Would Our Government Really Start a War to Try to Stimulate the Economy?

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Washington's Blog.

I've written two essays attempting to disprove "military
Keynesianism" - the idea that military spending is the best stimulus.
See this and this.

In response, a reader challenged me to prove that anyone would advocate military spending or war as a fiscal stimulus.

In fact, the concept of military Keynesianism is so widespread that there are some half million web pages discussing the topic.

And many leading economists and political pundits sing its praises.

For
example, Martin Feldstein - chairman of the Council of Economic
Advisers under President Reagan, an economics professor at Harvard, and
a member of The Wall Street Journal's board of contributors - wrote an op-ed in the Journal last December entitled "Defense Spending Would Be Great Stimulus".

And as the Cato Institute notes:

Bill
Kristol agrees. Noting that the military was "spending all kinds of
money already," Mr. Kristol wondered aloud, "If you're buying 2,000
Humvees a month, why not buy 3,000? If you're refurbishing two military
bases, why not refurbish five?"

***

 

This is not the first
time that defense spending has been endorsed as a way to jump-start the
economy. Nearly five decades ago, economic advisers to President
Kennedy urged him to increase military spending as an economic
stimulus...

 

Similar arguments are heard today. The members of
Connecticut's congressional delegation have been particularly outspoken
in their support for the Virginia-class submarine, and they haven't
been shy about pointing to the jobs that the program provides in their
home state. The Marine Corps' V-22 Osprey program wins support on
similar grounds. Despite serious concerns about crew safety and
comfort, the V-22 program employs workers in Pennsylvania, New Jersey,
Delaware and Texas, and a number of other states.

Professors of political economy Jonathan Nitzan and Shimshon Bichler write:

Theories
of Military Keynesianism and the Military-Industrial Complex became
popular after the Second World War, and perhaps for a good reason. The
prospect of military demobilization, particularly in the United States,
seemed alarming. The U.S. elite remembered vividly how soaring military
spending had pulled the world out of the Great Depression, and it
feared that falling military budgets would reverse this process. If
that were to happen, the expectation was that business would
tumble,unemployment would soar, and the legitimacy of free-market
capitalism would again be called into question.

Seeking to avert
this prospect, in 1950 the U.S. National Security Council drafted a
top-secret document, NSC-68. The document, which was declassified only
in 1977, explicitly called on the government to use higher military
spending as a way of preventing such an outcome.

Are they right about NSC-68?

Well, PhD economist Robert Higgs confirms the importance of NSC-68:

Previously
administration officials had encountered stiff resistance from Congress
to their pleas for a substantial buildup along the lines laid out in
NSC-68, a landmark document of April 1950. The authors of this internal
government report took a Manichaean view of America’s rivalry with the
Soviet Union, espoused a permanent role for the United States as world
policeman, and envisioned U.S. military expenditures amounting to
perhaps 20 percent of GNP. But congressional acceptance of the
recommended measures seemed highly unlikely in the absence of a crisis.
In 1950 “the fear that [the North Korean] invasion was just the first
step in a broad offensive by the Soviets proved highly useful when it
came to persuading Congress to increase the defense budget.” As
Secretary of State Dean Acheson said afterwards, “Korea saved us.” The
buildup reached its peak in 1953, when the stalemated belligerents in
Korea agreed to a truce.

And Chalmers Johnson - Professor emeritus of the University of California, San Diego, and former CIA consultant - writes:

This is military Keynesianism — the determination to maintain a permanent war economy and
to treat military output as an ordinary economic product, even though
it makes no contribution to either production or consumption.

This
ideology goes back to the first years of the cold war. During the late
1940s, the US was haunted by economic anxieties. The great depression
of the 1930s had been overcome only by the war production boom of the
second world war. With peace and demobilisation, there was a pervasive
fear that the depression would return. During 1949, alarmed by the
Soviet Union’s detonation of an atomic bomb, the looming Communist
victory in the Chinese civil war, a domestic recession, and the
lowering of the Iron Curtain around the USSR’s European satellites, the
US sought to draft basic strategy for the emerging cold war. The result
was the militaristic National Security Council Report 68 (NSC-68)
drafted under the supervision of Paul Nitze, then head of the Policy
Planning Staff in the State Department. Dated 14 April 1950 and signed
by President Harry S Truman on 30 September 1950, it laid out the basic
public economic policies that the US pursues to the present day.

 

In
its conclusions, NSC-68 asserted: “One of the most significant lessons
of our World War II experience was that the American economy, when it
operates at a level approaching full efficiency, can provide enormous
resources for purposes other than civilian consumption while
simultaneously providing a high standard of living”.

 

With
this understanding, US strategists began to build up a massive
munitions industry, both to counter the military might of the Soviet
Union (which they consistently overstated) and also to maintain full
employment, as well as ward off a possible return of the depression.
The result was that, under Pentagon leadership, entire new industries
were created to manufacture large aircraft, nuclear-powered submarines,
nuclear warheads, intercontinental ballistic missiles, and surveillance
and communications satellites. This led to what President Eisenhower
warned against in his farewell address of 6 February 1961: “The
conjunction of an immense military establishment and a large arms
industry is new in the American experience” — the military-industrial
complex.

By 1990 the value of the weapons, equipment and factories
devoted to the Department of Defense was 83% of the value of all plants
and equipment in US manufacturing. From 1947 to 1990, the combined US
military budgets amounted to $8.7 trillion. Even though the Soviet
Union no longer exists, US reliance on military Keynesianism has, if
anything, ratcheted up, thanks to the massive vested interests that
have become entrenched around the military establishment.

You can read NSC-68 here.

Leading political journalist John T. Flynn wrote in 1944 :

Militarism
is the one great glamorous public-works project upon which a variety of
elements in the community can be brought into agreement.

But Flynn warned that:

Inevitably,
having surrendered to militarism as an economic device, we will do what
other countries have done: we will keep alive the fears of our people
of the aggressive ambitions of other countries and we will ourselves
embark upon imperialistic enterprises of our own.

Indeed,
the creator of the theory of military Keynesianism himself warned that
those who followed such thinking would fearmonger, appeal to patriotism
and get us into wars in order to promote this kind of economic
"stimulus". As The Independent wrote in 2004:

Military-fuelled
growth, or military Keynesianism as it is now known in academic
circles, was first theorised by the Polish economist Michal Kalecki in
1943. Kalecki argued that capitalists and their political champions
tended to bridle against classic Keynesianism; achieving full
employment through public spending made them nervous because it risked
over-empowering the working class and the unions.

 

The military
was a much more desirable investment from their point of view, although
justifying such a diversion of public funds required
a certain degree of political repression, best achieved through appeals
to patriotism and fear-mongering about an enemy threat - and,
inexorably, an actual war.

 

At
the time, Kalecki's best example of military Keynesianism was Nazi
Germany. But the concept does not just operate under fascist
dictatorships. Indeed, it has been taken up with enthusiasm by the
neo-liberal right wing in the United States.

I
disagree that this is a partisan issue. The Independent piece portrays
the "neo-liberal right" as special warmongers; I don't believe there is
much difference with the "neo-liberal left", or "neo-conservative
right", or whatever.
Indeed, political labels are fairly meaningless. What is important is the actions one takes, not his rhetoric about his actions.