Search Penny Hill Press

Wednesday, January 19, 2011

Economics and National Security: Issues and Implications for U.S. Policy

Dick K. Nanto, Coordinator
Specialist in Industry and Trade

As the world begins the second decade of the twenty-first century, the United States holds what should be a winning hand of a preeminent military, large economy, strong alliances, and democratic values. The nation’s security should be secure. Yet the debate over national security seems to be both intensifying and broadening. The problem appears not only in the difficulty of finding a winning strategy in the long war against acts of terrorism but having to face economic constraints that loom large in the public debate. In addition, the global financial crisis and recession have highlighted the trade-off between spending to protect against external threats and spending to provide jobs and income for citizens at home. The United States has long been accustomed to pursuing a “rich man’s” approach to national security. The country could field an overwhelming fighting force and combine it with economic power and leadership in global affairs to bring to bear far greater resources than any other country against any threat to the nation’s security. The economy has always been there both to provide the funds and materiel for defense and to provide economic security for most households. Policies for economic growth and issues such as unemployment have been viewed as domestic problems largely separate from considerations of national security.

The world, however, has changed. Globalization, the rise of China, the prospect of an unsustainable debt burden, unprecedented federal budget deficits, the success of mixed economies with both state-owned and private businesses, huge imbalances in international trade and capital flows, and high unemployment have brought economics more into play in considerations of national security. Traditionally the economy has entered into the national security debate through its impact on the nation’s hard power: the funding of defense, the efficacy of the defense industrial base, and the use of economic sanctions and other instruments as nonkinetic tools of warfare. The long-term efficacy of hard power, however, depends greatly on the ability of a country to provide for it through an ever growing and innovative economy.

National security depends also on soft power, the ability of a country to generate and use its economic power and to project its national values. This, in turn, depends on long-term factors that contribute to economic growth and increase the total resource base available not only for defense but to provide economic security in the form of income and business opportunities for individuals. Economic growth depends on building human capital. It also depends on science, technology, and innovation. In addition, the increased integration of the U.S. economy into global markets means that U.S. security also depends on global economic stability, on a balanced international economy, the ability to coordinate key economic policies with other leading nations, and deterring threats to the international financial system. Soft power also enables the country to project American values through diplomacy, economic assistance, fostering democracy and human rights, and promoting sustainable development abroad. Congress plays a major role in each of these elements of national security.

This analysis illustrates how disparate parts of the U.S. economy affect the security of the nation. Security is achieved not only by military means but by the whole of the American economy. In national security, the economy is both the enabler and the constraint. This report briefly addresses each of the above issues and provides a context and some possible alternatives to current policy. The purpose of this report is not to provide an exhaustive analysis but to survey the landscape, show how each issue relates to national security, examine possible Congressional actions, and refer the reader to relevant CRS products and analysts.

Date of Report: January 4, 2011
Number of Pages: 82
Order Number: R41589
Price: $29.95

Follow us on TWITTER at or #CRSreports

Document available via e-mail as a pdf file or in paper form.
To order, e-mail
Penny Hill Press  or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.