The "intellectual godfather" of the Tea Party movement, Ron Paul represented the voters of Texas in Congress for nearly a quarter-century -- raising Cain the whole way. He's criticized the war on drugs and the war in Iraq, supported less government spending and lower taxes, and even called Ronald Reagan's term as president "disgraceful." A libertarian at heart, there's probably not a voter on either the right or the left that he hasn't irked at one time or another over four decades of government service.
Paul retired from Congress in 2013 and now heads the Voices of Liberty website, where he seeks to "rally liberty-minded activists, influence the climate of ideas, and offer actionable solutions on issues of importance to American liberty and freedom." We reached out to Paul to hear his thoughts on how foreign relations and foreign policy are impacting the U.S. economy in general, and U.S. defense companies in particular.
Here's what he had to say, in his own words.
The Motley Fool: Dr. Paul, you recently argued on Voices of Liberty that "military spending, like all government spending, hampers private sector growth by taking resources away from investors, entrepreneurs, and consumers while contributing significantly to the national debt." You highlighted China's smaller defense budget -- $188 billion -- as one reason its economy appears to be outperforming ours, and urged that America "return to the policy of peace and free trade."
Could you expand on that?
Ron Paul: The U.S. is hardly a beacon of free trade, though it ought to be. As to the military, its job is not to serve the investment banks and exporters by attacking "bad actors," but to protect the lives and property of the American people in America from foreign enemies. A good first step would be to stop creating foreign enemies by ending our interventionist foreign policy. ...
The current role of the U.S. military is to enable the U.S. and its crony companies to dominate the globe. This is not compatible with free-market capitalism or peace. ... States seeking to dominate the globe militarily often find themselves bankrupted and resented, ultimately dominated by those who were once on the receiving end. It is far better to engage in mutually beneficial free trade which boosts the American economy while creating friends instead of enemies overseas. No empire!
TMF: The Pentagon is budgeted to spend more than $615 billion this fiscal year. What do you think a more appropriate level of defense spending might be? What specific programs do you think deserve to be cut?
RP: A good start would be to suspend the program that provides military weapons to local police! Actually, military spending, property figured, is far higher than that. Adding in military-related activities of other federal agencies and the cost of caring for veterans, the real military budget is beyond a trillion dollars per year. An imperial military is not compatible with freedom. God didn't put the U.S. in charge of the globe.
TMF: Shifting the focus back home now, there's been a lot of talk about Lockheed Martin's F-35 fighter jet being the most expensive military program in history, at an estimated cost of $1.1 trillion over 60 years. Does the U.S. need a fifth-generation fighter to maintain parity with Russia and China, which are developing them?
RP: We need fewer weapons of all sorts. Every tank, plane, missile, fighter takes bread out of the mouths of the poor, and all other noncronies. And then there is the renewed threat of world war. As Washington said, we need peace, honest friendship, and commerce with all nations.
TMF: And yet we keep spending on weapons -- even weapons the military says it doesn't want. Time and again, defense contractors argue that defense cuts raise the unit cost of each weapons system purchased because we're not buying in bulk. This argument resurfaced most recently when Congress tried to buy extra Abrams main battle tanks for the Army, to keep the production alive at General Dynamics' (NYSE:GD) tank factory in Lima, Ohio.
As a former congressmen, how do you think taxpayers and voters should view these arguments?
RP: The defense contractors and the military do make such arguments and they are echoed and approved by Congress. The reason for this is that components of each of these massive weapons systems are manufactured in virtually every U.S. state (and many foreign countries). It is a system to maximize profits and minimalize political opposition, while ignoring the real defense needs of the United States. In fact, protecting the U.S. is often the last thing they worry about. It is all about bringing home the bacon for the well-connected military-industrial complex on the backs of those who actually work for a living.
TMF: Finally, could you comment on how much of an influence lobbying by defense contractors has on Congress' decisions to fund weapons programs? We often see in the news how "Company X spent $Y on lobbying in the first quarter of 2014 ... "
RP: The merchants of death have always been hugely influential in promoting wars and the impoverishment of the taxpayers. As I said earlier, they gladly spread weapons production to as many states as possible to guarantee the support of as many in Congress as possible.
Also, there are plenty of lobbying jobs available to entice members who will someday retire to the "private sector." I had very little trouble with defense contractors while I was in office. I simply bade them farewell when they knocked on my door.
Foolish final thoughts
Paul's comments echo the opinions of the U.S. Libertarian Party, which takes the Jeffersonian doctrine of "minimum government, maximum freedom" as its motto. It urges America to adopt a "sane foreign policy" of "building positive relationships, with an emphasis on free trade" with foreign nations, while "avoiding negative relationships, with an emphasis on military non-intervention."
In that line, the party's online "issues" statement observes that if the U.S. were to slash its defense budget "to only one-eighth its current size, it would STILL be the largest in the world." (The math on that equation is debatable. Conservative estimates of China's defense budget, for example, put it in excess of $188 billion, which is about 30% of America's $615 billion defense budget -- not 12.5%.)
While the Libertarian Party holds no seats in Congress, it is still the third-largest political party in the U.S., with 250,000 registered voters across the 50 states, and membership among registered voters is said to be growing quickly.
The takeaway for investors in the U.S. defense industry: The greater the Libertarian Party's influence grows, and the more people who come to agree with Paul's line of thinking, the less defense spending we should expect to see, and the more defense companies' revenue streams will shrink.
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Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of General Dynamics. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.