causing catastrophic damage to the economy,” threatening the dollar and stopping payments for a range of federal benefits, including military salaries, social security and medicare.

These fiscal indicators paint a distressing fiscal picture and it is possible to envisage that if the scenario painted by Secretary Geithner is borne out, then the growing deficit will severely constrain and disrupt U.S. national security policy.

On the other hand, the chorus of imminent and quick decline of the United States is also premature. The United States is and will continue to remain the center of innovation and technology and will retain military superiority for decades to come. However, if the budget deficit is not brought under control soon, then there is a real risk that it could reduce resources available for innovation or defense, thereby seriously undermining U.S. preeminence in global affairs and the ability to protect U.S. national interests.

The United States has the advantage that the dollar is the reserve currency of the world and this gives it greater leeway in putting its fiscal house in order. The government must develop a long-term deleveraging plan to reduce borrowing in order to bring down the level of public debt that has reached record highs of 96.3 per cent of the 2010 Gross Domestic Product.

If the United States wishes to avoid the fate of great powers such as Britain, the Ottoman Empire, and the Spanish Empire, its policy makers should heed the advice of its senior-most military officer that a fiscally strong country is the one best able to defend its national security interests.