Has military Keynesianism come to an end?
The outcome of the sequester ultimatum appears to have taken everyone by surprise. Two long summers ago, when the president and House speaker John Boehner conjured a prospect so terrible that even spending on defense would be deeply cut, they both assumed Congress would buckle rather than approve such a blow to the nation’s pride. According to Bob Woodward’s The Price of Politics, Boehner said, “Guys, this would be devastating to Defense. This is never going to happen.”
But neither man appears to have taken account of the clearly stated views of the Tea Party. There are few better ways of appreciating how the Republican Party has transformed in the last two years from a party of defense hawks to a party of deficit hawks than tracking how the sequester has turned from a threat to the nation’s defenses to an unparalleled opportunity to bring the government to heel.
If Obama and Boehner had taken heed of the strident voices offstage, they might have guessed their ostensibly idle threat to the Pentagon would be taken as a chance to reduce the size of the federal government. They didn’t, and the sequester is upon us, promising, according to the Central Budget Office and IMF, to throw 750,000 out of work and slow down already anemic economic growth by 0.6 points. No surprise there: If you take money out of an economy, activity flags and the economy shrinks.
What is surprising about the Tea Party calling the sequester bluff is not so much that fiscal conservatives are doing just what they said they would – one thing about a short, simple, absolutist dogma is that the slightest departure from the true creed is readily observable – as the quiet emanating from the defense industry, the defense hawks in Congress, the defense unions and the defense lobbyists. The whole panoply of vested interests surrounding defense that has ensured that federal spending on guarding our shores and keeping tyranny at bay has, since Eisenhower, become the main Keynesian engine of economic growth. Does the hushed response to this most profound assault upon defense spending mean the end of Keynesian militarism?
Keynes, long dead before American defense hawks adopted him as their patron saint, offered few views on whether spending on war was an appropriate use of his remedies for boosting economic activity. He had jokingly advocated absurd and wasteful ways of spending public money to increase demand, including filling bottles with bank notes, burying them in a hole, then paying others to dig them up. But as someone who helped the British Cabinet run the ruinous and murderous World War One, Keynes knew that spending on war was hardly as beneficial to society as building new roads and homes. But in the midst of a collapse in aggregate demand, any large-scale spending, including on war materiel, is welcome. In 1939, as Congress was granting Franklin Roosevelt billions to arm America for war against the Axis dictators, Keynes wrote, “If expenditure on armaments really does cure unemployment, a grand experiment has begun. We may learn a trick or two which will come in useful when the day of peace comes.”
When peace came in 1945, Keynesianism was all the fashion in the West. It was believed the vast amounts spent on warfare had cured the Great Depression and incidentally proven that Keynesianism worked. It was soon agreed that permanent war was too high a price to pay to correct an economy in the doldrums, and that more pacific Keynesian remedies should be used to perpetuate the boom in peacetime. But war was to play a big part. In the face of fiscal conservatives, Keynesian hawks pressed for vast spending on defense to save the West from communism. When Marxism-Leninism finally collapsed in the early Eighties, new enemies were quickly identified to justify America’s remaining the best- and most expensively armed nation in the world, spending more hard cash than the next 12 countries combined.
Obama inherited an annual defense budget that rose precipitously under George W. Bush, from $400 billion to $700 billion. It now stands at nearly $800 billion (and is larger than that when military expenditures outside the Defense Department are included). The sequester demands that $46 billion be cut from defense without delay. The Pentagon was so sure the Keynesian militarists would step in and maintain spending levels, it did not even start considering what could be cut until December. Big defense contractors like Lockheed also took the threat to their revenues lightly, insisting until the last moment that “the automatic and across-the-board budget reductions under sequestration are ineffective and inefficient public policy that will weaken our civil government operations, damage our national security, and adversely impact our industry.”
After the Tea Party new guard stared down the old school leadership over a sequestration deal, the draconian cuts were reclassified. No longer were they an unthinkable assault on American military strength but a rare chance to achieve a noticeable reduction in federal spending. The ball has now passed back to the president, who favors deep defense cuts and has picked Vietnam vet Chuck Hagel to implement them. Hagel is on a mission.
He has already condemned as “astounding” the “abuse and the waste and the fraud” at Defense and has promised to burn off the “tremendous amount of bloat in the Pentagon.” He fired across the Keynesian hawks’ bows when he declared, “The Department of Defense … always gets off by saying, Well, this is national security; you can’t touch national defense. Well, no American wants to in any way hurt our capabilities to national defense, but that doesn’t mean an unlimited amount of money and a blank check for anything they want at any time, for any purpose.”
In an ideal world there would be a thorough, bottom-up defense review to ascertain America’s defense needs in the decades ahead, then identify what is no longer needed on voyage. In real life, the cuts will be made piecemeal, targeted but haphazard. Every state that contains a defense facility or defense related industries – that is, every last one — is under notice that brutal job cuts are on their way.
If you broaden defense to include the FBI, Homeland Security, Veterans Affairs, NASA, and the rest, it is a trillion-dollar industry, spending more than Social Security, and costing more than Medicare and Medicaid combined. Defense cuts will be painful and politically explosive. Over decades, companies like Lockheed have deliberately spread their plants across every state in the union against the day defense spending would become a partisan political issue. The GOP leadership appears to have made a double blunder: They have invited the axman to cut a departmental budget that would best be done by a scalpel; and they have handed the president an unprecedented means to demonstrate, state by state, or even city by city, the misery of unemployment caused by large-scale public sector cuts. If Obama’s aim is to ensure the election of a Democratic House in 2014, he could have been given no more devastating tool than deep discretionary cuts to a traditional Republican constituency.
It is unlikely the Keynesian hawks will be silenced for long. You can’t easily bring to an end a spending spree that has been going strong since 1936. There will be considerable pain, with protests over closures, cancelled projects and job losses. The sequester threat gave the Tea Party a choice. They chose cuts and will have cuts aplenty. They will no doubt both take and be given full credit for their handiwork. The rest of the nation will be offered a rather different choice: Would you prefer to shrink the vast empire of defense, with all its wasteful ways and expensive toys, or take a knife to Medicare and Social Security?
PHOTO: U.S. President Barack Obama speaks at Newport News Shipbuilding in Newport News, Virginia February 26, 2013. REUTERS/Kevin Lamarque