Guns vs Butter

   Its somewhat a false assumption that if one sector is doing extraordinarily well we can then use the revenue collected from that sector to pay for another sector. That through strong consumer expansion, we can use the tax revenue collected from those sales to be used for military spending or any other kind of spending.

  From a financial perspective it makes perfect sense. One might argue since we have the revenue to pay for it, we have no reason not to. But the real economy is indifferent to budget surpluses or deficits. The real economy does not care about your balance sheet. It only cares about whether the resources are available for such spending. Even if you are running a financial surplus, if the resources and labor are not available to be allocated towards additional military spending, all it would do is crowd out current consumer spending and causing inflation for the general economy.

  Even if you were running a financial deficit, so long as there are resources and labor sitting idle waiting to be allocated towards military spending, the inflation created from military spending would be quite mild. This is to say that even if an individual or government was sitting on a surplus pile of money whether in the form of fiat or gold, that spending would be unproductive. If he chose to spend that money in an economy that is already at near 100 percent employment rates and near 100 percent industrial capacity, the result of spending that money then would only produce unwanted inflation.

  This is because the financial balance sheet of a nation does not truly represent a nation's economy. All it does is represent a nation's supply of money. The real economy such as the nation's labor force, steel production, electricity output, food production ect. are not being represented by the nation's money supply. And thus a nation's economic capacity is often not being well considered from looking at a nation's aggregate money.

  Because the current system of tracking surpluses and deficits is an archaic system leftover from the gold standard. The only thing that one should consider when managing consumer and military spending is whether or not there are resources and labor available for additional spending.

  In short, China is not under any real stress to control its civilian and military spending. Any additional spending would be a godsend as it would help alleviate the discomforts of unemployment and under-utilization.