The issue often ignored in critiques of misplaced spending by the U.S. government is the historical context whereby successive American governments since World War II have consciously created and maintained a war economy. In this context, expenditures on wars and defense are perceived as necessary to a healthy economy. On the other hand, harm to economic and social institutions have been more extensive and fundamentally undermined by the long-term impact of sustaining a war economy since WW II.
The embryonic stages of building a war economy occurred after World War II when George Kennan, Ambassador to the Soviet Union, warned policy-makers at home about the threat posed by the USSR and when Paul Nitze, head of the Policy Planning Staff in the State Department, chaired a NSC study which culminated in NSC-68 on April 14, 1950. NSC-68 established the framework for a war economy by proposing that massive military spending was essential to maintaining the security of the United States and to offering protection to the free world as America's inchoate leadership required following the War. According to NSC-68:
"The capability of the American economy to support a build-up of economic andmilitary strength at home and to assist a build-up abroad is limited not, as in the case of the Soviet Union."
As well, the Report emphasized the imperative of a continual build-up of military strength when it stated that:
"The execution of such a build-up, however requires that the United States have an affirmative program beyond the solely defensive one. Every consideration of devotion to our fundamental values and to our national security demands that we, achieve our objectives by the strategy of the cold war, building up our military strength."
When the threat of communism vanished with the fall of the Soviet Union and the justification for a war economy disappeared, a new danger was manufactured; the threat of terrorism, leading ineluctably to the specious war on terror.
One of the most grievous by-products of the war economy is the diversion of funding for research and development to products with a military application although there were spin-offs to the civilian economy. Thomas Woods, in What the Warfare Really Costs estimates in the 1950s and 1960s between one third and two thirds of all researchers landed in the military sector.
For example, the U.S. government spent $5.8 trillion on research and development of nuclear weapons which were deployed in silos in the hope that they would never be used. In his book Pentagon Capitalism, Seymour Melman, a professor of industrial engineering at Columbia University, wrote that:
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