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

George Washington's picture




 

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.

 

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Mon, 11/16/2009 - 16:51 | 132283 Anonymous
Anonymous's picture

Dear Brothers and Sisters, Sons and Daughters of Liberty,

There are only two types of human beings.

One type just wants everyone to leave everyone else alone and these humans are students and advocates of the Philosophically Mature Non-Aggression Principle.

The other type refuses to leave others alone and these humans are the Mobocracy Looter Minions with their hords of bureaucrats, jackboots, and mercenaries that perpetuate the perpetration of the loot and booty gravy-train. Rob-peter-to-buy-paul's-vote bread and circuses of the doomed Amerikan Empire.

You are either the one...or the other.

The John Galt Solution of Starving The Monkeys is the only solution. Stop funding and forging your own chains and shackles. What are you leaving for your children, grandchildren, and humanity!?!

The Mobocracy Looter Minions must be allowed to consume everything around them, then each other, and finally themselves. There is no other way. Ayn Rand wrote about it over fifty years ago and it rings as soundly today as it did then.

Get your copy of Starving The Monkeys by Tom Baugh today, before the book is banned and the author is hunted down and Vince Fostered!

Sincerely,
John and Dagny Galt
Atlas Shrugged, Owner's Manual For The Universe!(tm)

http://www.starvingthemonkeys.com/

http://voluntaryist.com/fundamentals/introduction.php

http://marcstevens.net/

http://www.freedomainradio.com/

.

Mon, 11/16/2009 - 10:04 | 131656 CB
CB's picture

George Washington: this piece is linked on strike the root today:

http://www.strike-the-root.com/

Mon, 11/16/2009 - 09:08 | 131629 Anonymous
Anonymous's picture

This is why we have people who live outside "normal" society. If I wind up outliving my wife I will probably become a recluse and not deal with the "outside" world.

We live a brutal system. People care nothing for each other. When was the last time you went to see doctor and were asked how you feel? Most times it's just "do you have insurance"

There will likely be war with China. Our little "strains" in the relationship will get worse I think.

Then it will be time to send the poor and uneducated to spill their blood so that those who started the fight can eat a little better.

Our "leaders" treat us like cattle. And for the most part people accept this and act like cattle. We live under the premise that it is perfectly acceptable to live in fear. We think nothing of waving the flag and going of to deal death to other poor people of the world.

But God forbid we should be asked to pitch in for health care. God forbid the "free market" not be allowed to profit on your suffering and the suffering of your loved ones.

In general people are stupid. And in this country where fear is a commodity to be bought and sold, the citizenry is downright brain dead and spineless. We complain but do nothing. And those that point out the obvious maladies in our system are ridiculed. If I weren't so poor I would indeed move to another country. Probably the Netherlands. They have a much more human centered system there.

Mon, 11/16/2009 - 00:09 | 131478 Privatus
Privatus's picture

Or in other words, how many would sacrifice their children in a preemptive war of aggression in order to "stimulate the economy"?

Sun, 11/15/2009 - 22:28 | 131424 Anonymous
Anonymous's picture

Long term it didn't work in 2002-03 why would it work now?

In 10 years we've increased military spending from $300 Billion over $700 Billion annually, still nada...

Sun, 11/15/2009 - 20:17 | 131355 Anonymous
Anonymous's picture

why would the gov. try to stimulate the economy, when they went to such extremes to drive it into the shitter. do you think that if the gov. wanted to creat jobs, that anything could prevent it. look how much money and support they throw toward preserving their power base. look how long it took to creat a health plan that did not deal with the main problem. the gov. is not the problem solver. they are the problem creaters.

Sun, 11/15/2009 - 20:09 | 131351 sojourner
sojourner's picture

Historically speaking, yes.

Sun, 11/15/2009 - 19:01 | 131320 Anonymous
Anonymous's picture

This is so much liberal BS. First you want to cry baby about GW getting us into Iraq and Afghanistan, and complain about how all of that spending is hurting our economy during this recession. Now you are proposing that the man you elected as President is going to start a war to "help" the economy. Just so much tripe. Besides that no war ever improved an economy. All of the things built for a war do not improve the standard of living. Read a little of Steve Keen ( the Aussie economist) or the Austrian School of Economics.

Sun, 11/15/2009 - 15:54 | 131263 SWRichmond
SWRichmond's picture

Patrick Henry, 5 June 1788, at the Virginia Ratification Debates:

"But we are told that we need not fear; because those in power, being our representatives, will not abuse the powers we put in their hands. I am not well versed in history, but I will submit to your recollection, whether liberty has been destroyed most often by the licentiousness of the people, or by the tyranny of rulers. I imagine, sir, you will find the balance on the side of tyranny. Happy will you be if you miss the fate of those nations, who, omitting to resist their oppressors, or negligently suffering their liberty to be wrested from them, have groaned under intolerable despotism! Most of the human race are now in this deplorable condition; and those nations who have gone in search of grandeur, power, and splendor, have also fallen a sacrifice, and been the victims of their own folly. While they acquired those visionary blessings, they lost their freedom.

Sun, 11/15/2009 - 15:48 | 131258 Zippyin Annapolis
Zippyin Annapolis's picture

The boys need toys and wars are where you get to see who has the neatest new toy.

Sun, 11/15/2009 - 14:08 | 131221 Anonymous
Anonymous's picture

This is something I've been worrying about as the economy tanks. With large numbers of mostly men out of work, the solution is to draft them and send them to war. Otherwise they'll be rioting in the streets as citizens go bankrupt, go homeless, and go hungry. Actually, it's the perfect answer. And this way, the corporations get to steal what's left of our money.

Sun, 11/15/2009 - 14:00 | 131213 Anonymous
Anonymous's picture

It's interesting how many times I have to remind people here that we're currently fighting two wars of greater duration than WWII or the Korean War and soon to rival Vietnam.

In terms of military spending, we're currently spending more than ever before in history in real terms. We've spent more on the current wars than any of the wars mentioned above.

We're debating sending tens of the thousands more troops.

In other words, we ARE at war, so the real question is how the military spending is working as a stimulus right now.

Sun, 11/15/2009 - 13:11 | 131191 Anonymous
Anonymous's picture

what do you think the war in iraq and afghanistan was about? it's the economy stupid. 'terrorism' is just more smoke and mirrors.

that said, defense spending on technology does yield eventual benefits in the private sector, and that technology must be field tested in real wars at some point to double check that it's legitimate and to drive progress. the argument against testing defense technology for the sake of it carrying over to private commercial society is that it's possible most of the technology that would further technological and ultimately economic productivity can just as well from direct private and public educational (non-military) spending.

and that argument certainly holds more water when it comes to talking about particular areas of technology that hold tremendous economic potential, such as biotech. (biowarfare money hasn't , to my knowledge, produced very much of worth toward the end of commercializeable biotech [but i could be wrong in the more myopic notion of what i define as 'contribution'])

still , can you honestly tell me that i would be writing and reading this paragraph on the 'internet' but for the history of military spending on darpa and the resulting military projects that came out , such as 'darpa net'????

perhaps , this is the sad price we must still pay as a semi-developed civilization to get to the point where our economic policy is more directed and less beholden to the historical rules of investing in military technology in order to yield commerical economically valuable civilian use technology.
who knows.

Sun, 11/15/2009 - 20:08 | 131350 Anonymous
Anonymous's picture

yes thegermans made great medical advances, experimenting on helpless civilians in WW11 .how can we know how effective a weapon is if we don't test it to see how effeciently it kills. give me a fucking break. the value of human life is getting as worthless as our dollars

Sun, 11/15/2009 - 12:39 | 131179 Anonymous
Anonymous's picture

Wouldn't it have to be a global conflict on the scale of WWII? If it's regional like our two current bullshit wars than the cost burden is ours to shoulder. Now if we could just convince everyone to wear appropriate uniforms so we knew exactly who's for and against us it would be so much easier. If we were to have a conflict on the scale of WWII think about it the Nuclear Genie is out of the bag the possibility of it not escalating beyond a conventional arms conflict is slim to none. So if it's a non starter who in their right minds would use war on a regional scale for financial stimules. It's done so much for us and were fighting two right now started against two nations who had as nations nothing to with the World Trade Center attacks. It's disheartening to believe that the administration at the time could dumb a whole nation down to their level and make us believe that. The next war will be fought on our own soil against the repression brought on by the greed of the few against the many.

Sun, 11/15/2009 - 11:33 | 131168 phaesed
phaesed's picture

Uhhh, why do you think they gave Obama the Nobel?

This shit has happened before, let's see if it happens again.

Sun, 11/15/2009 - 11:03 | 131160 JacksWastedLife
JacksWastedLife's picture

Civil war...

Sun, 11/15/2009 - 10:58 | 131158 Anonymous
Anonymous's picture

"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."

GW, invite your reader to study history. In every great economic dislocation a war follows.
I'm not sure who will start it but it will happen.
Severity is the open question, IMO.

Sun, 11/15/2009 - 10:23 | 131148 Missing_Link
Missing_Link's picture

You say "warmongering" like it's a bad thing.

Sun, 11/15/2009 - 10:02 | 131144 Anonymous
Anonymous's picture

I thought that was why Buffett was betting on industrial recovery?

Sun, 11/15/2009 - 09:57 | 131137 Nikki
Nikki's picture

Our government tells progressively larger lies with each new regime. It is controlled by wealthy psycopaths pulling the strings of rich narcissist sociopaths. They know no love for any person,  but for money and power. They are a disease in our society...

I hope the next action our military sees is a coup d' tete, here in Washington and New York.

 

 

 

Sun, 11/15/2009 - 09:57 | 131136 Nikki
Nikki's picture

Our government tells progressively larger lies with each new regime. It is controlled by wealthy psycopaths pulling the strings of rich narcissist sociopaths. They know no love for any person,  but for money and power. They are a disease in our society...

I hope the next action our military sees is a coup d' tete, here in Washington and New York.

 

 

 

Sun, 11/15/2009 - 09:54 | 131135 Anonymous
Anonymous's picture

the brief answer to the question is yes!!!

the oligarchs ordered the destruction of the world trade center in a controlled demolition using nanothermite to advance the nazi police state....

if they felt it was in their interests to promote the economy they would definitely start a war....however these scum would use it to advance imperialism more so than the economy as they do not give a rat's ass about americans...

at least some folks are taking to the street to protest this vile government:

http://www.businessinsider.com/protesters-plan-huge-anti-goldman-rally-i...

and for more about destruction of the wtc:

www.ae911truth.org

and for more about the liar barry soetoro:

www.obamacrimes.com

Sun, 11/15/2009 - 07:52 | 131105 THE DORK OF CORK
THE DORK OF CORK's picture

There seems to be a general assumption from the above comments that the USA would win a conflict, be it a expeditionary war or a more general conflict.

The technological gap between the States and its enemys is still a large one but the overall mass of the US defence forces is a shadow of its former self.

If the US was engaged in multiple general and lower intensity conflicts its forces would be very stretched. To get a perspective of the quanity decline of its armed forces you need to look no further then the 60s when the US was engaged in the cold war when it was very hot,the Apollo project and the 500,000 soldiers in the paddyfields of Vietnam.I cannot now imagine the US is now capable of expending such resources given that the procurement of miltary weapons is so corrupt and its leadership so lacking. Indeed the strategic postion of the US is somewhat similar to Germany in the first half of the 20th century where it is being encircled by weaker but growing powers.

If America then wants to retain its hedgemony it will have to act soon for the longer it waits the weaker it becomes and the stronger its enemys.

although in my opinion the wiser option is to accept a lesser role in the world and adopt its older tradition of isolationism.

Sun, 11/15/2009 - 09:30 | 131128 Anonymous
Anonymous's picture

Isolationism is the wrong. Non-interventionism is the preferred choice. Isolationism implies no trade. I want trade with other countries but I don't want us telling them what to do.

Sun, 11/15/2009 - 12:52 | 131183 THE DORK OF CORK
THE DORK OF CORK's picture

At the moment the US is incapable of having free trade with its mercantile neighbours.

40 years of moneterist policeys have destroyed its industrial base.It would be wise for the states do use its natural advantages and avoid free trade with countrys that have increased there capital structure exponentialy during those wasted years.It still will have miltary superiority for one maybe two decades and could use that force to deter those other countrys from expanding into its smaller sphere of influence. 20 years should be enough time to animate its schools and colleges and produce the engineers,farmers scientists of tomorrow - then it could relax its trade policey

But at the moment this is a very academic discussion since there is no clear chain of command in your country and in that power vaccum lies corrupt,inept and immoral leadership.

 

Sun, 11/15/2009 - 07:50 | 131104 Anonymous
Anonymous's picture

Vietnam has the 2nd largest bauxite aluminum deposits in the world.

Sun, 11/15/2009 - 05:08 | 131083 amanfromMars
amanfromMars's picture

George, It really does beggar belief, that in a creative world of infinite options, a past failed and catastrophically destructive sworn enemy of peace and freedom derivative in MADness, would be even considered for stimulation of economy. Such is AAA Certified Terrorism and shows a Complete Absence of Intelligence and would also surely be a Criminal Abdication of Government Duty which would have one able to Cite Charges of Gross Collusion and Wanton Conspiracy to Commit Acts of a Perverse and Subversive Treason against the Human State.

The problem for war-mongers and warmongering nowadays, is that the persons/individuals involved in calling for wars, rightly become legitimate targets for clinical liquidation and/or and public pursuit for criminal prosecution, as they are surely closet terrorists of the worst kind.[Hiding in full sight within] And there are whole armies of terrorised and traumatised troops, fully mindful and experienced in the long sufferings caused by war, with all the necessary specialist knowledge and logistical support skills, to carry out any kind of desired operation which would easily take over and take away Command and Control from any and all such ignorant and arrogant markets controlled puppets, who would tout wars as an economy saving tool, and they would have the global support of all peoples behind and supporting them.

But hey don't just ask me, ask Mr Tony Blair what it's like to be dodging around the world looking for a safe haven where he is not feted as a pariah, sought out to stand trial for sending a nation to war on a false premise with a trumped up prospectus.

The world is a lot smarter than ever it was before, and getting smarter, and virtually smaller too nowadays, as information and/or intelligence flashes around the globe in an instant and at the click of a mouse, and nothing can now be done without you having to be able to stand up and be counted/justify and explain your every thought which leads/led to an action, for all have, along with their intended consequences, myriad unintended consequences and to intend to do destructive and lethal harm in the full knowledge that there will be the untold suffering of thousands and hundreds of thousands and millions of fully innocent civilian victims, is a Crime against Humanity and a Genocidal Act with No Hiding Place in Modern Intelligent Society...... No Possible Sanctuary.

:-) And thanks for the warm welcoming email Zero Hedge and here's hoping this inclusion is also true, rather than just pie in the sky spin to keep the natives from revolting  ..."For whatever reason, you thought it wise to register at zero hedge. I hope you know that Tim Geithner will now personally get a copy of the signals intelligence feed on your internet connection."   

Sun, 11/15/2009 - 03:54 | 131079 bullchit
bullchit's picture

Some people just ask for war.


'Iran rejected nuclear deal, Obama postponing announcement'

http://www.jpost.com/servlet/Satellite?cid=1258027287028&pagename=JPost/JPArticle/ShowFull

Regards.

Sun, 11/15/2009 - 11:40 | 131171 Emmanuel Goldstein
Emmanuel Goldstein's picture

Something you seem to be ignoring:

Iran is a signatory to the NPT and as such has the absolute RIGHT to pursue peaceful nuclear technologies regardless of what ever huffing and puffing the western nations want to do.

Since the IAEA and the CIA have already proclaimed their program to be non military in nature they are under NO obligation to even entertain US demands about their programs.

Or is this something that is too clear cut and easy to understand for you to get?

Sun, 11/15/2009 - 03:19 | 131073 Anonymous
Anonymous's picture

On the killing of the young sons and daughters of the non-elite I highly suggest "The Culture of Contentment" by John Kenneth Galbraith. He points out that less than 1% of all the armed forces servicemen/women come from upper middle class. He also talks about the CEO-common worker disparity and how badly it had changed from the early 80s to the early 90s, nonetheless compared to now. It came out in '93 which was about 15 years too soon, since he also predicted a general uprising of the lower classes to elect a non-traditional leader to the white house. Unfortunately he couldn't have predicted how harmful such a thing might end up being.

Sun, 11/15/2009 - 02:12 | 131065 Anonymous
Anonymous's picture

There will be a war but not because we need to stimulate the economy. There will be a war because deflationary forces create unemployment at the same time that it curtails tax revenue for government.

Mike Shedlock puts out a great summary (not exhaustive) of the illegal shenanigans our governments are tolerating and or colluding in and outlines the basis for what should be public outrage but is not… yet. Mike Shedlock does not go as far as predicting a global conflict. I do. Here’s why:

The defining characteristic of fiat money is inflation. One of the characteristics of inflation is that it brings forward and compresses in time the demand and production cycles. The other characteristic of inflation is that it is exponential in nature thus limited mathematically. Thus, as the inflationary dynamic progresses and as the "beneficial" effects wane, governments have a vested interest in goosing inflation by any means possible. Initially government intervention will be benign if border line legal but, as the end approaches, government has a vested interest in tolerating if not colluding in practices that contradict the letter of the law. Thus, along the inflationary trajectory, government gradually becomes a larger actor in the economy.

http://mwhodges.home.att.net/piechart.htm

Towards the end of the inflationary dynamic you have excessive industrial capacity, low interest rates, excessive debt and low pricing power.

Keep that in mind.

The only reason the West will engineer a war is because the coffers are empty. The coffers have been empty for decades; the difference now is that for as long as a government is able to generate inflation, then you can borrow and spend thus maintaining the appearance of solvency (think of the pension trust fund that has been spent for example). However, inflation has a mathematical limit. Essentially, when interest rates are approaching zero and your entire issue of government securities (or your tax revenue) goes towards servicing the debt, you no longer can borrow.

Printing money is a solution IF the money circulates and performs its multiplier duty on the expansion of GDP. But if it doesn’t, then all you are doing is destroying the currency.

http://research.stlouisfed.org/fred2/series/MULT

Keep that in mind too.

Now!

One of the more insidious characteristics of deflationary recessions is that as unemployment rises, social costs go through the roof. However, government tax revenue drops dramatically (because of forced liquidation of which more later). So, governments have to cut back on social expenditure just at the time that unemployment is rising.

The other characteristic of deflation is that it forces a liquidation of assets thereby decreasing nominal earnings and the nominal value of balance sheets. The direct result is that all pyramid schemes and illegal finance arrangements are blown out of the water.

Therefore, we will have rising unemployment and a reduction of social expenditure at a time when many politicians and select members of the business elite will be implicated in scandal after scandal; and trust me, we are not done finding out about illegal or criminal activity in that realm. I know this because as the beneficial effect of inflation pumping wanes, government has a vested interest in aiding, abetting and colluding in criminal action (Fannie Mae… the banks... ).

http://globaleconomicanalysis.blogspot.com/2009/10/where-hell-is-outrage...

http://market-ticker.org/archives/1514-Tying-It-Together-Massive,-Pernic...

The unemployed, the retired and the students will not take well to the new juncture and civil disorder will follow in short order.

Civil disorder means that governments will fall.

Politicians in the West, sitting on their moral high horses as they do, are not about to relinquish power and they are certainly not about to admit that they are no better than your garden variety Mugabe.

Before enough unemployed will be roaming the streets looking for some politician to lynch, we’ll have us a world war.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a6QpSf.s4NaA

It’s been done before for exactly the same reasons. There is absolutely no reason why it should not be done again.

We don’t need resources. In a first instance, we need to divert the attention of the angry masses and channel their anger away from our governments. In a second instance, we need to destroy plenty of infrastructure and wipe out significant chunks of our debts so that we may restart the inflation dynamic. No inflation = government default

Below is the link to Mike Shedlock’s post

http://globaleconomicanalysis.blogspot.com/2009/10/where-hell-is-outrage...

Sun, 11/15/2009 - 07:33 | 131103 Anonymous
Anonymous's picture

+1

An Excerpt from "Political Observations" by James Madison ... War is in fact the true nurse of executive aggrandizement.

Sun, 11/15/2009 - 01:48 | 131061 Anonymous
Anonymous's picture

Even a 5 year old knows the economy can not be stimulated by going to war. World War II was a much dire period for the acerage maerican than the 30's. Every sane economist knows this.

Why is this stupid topic discussed?

Sun, 11/15/2009 - 01:04 | 131048 FischerBlack
FischerBlack's picture

Three words:

Broken Window Fallacy

Sun, 11/15/2009 - 03:35 | 131077 mojine
mojine's picture

Broken window fallacy, precisely - and precisely because it is a fallacy, you can bet on our government to pursue it.

Sun, 11/15/2009 - 00:53 | 131044 Andrei Vyshinsky
Andrei Vyshinsky's picture

And the saddest part of this piece is the fact that it never once questions whether military spending to stimulate the economy is right or moral, but rather whether it "works" from some twisted pragmatic perspective. What we have here is the same perverse logic - and issuing from many of the same people - that characterized the debased recent public discussion about the efficacy of torture. What mattered to most was whether it, too, "worked". The naivete manifest in such attitudes is neigh-on stupifying. Are the authors of these commentaries so debased as to be oblivious of the fact that all such questions exist within a moral framework? Are we always to be led by schmendriks? One now sees why it is said that those the gods wish to destroy they first make mad.

Sat, 11/14/2009 - 23:08 | 130997 Anonymous
Anonymous's picture

Economic collapse ALWAYS precludes major war .

Sat, 11/14/2009 - 22:48 | 130989 Anonymous
Anonymous's picture

I think the one person who said pakistan is our biggest problem is correct if taliban or al quida gets there hands on mobile nuke device there will be a big big problem.We have to either take these toys away for good or keep playing this cat and mouse game.

Sun, 11/15/2009 - 06:55 | 131095 Anonymous
Anonymous's picture

..or assure that they get their hands on nuclear devices to provide our reason for going to war with them.

Sat, 11/14/2009 - 22:27 | 130979 Marley
Marley's picture

And whosoever diggeth a pit
Shall fall in it

Sat, 11/14/2009 - 22:17 | 130974 milbank
milbank's picture

Of course they would.  Every war we've been in was based on economics.  The social reasoning is what is fed to Joe and Jane to make it palatable.

Sat, 11/14/2009 - 21:35 | 130949 Anonymous
Anonymous's picture

One can recognise US foreign policies of the
last 200 years by 1. self interest-only and 2. total lack of
compassion.
It is nr 2 that drove people to fly into a building.
So, the answer is that "self interest" (to get out
of the financial mess) is not enough to start a war.

Sat, 11/14/2009 - 21:11 | 130936 Anonymous
Anonymous's picture

Starting a war to increase demand is only half the equation - the other reason to start a war is to destroy supply. WW2 wiped out the US's European competitors and any Roaring 20's debts that had not already succumbed to local hyperinflation. Except in Britain, which exhausted herself in the war and was neither forgiven her debts to the US nor given Marshall Plan aid in return.

Who needs to increase the size of the cake overall if you are left holding the last slice for sale (and you borrowed the purchase price from someone who's died)?

Sat, 11/14/2009 - 20:46 | 130917 Racer
Racer's picture

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

 

YES

Sat, 11/14/2009 - 20:29 | 130905 deadhead
deadhead's picture

I still think the biggest foreign threat for the USA is Pakistan.  IF the tally/al q camp snatch one or two of those nukes (i think there are around 80ish?, mostly mobile), it's a whole new ballgame.

I'm of the opinion that there is a 90% chance that tally/al q obtain the nukes absent intervention.

Sat, 11/14/2009 - 20:27 | 130903 Miyagi_san
Miyagi_san's picture

Wars feed manufacturing which in turn feed campaign contributions. So again the taxpayer foots the bill for a corrupt political hierarchy. Self promotion until the next election cycle then blame others for their misgivings. (as Dick Cheney would say, "I can't recall")

Sat, 11/14/2009 - 20:04 | 130886 Mr.Kowalski
Mr.Kowalski's picture

With Obama large and in charge, I highly doubt we would be the ones to start one; I see him as having a distaste for wars. Besides, would'nt one of the economics gurus bother to tell him that $150/bbl crude would be a huge drag on the economy if it were to last more than a few months ??

Which is better.. building a plant that produces machinery that can be exported for decades or a couple F22's to sit in a heated hanger whilst we pay people to do maintenance on it ??

Sun, 11/15/2009 - 07:06 | 131098 Anonymous
Anonymous's picture

The U.S. hasn't as actually 'started' any war. We have always intervened after someone else has begun a war.

That's what the NSA and CIA exist for: to de-stabilize other countries to provide our Superman entry into a war.

These people are far more devious than you seem to give them credit for.

Sat, 11/14/2009 - 22:26 | 130978 milbank
milbank's picture

Fascinating take considering Mr. Obama is already running two wars, one of which, he's about to expend more 30,000 more troops on.  Obama isn't as different from the conventional politician/office holder as he has touted himself to be.

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