Military Keynesianism is an economic policy based on the position that government should raise military spending to boost economic growth. It is a fiscal stimulus policy as advocated by John Maynard Keynes. But where Keynes advocated increasing public spending on socially useful items (infrastructure in particular), additional public spending is allocated to the arms industry, the area of defense being that over which the executive exercises greater discretionary power. Typical examples of such policies are Nazi Germany, or the United States during and after World War II, during the presidencies of Franklin D. Roosevelt and Harry S. Truman. This type of economy is linked to the interdependence between welfare and warfare states, in which the latter feeds the former, in a potentially unlimited spiral. 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]
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.[4]
Noam Chomsky, a critic of military Keynesianism, contends that military Keynesianism offers the state advantages over non-military Keynesianism. Specifically, military Keynesianism can be implemented with less public interest and participation. "Social spending may well arouse public interest and participation, thus enhancing the threat of democracy; the public cares about hospitals, roads, neighborhoods, and so on, but has no opinion about the choice of missiles and high-tech fighter planes." Essentially, when the public is less interested in the details of state spending, it affords the state increased discretion in how it spends money.[5]
Much of the Third Reich economy was oriented towards militarization, especially to prepare for a possible war with the Slavic nations, rather than in the production of consumer goods or towards commercial expansion. Nevertheless, the concentration of capital in the arms industry had favored a rapid expansion of German industrial capacity and helped to reduce unemployment rates.
In the United States this theory was applied during the Second World War, during the presidencies of Franklin Delano Roosevelt and Harry Truman, the latter with the document NSC-68. The influence of Military Keynesianism on US economic policy choices lasted until the Vietnam War. 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 could be used "in the interests of peace and prosperity" instead of "war and destruction".[6] An example of such policies are the Public Works Administration in the 1930s in the United States.
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.[6]
While the idea dates back to Keynes, a similar term is often attributed to Barney Frank, and seems to have been first used around funding the F-22 fighter:[7]
The following forms of military Keynesianism may be differentiated:
The concept of permanent war economy originated in 1945 with an article by Trotskyist[8] Ed Sard (alias Frank Demby, Walter S. Oakes and T.N. Vance), a theoretician who predicted a post-war arms race. He argued at the time that the United States would retain the character of a war economy; even in peacetime, US military expenditure would remain large, reducing the percentage of unemployed compared to the 1930s. He extended this analysis in 1950 and 1951.[9] In 1974, this idea was expanded on by Seymour Melman in the book “The Permanent War Economy: American Capitalism in Decline” where Melman describes the downside of having a permanent war economy as “sustained nonproductive use of capital and labor.[10] ” Melman goes on to observe that because this issue “is not unique to the United States[11] ” that “It is shared by all states that try to sustain permanent war economies[12] .” Melman argues that most of the military production is unnecessary and drains the talents of highly skilled workers due to politicians attempting to create a powerful influx of jobs in their districts, and because of this, most military production is in place to create jobs instead of adding to public safety. Melman suggests that the large sum of money allocated towards unnecessary military spending would be put to better uses by maintaining or improving domestic infrastructure to have an active positive benefit to society.
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.
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. 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.