Are the Chinese Outspending Us on Defense?

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[Access the report...FREE.]( The latest deception from the China Hawks in service of their campaign to enrage Americans into war with a billion people on the other side of the world, is the claim that Chinese annual military spending now sums to some $700 billion a year, perilously close to the $800 billion of the official U.S. military budget. First raised by Sen. Dan Sullivan (R-Alaska) based on U.S. government studies, the $700 billion figure has been widely cited as evidence we are not doing enough to counter a military threat from China. General Mark Milley, chairman of the Joint Chiefs of Staff, is always a reliable witness for the hawks. Milley has echoed the claim in dramatic Congressional testimony all but unchallenged even by Democrats. The figure now routinely shows up in media coverage of the issue. It is a phony number. It is derived by adjusting Chinese spending in ways that consistently exaggerate both the Chinese total and its proportion to the U.S. total. Usefully exposing the serial distortions behind the hawks $700 billion are M. Taylor Fravel, George Gilboy, and Eric Heginbotham, all of MIT, in a recent article in the Texas National Security Review. The most blatant distortion, the authors point out, comes by including in the Chinese total huge costs that are left out of the U.S total. The biggest omission is for veterans benefits, which for the United States come to roughly $300 billion, not included in the $800 billion a year official military budget. Similarly, the $700 billion figure for China includes domestic security forces needed to keep the increasingly restive Chinese people in line. The China Hawks figure the People’s Armed Police cost between $25 and $30 billion a year, depending on whether one uses the market exchange rate for yuan to dollars, or “purchasing power parity.” [The Biggest Winner of the AI Boom Isn’t Nvidia…]( Nvidia (NVDA) has soared more than 1,700% over the past 5 years. For investors who missed out on the profits, America’s #1 Futurist says AI is converging with a ‘miracle material’ right now, and [one company]( leading the way, could see its shares post 10X gains… Purchasing power parity considers that a yuan or a dollar goes further in a country less rich than the United States. Tourists know this. There are places in the world where an American living on social security can afford household help, even a chauffeur, that would strain the budgets of an upper middle-class family in the United States. Purchasing Power Parity has valid uses, but abuse of the concept is crucial to the hawk’s exaggerating the Chinese threat. There are two main threads to their arguments. The first is that cheap Chinese labor costs, further depressed by the conscription used to fill the Chinese ranks, mean the Chinese can field many more soldiers per dollar than the United States. This is true, but it is bizarre to think of this as an advantage. For decades, we have been told that first the Japanese, then the Koreans, the Chinese, the Vietnamese and whoever is the latest candidate will end up manufacturing everything in the world because their workers are paid a tenth, or a twentieth of a U.S. worker’s wage. We have seen lots of industry migrate to those places, but far less than a 10 or 20 to one wage advantage would suggest. That’s because a productivity gap rivals the wage gap. Workers in emerging countries, undertrained and underequipped, routinely underproduce U.S. workers by 90% in the early stages of the competition. The productivity gap narrows over time, but so does the wage gap and at a similar pace. Japan became a serious industrial rival to the United States only as Japanese worker productivity rivaled or exceeded that of American workers, as did Japanese pay scales. [How to know what to trade.]( With thousands of stocks in the market… How do you know which ones to trade? 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Edward Luttwak divides the armies of the world into two groups: those that are trained to march and those that are trained to fight. Because training costs are so high, the marchers vastly outnumber the fighters. (The Israelis, he points out, don’t march at all, they walk). The Chinese draftee is almost certainly vastly less productive than his volunteer U.S. equivalent. More important yet, Chinese ground forces, vast in number, are almost irrelevant to the United States. How would the two forces meet? The Chinese army has not a prayer of reaching our shores, or mounting Japan’s. A U.S. invasion of China would be such a disaster that we would be better off underinvesting in the army to minimize the waste of life and treasure. Defensive operations take less skill than offensive.  It’s doubtful an American invading army would ever make a beachhead, especially as satellites now make even the modest mis-directions of D-Day impossible The Chinese army is built to fight India, Russia, Vietnam, and the rest of its nearby enemies and rivals across land borders in futile contests that would make the trenches of WWI seem like rest stops There is one other critical distortion. The Chinese spending that matters is not for infantry. Even its air force and navy are, like ours, losing relevance. If we ever go to war with China, the war will be decided by the space forces and anti-missile defenses of both nations, which is to say they will be decided by High Performance Computing. The Hawks’ calculations, say Fravel et. al., assume that China pays less for critical technology than the United States. If anything, the reverse is true. Semiconductors and such are internationally traded commodities. No purchasing power parity applies to such goods. The poorest country on earth does not typically pay less for oil or steel than the richest. If anything, says the MIT team, the Chinese must pay more because their own semiconductor industry still lags America’s. The bottom line is that America should be spending less on defense, not more, but spending it better. We barely need an Army; anyplace we might use it we really don’t belong. The Navy still has some use in low-level conflict but would prove worthless in a major war against a capable enemy. The combination of satellites and hypersonic missiles would send most of our floating steel to the bottom of the ocean within hours. Even at Mach whatever, our jets will be rendered irrelevant within a decade by laser weapons that make the fastest plane slower than a cavalry charge against a machine gun company. Stealth is already a joke. If China really is spending the equivalent of $700 billion, well too bad for them. We should cut our own spending in half and put it in weapons that work and a strategy to match. P.S. COSM Technology Summit, Oct. 31-Nov. 1, Bellevue Hyatt, Seattle, Washington: This conference is sponsored by the Discovery Institute and me. I’ll be one of the speakers and will address the latest technology trends, including the rapid rollout of artificial intelligence and the huge opportunities that will be provided by graphene. To register, go to [(. Use Promotion Code EAGLE-GG to save $200. P. P. S. George here… I want to invite you to a free webinar I’ll be a part of on Sept. 11 at 10 a.m. EST. Jon Medved, the founder of OurCrowd, will be joining me, along with Lisa Graston from OurCrowd and my publisher Roger Michalski from Eagle Financial Publications. We’ll be discussing Investing in the AI Landscape… with a focus on pre-IPO opportunities. [Click here now]( to register for this free event! I look forward to seeing you on Sept. 11. Sincerely, [The Editors] George Gilder, Richard Vigilante, Steve Waite, and John Schroeter Editors, Gilder's Guideposts, Technology Report, Technology Report Pro, Moonshots, and Private Reserve About George Gilder: [George Gilder]George Gilder is the most knowledgeable man in America when it comes to the future of technology and its impact on our lives. He’s an established investor, bestselling author, and economist with an uncanny ability to foresee how new breakthroughs will play out, years in advance. George and his team are the editors of Gilder Technology Report, Gilder Technology Report Pro, Moonshots and Private Reserve. About Us: Eagle Financial Publications is located in Rosslyn, VA. – Blocks from the Capitol. Our products have been helping investors build their wealth for several decades. 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