Military Keynesianism

Military Keynesianism is the position that government should raise military spending to boost economic growth. The term is often used pejoratively to refer to politicians who apparently reject Keynesian economics, but use Keynesian arguments in support of excessive military spending.[1][2][3]

Keynesian economics

Keynesians maintain that government spending should first be used for useful purposes such as infrastructure investment, but that even non-useful spending may be helpful during recessions. John Maynard Keynes advocated that government spending be used "in the interests of peace and prosperity" instead of "war and destruction".[4] 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.[4]

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.

Forms

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.[1]

Empirical estimates

Many economists have attempted to estimate the multiplier effect of military expenditures with mixed results. A meta-analysis of 42 primary studies with 243 estimates concluded that military expenditures tended to increase the economy in developed countries with military exports but decrease the economy in less developed countries with generally higher level of political corruption.[5]

Externalities

Externalities are rarely if ever considered in estimating a multiplier effect. This can be a serious issue for military expenditures. For example, the Islamic State of Iraq and the Levant (ISIL) relies mostly on captured weapons. For example, in Mosul between 4 and 10 June 2014 a group of between 500 and 600 ISIL troops "were able to seize six divisions' worth of strategic weaponry, all of it US-supplied" from a force with a paper strength of 120,000 men.[6][7][8] In considering the multiplier effect of military expenditures, the people killed and property destroyed are not considered. The only things that are considered are the increased weapon sales to replace those stolen and the costs associated with combatting ISIL. Those are considered as increasing the Gross Domestic Product of the United States, and that is assumed to be good.

See also

Notes

  1. 1 2 Custers, Peter (2010). "Military Keynesianism today: an innovative discourse". Race & Class. Institute of Race Relations. 51 (4): 79–94. doi:10.1177/0306396810363049.
  2. ↑ Veronique de Rugy (December 2012). "Military Keynesians". Reason magazine. Reason Foundation. Retrieved 2 February 2013.
  3. ↑ Krugman, Paul (2009-06-24). "Weaponized Keynesianism". New York Times. Retrieved 26 January 2015.
  4. 1 2 Keynes, John Maynard (1933). "An Open Letter to President Roosevelt". Retrieved 2011-08-01.
  5. ↑ Awaworyi, Sefa; Yew, Siew Ling (2014), "The Effect of Military Expenditure on Growth: An Empirical Synthesis" (PDF), Discussion paper 25/14, Department of Economics, Monash U., 14 (15), retrieved 2017-03-15
  6. ↑ "5. 2009–2015: Syria uprising and ISIL in Syria", Enemy of Enemies: The Rise of ISIL, 2015, retrieved 2015-11-27
  7. ↑ Astore, William J. (2014-10-14), Tomgram: William Astore, America's Hollow Foreign Legions – Investing in Junk Armies, TomDispatch.com, retrieved 2014-10-16
  8. ↑ "2. 2004–2006: Abu Musab Al-Zarqawi Emerges", Enemy of Enemies: The Rise of ISIL, Al Jazeera, 2015, retrieved 2015-11-27
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