Military Keynesianism

Military Keynesianism is the accusation that John Maynard Keynes advocated government economic policy in which the government devotes large amounts of spending to the military in an effort to increase economic growth.^[1] In fact, the English economist John Maynard Keynes advocated that government spending be used to "in the interests of peace and prosperity" instead of "war and destruction".^[2] An example of such policies are the Public Works Administration in the 1930s in the United States.

Keynes' 1933 Letter to Roosevelt

In 1933, John Maynard Keynes wrote an open letter to President Franklin Roosevelt urging the new president to borrow money to be spent on public works programs.^[2]

“

Thus as the prime mover in the first stage of the technique of recovery I lay overwhelming emphasis on the increase of national purchasing power resulting from governmental expenditure which is financed by Loans and not by taxing present incomes. Nothing else counts in comparison with this. In a boom inflation can be caused by allowing unlimited credit to support the excited enthusiasm of business speculators. But in a slump governmental Loan expenditure is the only sure means of securing quickly a rising output at rising prices. That is why a war has always caused intense industrial activity. In the past orthodox finance has regarded a war as the only legitimate excuse for creating employment by governmental expenditure. You, Mr President, having cast off such fetters, are free to engage in the interests of peace and prosperity the technique which hitherto has only been allowed to serve the purposes of war and destruction.

”

Economic effects

The economic effects advanced by supporters of military Keynesianism can be broken down into four areas, two on the demand side and two on the supply side.

On the demand side, increased military demand for goods and services is generated directly by government spending. Secondly, this direct spending induces a multiplier effect of general consumer spending. These two effects are directly in line with general Keynesian economic doctrine.

On the supply side, the maintenance of a standing army removes many workers from the civilian workforce. In the United States, enlistment is touted as offering direct opportunities for education or skill acquisition.

Also on the supply side, it is often argued that military spending on research and development (R&D) increases the productivity of the civilian sector by generating new infrastructure and advanced technology. Frequently cited examples of technology developed partly or wholly through military funding but later applied in civilian settings include computers, aviation (particularly regarding helicopters and supersonic travel), radar, nuclear power, and the internet.

Criticisms

The most direct economic criticism of military Keynesianism maintains that government expenditures on non-military public goods such as health care, education, mass transit, and infrastructure repair create more jobs than equivalent military expenditures.[1]

Another primary criticism of military Keynesianism faults not its economic intuitions, but adverse social effects. Many assert that the maintenance of large peacetime armies and growth of military spending lead nations into war, while also encouraging militarism and nationalism. These critics often attack the argument that the military prevents young men from sinking into crime by claiming that many soldiers who return from war are worse off physically or mentally than they would have been as unemployed persons at home.

A similar critique is that military Keynesianism accelerates the growth of a military-industrial complex – industrial sectors largely dependent on military spending. Because the military-industrial complex is a large employer and constitutes a significant fraction of aggregate demand, it is politically difficult for the government to reduce deficit military spending. The end result of this, it is feared, is a cycle of constant war and continually high military spending.

Other critics point out that while military research and development can sometimes find later application in civilian industries, it is less efficient than simply researching civilian applications directly. Many point to the recent examples of Japan and Germany, economies which have had great success in developing new technology despite low military spending compared to nations like the United States.

One of the central economic critiques of Military Keynesianism is known as the broken window fallacy. Based on a parable by the 19th-century French economist Frédéric Bastiat, it points out that if a person broke a grocer's window then some people could argue that it was a benefit to the town, as it would provide a job for a glazier, who would then buy more from the tailor and so on. Bastiat pointed out that this is deceptive and illogical reasoning, as it ignores what the grocer would have bought had he not been forced to buy a new window - it ignores, in modern economic terminology - opportunity cost. Military Keynesianism fails to take into account opportunity cost - i.e. what those soldiers would have been doing instead of being soldiers, and also what arms companies could have been making instead of war material.

Another economic critique of military Keynesianism is that military spending comes from general taxation. It requires high levels of taxation to fund military spending, and that taxation must come from the productive sectors in the economy, thus being a long term drag on economic growth (this is one of the central criticisms of Keynesianism in general).

Some critics, and even some supporters, contend that in the modern world, these policies are no longer viable for developed countries because military strength is now built on high-technology professional armies, and the military is thus no longer viable as a source of employment of last resort for uneducated young people.

Forms of Military Keynesianism

For the purpose of scientific clarity, the following forms of military keynesianism may be differentiated:

First, there is the differentiation between the use of military spending as 'pump primer', and efforts to achieve long term multiplier effects by the given spending. A government may opt to approve the purchases of fighter planes, warships or other military commodities so as to weather a recession. Alternatively, it may opt to approve the purchase of fighter planes, warships or other military commodities throughout all the years of a given business cycle. Since the construction of large armament systems requires extensive planning and research, capitalist states generally prefer to rely on arms' purchases or other military allocations for longer-term macro-economic policymaking and regulation.

A second differentiation that needs to be made is between primary and secondary forms of military Keynesianism. In both cases, the state uses the multiplier mechanism in order to stimulate aggregate demand in society. But the primary form of military Keynesianism refers to a situation where the state uses its military allocations as the principal means to drive the business cycle. In case of a secondary form of military Keynesianism, the given allocations contribute towards generating additional demand, but not to the extent that the economy is fully, or primarily, driven by the military allocations.

The third differentiation starts from the observation that modern capitalist economies do not function as closed systems but rely on foreign trade and exports as outlets for the sale of a part of their surplus. This general observation applies to the surplus generated in the military sector as well. As the vast amount of data regarding state promotion of arms' exports do confirm, - capitalist states actively try to ensure that their armament corporations gain access to import orders from foreign states, and they do so amongst others in order to generate multiplier effects. Hence, there is a need to also differentiate between the two forms of domestic and 'externalized' military Keynesianism. (3)^[3]

Examples

It has been argued^{[by whom?]} that there have been no clear-cut historical examples of military Keynesianism in action. The reason presumably being that the theory of military Keynesianism requires that the increased military spending be intended to exclusively fulfill an economic goal (i.e. to enhance growth, or increase employment) by Keynesian means. However the goal of military spending may well be a combination, for instance to both achieve some military, or political goal, and to generate multiplier effects for the economy. Thus, a country like Nazi Germany did see economic stimulus from military spending, but the economic goal of that military spending was also to gain land and plunder it.

There are clear historical examples where a government's military spending did have stimulatory effects, notably Nazi Germany in the 1930s and the United States during World War II. In both case, military spending was credited with recovery from the Great Depression. But large arms' spending was also due to military objectives pursued by Nazi Germany, respectively the US, during WWII.

United States

In the United States, prior to 2009, the only time the deficit rose over 6% of GDP was in or immediately after wartime: the Civil War, World War I, and World War II, with a peak being reached of 30.3% in 1943. Keynesian economists point to the large deficits during WWII as being the cause of the US recovery from the Great Depression, and that prior fiscal stimulus had been insufficient due to opposition to large deficits. That is, military mobilization provided the popular political support for Keynesian stimulus.

In today’s discourse, the term "Military Keynesianism" is most frequently discussed in relation to the United States, particularly the administration of President Ronald Reagan in the 1980s. Reagan’s administration pushed for significant tax cuts, while increasing military spending to confront the Soviet Union in the Cold War. This was in practice a policy suggestive of military Keynesianism, although Reagan defended it, arguing that military spending was necessary to combat Communism by outspending the Soviet Union. It also coincided with the early 1980s recession, with some arguing that the resulting stimulus helped end the recession.^{[citation needed]}

For many in the United States worried about the adoption of these economic policies, their fears abated somewhat with the reduced military spending of the 1990s which was commonly described as the peace dividend of the end of the Cold War. However, the ongoing War on Terrorism and current Iraq War have increased defense spending beyond the levels of the 1980s, although not as a percentage of GDP.

See also

• Permanent war economy
• Military-industrial complex
• Iron triangle (US politics)
• Countercyclical
• Keynesian economics

Notes

1. ^ Chomsky, Noam (1993-02). "The Pentagon System". Z Magazine. http://www.thirdworldtraveler.com/Chomsky/PentagonSystem_Chom.html. Retrieved 2009-03-14. 
2. ^ ^{a b} Keynes, John (1933). "An Open Letter to President Roosevelt". http://newdeal.feri.org/misc/keynes2.htm. Retrieved 2011-08-01. 
3. ^ CUSTERS P. (2010). Military Keynesianism today: an innovative discourse, Institute of Race Relations, Vol. 51(4): 79–94 Available from 10.1177/0306396810363049 http://rac.sagepub.com [Accessed March 2011].

External links

• Cheap Wars by Jonathan Nitzan, Ph.D. Associate Professor of Political Economy, and Shimshon Bichler, Lecturer of Political Economy
• Defense Doesn't Need Stimulus by Christopher Preble, Ph.D. History
• Doesn't all the war spending stimulate the economy? And shouldn't the Bush tax cuts do the same? So why are we falling into recession? Dollars & Sense magazine
• Military Keynesianism to the Rescue? by Robert Higgs, Ph.D. Professor Emeritus of Economics
• Rich Nation, Strong Army: National Security and the Technological Transformation of Japan by Richard J. Samuels, Ph.D. Professor of Political Science
• The economic disaster that is military Keynesianism: Why the US has really gone broke by Dr.Chalmers Johnson in the English edition of Le Monde Diplomatique
• ROBERT B. REICH
• http://www.petercusters.nl/LatestPublications/Military-Keynesianism-Today-An-Innovative-Discours