Today the Defense Secretary Chuck Hagel is announcing the the Department of Defense will deal with a shrinking budget largely by reducing the number of paid soldiers, with additional cuts coming from some weapons programs. He would not be doing that if President Barack Obama had not signed off on the ideas. Congress will, as usual, muck with the plan, as each Representative and Senator tries to protect military spending inside his or her district, no matter how at odds with the Pentagon's plans. [See 2015 DoD budget speech transcript]
Bit picture, the ability of the U.S. to bully the other nations of the world will decrease. Bullying will be more selective. We will keep all 11 aircraft carriers, which are great for threatening or bombing nations that don't toe the American line, if they border an ocean. We won't have enough soldiers to easily invade and control large countries like we did in Iraq and Afghanistan.
We should not need too. Imperialism was all fine and good from an economic, if not an ethical, standpoint, during the 20th century. But times have changed. Imperialism is a money loser. The U.S. has proven in the 21st century that it is quite capable of losing all the money it needs to domestically, without loosing even more abroad.
Anyone who does not understand that new roads and bridges in Afghanistan means potholes and collapsing bridges in the U.S. needs an economics course.
In the short run, at least, the American economy continues to recover from the deep dip of 2009. Unfortunately the nation already had a multi-trillion dollar national debt in 2000. Starting in 2002 the national deficit exploded to pay for the "war on terror," and despite that the economy nearly collapsed in 2008, due to the greed and stupidity of—admit it—not just Congress and Bush and Banks and mortgage brokers, but also relatively ordinary Americans who bought vastly overpriced McMansions and bungalows and ordinary track homes and condominiums. In other words, the same idiots, I mean citizens, who elect our Congress and Presidents.
Then in 2009 massive deficit spending began to try to revive the economy, keep people from starving, and prevent a rebellion. The result was a $17 trillion national deficit by the end of 2013. The Federal Reserve kept interest rates extraordinarily low, meaning the interest on the national debt was minimal, like those low-interest introductory mortgage offers of 2005.
As bits of the debt come due for payment the Treasury Department issues new debt. Unless the economy fails to revive, interest rates will rise. Short term debt pays the least interest, but is risky because it has to be renewed often. Long-term debt is safe once placed, but pays much higher interest. As I write this essay 3 month federal debt pays 0.043% per year, zero for practical purposes. 30 year debt pays 3.71%. 2 year debt pays 0.33%.
What the President and Pentagon are acknowledging is that as the average interest rate paid on U.S. debt increases, the amount of tax dollars available for all spending, including military spending, is going to decrease. 1% of $17 trillion is $170 billion. 5% is $850 billion. 10% is $1.7 trillion. Higher interest rates leave politicians 3 options: higher taxes to pay them, lower spending to pay them, or just taking on even more debt, no matter what the interest rate.
Wars and military spending no longer stimulate the economy.
World War II stimulated the depression-era economy, but initial conditions were different back then. There was little national debt when the depression began. The war started in Europe, resulting in a couple of years of peace during which the U.S. could sell anything it could make without actually being in the war.
Iraq and Afghanistan, in contrast, were pure expense for the American taxpayer. They drained the U.S. economically the same way World War II drained the British Empire. That empire, despite its size, fell apart in the 1950s. The Brits could not afford it any longer.
America can no longer afford an empire. Expect that it will be easier for regimes independent of the U.S. to prosper in the future. Expect sane U.S. Presidents (if there were such a thing) to be very careful before committing U.S. fighters to combat in large numbers. If a President wants to both keep up the economy and a military capable of defending U.S. territory, he won't want any international adventures further draining our empty coffers.
U.S. propagandists will probably come up with a better slogan for the new policy than "Peace through Poverty." But that is the era we appear to be heading into.