What does economic inequality have to do with great-power competition? Much more than you might think. Congress and the White House currently direct resources toward the national security state and away from programs and policies that support the public welfare. There is no inherent compromise between investing in defense over social welfare—but in the United States, we have a politically imposed trade-off between “guns and butter.”
This is an excerpt from The Rivalry Peril: How Great-Power Competition Threatens Peace and Weakens Democracy by Van Jackson and Michael Brenes (Yale University Press, 248 pp., $30, January 2025).
Geopolitical rivalry provides legitimacy for policies that undermine economic freedoms. Many of these are justified in the name of “national security,” which too often functions as a euphemism for militarist policies that foment aggression while starving the welfare state. The consequences of militarism stretch far beyond the battlefield, worsening economic inequality and foreclosing even the prospect of economic democracy, which operates on the presumption that economic disenfranchisement breeds electoral disenfranchisement.
Such a claim might be jarring to some because war can, sometimes, supplement economic prosperity. Mobilizing for World War II helped end the Great Depression and initially contributed to the postwar boom. The outbreak of the Korean War offered a boon to U.S. unions and the U.S. manufacturing base during the early 1950s. So-called military Keynesianism has provided well paying, often unionized jobs for thousands of Americans since the early Cold War.
But in times of widespread and extreme inequality (which is the case today), war, or “great-power competition,” creates greater economic precarity. Not only does rivalry empower the already powerful; it further marginalizes the powerless. Great-power rivalry with China has helped concentrate wealth in the hands of a few, rather than creating a healthy economy. It has weakened the welfare state and stymied economic democracy. And these trends may worsen during the new Trump administration, which has vowed to stay tough on China.
Then-U.S. President Joe Biden speaks about the economy at Cuyahoga Community College Manufacturing Technology Center in Cleveland, Ohio, on May 27, 2021. Nicholas Kamm/AFP via Getty Images
The effects of great-power competition have coincided with the changes wrought by “neoliberalism”—an ideology that elevated the protection of capital over the rights of workers—after the 1970s. The hollowing out of the manufacturing sector, the weakening of organized labor, and the decline of working-class wages followed neoliberalism’s triumph in the 1980s.
But by the 2020 presidential election, constituencies on the left and right rejected, to varying degrees, free-market dogma and the policy prescriptions that accompanied it: privatization of public goods, deregulation, offshoring, weak social spending. The COVID-19 pandemic also threw the global economy into crisis, requiring dramatic fiscal stimulus and monetary enlargement that belied the laissez-faire rhetoric of the neoliberal order.
These forces converged during Joe Biden’s presidency. Key advisors, including National Security Advisor Jake Sullivan, believed the United States had to leave the old economic order behind. In an April 2023 speech, Sullivan even outlined a “new Washington consensus” to displace neoliberalism. Sullivan spoke of a revitalized industrial policy premised on technological innovation; of the need for Washington and its “partners” to ramp up semiconductor production; of trade agreements that strengthen supply chains. Above all, the Biden administration sought economic growth for the middle class through “a new global labor strategy that advances workers’ rights through diplomacy.”
Consider the three major pieces of legislation produced by the Biden administration: the Inflation Reduction Act, the CHIPS and Science Act, and the Bipartisan Infrastructure Law of 2021.
To begin with, Bidenomics was punitive toward China. While it spent lavishly to increase U.S. industrial capacity, it simultaneously aimed to decrease U.S. corporations’ exposure to Chinese firms and weaken China’s economy. As the secretary of commerce, Gina Raimondo, said of semiconductors—a technology found not just in missiles but also in everything from toaster ovens to televisions—“We need to stay ahead of [China]. And we need to deny them this technology that they need to advance their military.” Sullivan went further, acknowledging, “We must maintain as large of a lead [over China] as possible.” Sullivan later stated that U.S. industrial policy is “narrowly focused on technology that could tilt the military balance.”
The results led to bans on specific investments in China—on semiconductor and artificial intelligence technology—that expanded on Trump-era restrictions. Some experts anticipated that these investment controls mean declining growth over the next few years not only in China but also in Europe (2 percent of its GDP) and the United States. Declining wages and fewer employment opportunities for Americans will follow. Controls on Chinese semiconductors were also short-sighted, given that the United States’ share of global semiconductor manufacturing was expected to increase by less than 1 percent in the near term despite all the investment.
Bidenomics also obscured the budgetary trade-offs of an economic policy pursued through rivalry with China. “Strategic competition” impels national investments in advanced technologies, a sector of the economy that historically has propelled society’s wealth upward, subsidizing large firms and higher wages for a small technocratic elite. National security Keynesianism is a jobs program for the few who, by dint of their education and social networks, were positioned to succeed under industrial policy.
This is concerning given the numbers on economic insecurity. For starters, social mobility has steadily declined for more than a generation. Over 30 percent of Americans earn less than $15 per hour. The greatest proportion of low-wage workers are women. People of color are over-represented in the ranks of the working class. And while the average American’s wages have stagnated since the 1970s, the cost of living has steadily increased.
During the pandemic, an additional 160 million people fell into poverty globally, while the net worth of the 10 richest men more than doubled, from $700 billion to $1.5 trillion. Meanwhile, since the global financial crisis, after-tax corporate profits have been steadily growing and are now at a 70-year high.
An employee handles 155 mm caliber shells after the manufacturing process at the Scranton Army Ammunition Plant in Scranton, Pennsylvania, on April 16, 2024.Charly Triballeau/AFP via Getty Images
Over the past decade and a half, while the working class has fallen further behind, U.S. defense spending has surged. From 2016 to 2021, the U.S. defense budget soared from $639.86 billion to $800.67 billion. If China rivalry endures, experts expect to see a $1 trillion defense budget in the next two years. And by some estimates, defense spending already exceeds $1.537 trillion annually.
An economy centered on national security concerns in the 21st century exacerbates—not ameliorates—the problem of growing structural inequality in the United States. The Costs of War project at Brown University has found that defense spending between 2001 and 2016 created 1.5 million jobs, but that same amount of money could have generated twice the number of jobs in health care or education. The “job multiplier effect” from federal spending on the military (6.9 jobs in the defense industry and supporting supply chains for every $1 million spent) is lower than the same amount spent in any other industry.
Federal spending on national security could, in theory, enhance worker power. Commentators have pointed to the Korean War as a relevant model for how military spending can boost the economy. But the Korean War was an anomaly. War mobilization then occurred in a context of high tax rates, sustained private investment, and high union density. The Korean War defense buildup took place in conjunction with strong worker organizing and a large labor movement, which is absent in the United States now because of restrictions on labor.
Contrast the Korean War’s setting with the balance of class forces today. U.S. labor laws have weakened since the Reagan administration, which waged a war against worker organizing. Corporations have made a routine of flagrantly violating the weak labor laws that do exist; the marginal and effective U.S. tax regime is far lower than it was in 1950; and union density today is close to a 100-year low.
The benefits of the Korean War economic surge are also oversold. The war is often cited as a case study in how the military can create an economic stimulus. But it was financed entirely through taxation, not borrowing. The Korean defense buildup also quadrupled the size of the defense budget. These wartime levels of spending are not sustainable today—nor were they in the 1950s. But even if we ignore that we mobilized for the Korean War in a manner that pitted economic growth against economic equality, the balance of class forces at that time was still far more egalitarian than today.
The U.S. Air Force Thunderbirds perform a flyover prior to the Daytona 500 in Daytona Beach, Florida, on Feb. 18, 2024.Chris Graythen/Getty Images
Furthermore, defense spending is an inefficient way to boost the economy partly due to the debt structure Washington uses to fund the military. The interest alone on U.S. financing for the first 18 years of the War on Terror amounted to $925 billion. Assuming interest rates do not radically rise, interest payments on military spending are projected to be $2 trillion by 2030 and $6.5 trillion by 2050. This is money spent on debt servicing—not job creation, wages, or welfare.
The inefficiency of defense spending also has to do with the character of modern war. More and more dollars are being spent on fewer and fewer technologically sophisticated platforms, leading to the joke within the industry that “in the year 2054, the entire defense budget will purchase just one aircraft.” And because defense is a capital-intensive industry, it is by definition an inefficient way to reach full employment.
If the point of U.S. fiscal and industrial policy was primarily to achieve economic growth, employment, equality, or efficiency, it would be irrational for it to take the form of national security Keynesianism. Sustaining or recovering a position of strategic primacy—the ultimate rationale for national security Keynesianism—creates imbalances in not just the United States but also the global economy that lead to financial crises, which disproportionately harm workers and those already economically insecure.
The U.S. strategy of primacy insists on military superiority. Since 2017, military superiority has been indexed against war with China in the Taiwan Strait—meaning out-arming a “great power” that has been rapidly expanding its military capabilities, but doing so with the purpose of defeating it in a geography that puts the U.S. military in the most unfavorable position imaginable, thereby requiring horizonless defense spending.
But this insistence on military superiority comes at an unacknowledged price that goes well beyond the defense budget. As mentioned above, U.S. politicians have developed a habit of funding defense not through tax increases but rather deficit financing, primarily from foreign borrowing. When policymakers decide that external threats require a military buildup, they exploit Washington’s privileged position in the world economic system to avoid the near-term domestic political friction that would come with any fight over taxes by accumulating debt.
In so doing, however, the United States becomes a magnet for current account surpluses accumulated in foreign economies. That “capital flow bonanza” concentrating in the metropole leads to economic imbalances in the United States and globally, since the rest of the world is uniquely exposed to imbalances in the U.S. economy. Cheap credit and pro-cyclical economic expansion eventually lead to asset bubbles (inflated prices in, for example, real estate), creating the conditions for banking crises.
Such crises expose the frailty of the global economic order, encouraging recurring challenges to its legitimacy, protectionist economic policies, and the search for alternatives. Military buildups for the Vietnam War, for “rolling back” the Soviets in the 1980s, and for the War on Terror all resulted in boom-bust crises. These were a burden for workers and foreign economies alike because they rapidly deflated the value of assets on which workers’ pensions and personal savings relied. They also required dramatic fiscal and monetary policy interventions that, in practice, have amounted to subsidies for private banks and large firms to keep the system solvent.
The paradox of our current moment is thus that a world system with the United States at its core encourages U.S. political elites to act in ways that repeatedly destabilize it. Washington’s national security Keynesianism appears to be a willful attempt to close out the international economic order as it existed before 2020 while still “leading” the global economy, giving up the obligations of world policeman while continuing to exploit the advantages of world order so the United States can outcompete China.
U.S. troops watch as a Javelin missile hits a target at sea during a live-fire exercise as part of U.S.-Philippines joint military exercises in Laoag, Philippines, on May 6, 2024. Ezra Acayan/Getty Images
Today, as during the Cold War, rivalry is a wager that sacrifices both political and economic democracy at the altar of great-power competition. We can imagine two possible counterarguments to the evidence we have presented.
One might go like this: “Rising economic insecurity, inequality, xenophobia, racism, political repression, far-right extremism, and self-imposed brain drain—all unfortunate problems, but they do not pose immediate national security threats to the United States.” This rejoinder boils down to labeling these indicators of democracy erosion as negative externalities (collateral damage) while declaring the primacy of the “national” interest or raison d’état. It is saying that the China threat is sufficiently grave to be worth whatever domestic price geopolitical competition incurs.
This logic subordinates economic equality to great-power rivalry with little attention to who benefits and who pays for U.S. foreign policy. It sacrifices democratic society to secure geopolitical advantage, and it violates the dictates of good strategy. U.S. national security worthy of the name must reflect the needs and interests of all Americans.
A second counterargument might be this: “Rivalry isn’t the only cause of economic insecurity and political inequality.” This rejoinder rests on a counterfactual belief that if the domestic problems predated the inception point of rivalry—or if there is more than one cause of these problems—then there is no point in condemning geopolitical competition. In other words, do not blame the state for the problems inherent to U.S. political economy.
But this is not just fallacious reasoning; there is also no evidence to support it. Since the onset of rivalry with China around 2016, the severity of these problems has been rising—a trend that must be arrested if democracy is to retain its soul. To dismiss that because de-escalating or finding alternatives to geopolitical competition would not solve everything is both to ignore what is right in front of us and to make the perfect the enemy of the good.
Above all, we must be unambiguous about one thing: Great-power rivalry cannot generate economic equality. Rivalry’s zero-sum outlook forecloses on economic democracy. It provides economic security for some by taking security away from others. Given this, we should not be surprised that undemocratic means have yielded undemocratic results—ones that shape the material lives of Americans in harmful ways. The double tragedy is that the very same conditions that inhibit economic democracy also threaten global peace.
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