What do the war in
The war has been a large part of the justification for the Bush administration to run ever-widening budget deficits, and those deficits, predicated largely on military spending, have in turn pumped money into the economy and provided the stimulus that low interest rates and tax cuts, on their own, could never achieve.
The result, according to economists, is a variant on Keynesianism that has particular appeal for Republicans. Instead of growing the government in general – pumping resources into public works, health care and education, say, which would have an immediate knock-on effect on sorely needed job creation – the policy focuses on those areas that represent obvious conservative and business-friendly constituencies. Which is to say, the military and, even more specifically, the military contractors that tend to be big contributors to Republican Party funds.
“It may be very inefficient and obviously not fair, but it is nevertheless causing almost 5 per cent more money to be pumped into the economy than is being taken out in tax revenues,” observed Robert Pollin, professor of economics at the
During the second quarter of 2003, when the war in
A smaller proportion of the roaring 8.2 per cent growth recorded for the third quarter was directly attributable to the military, but Professor Pollin and others argue that it is still the military that is driving the deficit, and the deficit – budgeted at about $500 billion (£270bn) for next year – that is driving the recovery.
Just last month, the Pentagon awarded a $4 billion contract to
The Bush administration itself prefers to attribute the recovery to its tax cuts, targeted disproportionately towards the richest Americans. Many non-administration economists, however, say this is nonsense, and that the tax cuts are far more political than they are stimulative. A more significant role has been played by buoyant household spending, helped by low mortgage interest rates which have inspired many homeowners to borrow against the rising value of their properties. But there are signs that interest rates are now on their way back up and that the refinancing fad has ended.
“The administration is conducting a highly irresponsible fiscal policy, and there is no legitimate economist on the face of the earth who doesn’t say the tax cuts are just loony,” said Kent Sims, a
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
Ronald Reagan famously resorted to deficit spending, using talk of the Evil Empire and communist threats from
The corollary of the Reagan military boom was a sharp cutback in social spending, something that was not reversed under Bill Clinton and is now back on the agenda with George Bush. State and local budgets are all in crisis because of the recession of the past two years. The fact that the White House is not using federal dollars to help them finance schools, hospitals and police forces hurts all the more because these things have now been underfunded for a generation.
The Bush deficit has not yet reached Reaganesque proportions (it stands at roughly 4.5 per cent of GDP). But Professor Pollin, for one, predicts that the resulting debt burden could rapidly rise to the levels seen in the 1980s, with interest repayments eating up as much as 18-19 per cent of the overall federal budget.
Professor Pollin does not share the
“The long-term effects of military Keynesianism are obviously negative on public infrastructure, health, education and so on, and there are limits on how long you can keep it up,” he said. “What we borrow we will eventually have to pay back, with interest.”