Hudson: Traditionally war spending has driven deficits
Michael Hudson and William Hartung make the argument that military spending was exempted from cuts in the debt ceiling deal because it had strong backers who protected it. They also reveal that the US debt ceiling was put into place to keep Woodrow Wilson from overspending during World War I as military conflicts have traditionally been the real budget busters for governments.
War was certainly the budget buster for the United Kingdom as the UK left the gold standard to inflate and deficit spend for World War I. When the British went back onto the gold standard, they came back at too high an exchange rate and were able to get the US to inflate on their behalf to ease the deflationary pressure the peg had on the British economy. Eventually, America’s loose monetary policy ended in Depression. (See my post 1925 which excerpts from Murray Rothbard’s History of Money and Banking.)
Afterwards, World War II left the British economy in tatters with a mountain of government debt that was eroded through a combination of currency depreciation and inflation.
The analogue here that Hudson and Hartung are presenting is that America’s permanent war footing and large Military-Industrial Complex are the real deficit busters, something that leaders in Congress like Ron Paul and Dennis Kucinich are actively working against. We’ll see if military spending gets a free ride in the second half of the debt ceiling deal.