Has military Keynesianism come to an end?

By Nicholas Wapshott
March 15, 2013

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?

Nicholas Wapshott’s Keynes Hayek: The Clash That Defined Modern Economics is published by W. W. Norton. Read extracts here.

PHOTO: U.S. President Barack Obama speaks at Newport News Shipbuilding in Newport News, Virginia February 26, 2013. REUTERS/Kevin Lamarque

9 comments

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Nice to see the plain, unvarnished truth for a change.

Ryan and his ilk are attempting to persuade the problem is “entitlements” — which, if you remember, used to be a good thing before these people started their devious propaganda campaign — but the real problem is exactly what a former president, Dwight Eisenhower, warned the American people against when he was leaving office in 1961. That is 52 years ago, before the full effect of the Pandora’s Box of the Military-Industrial Complex was open to anywhere the reality of what it is today.

Contrary to what Ryan is attempting to sell the American people, ALL of our present problems can be traced directly to the rise of the Military-Industrial Complex.

If we let Ryan sell us a “bill of goods” that it is the “entitlement” programs — Social Security (which is actually self-funded, but used as a “slush fund” by the government, mainly for miltiary expansion it could not otherwise afford), Medicare and Medicaid (two social programs that were added by Johnson without ANY separate funding for them at all, and are the main reason Social Security is in trouble) — are the problem, this country will collapse economically.

Without these social programs — which are actually already far below the standards of ANY other OECD country — many people will lose everything they have, with no recourse except to either become homeless or die or both.

Ryan is not selling a rational plan for the future of this nation. Ryan is selling a plan to keep the Military-Industrial Complex from collapsing, because we can no longer afford to maintain an economy based on war.

THAT is the problem. This country has literally been “at war” since the end of WWII, and the “war” has expanded exponentially. It is a well known fact that war begets excessive profits and creates a blight on society called “war profiteering”.

THAT is what we have become, a society of war profiteers and “merchants of death”.

THAT is what we must reduce in our budget — the wages earned from war profiteering!

Granted that capitalism and free trade is the most effective economic system ever invented, we need to realize that our highly effective system of free enterprise has morphed into a self-destructive war machine that continually demands more of society to keep it oiled with the blood of innocent victims.

Do we want the Military-Industrial Complex to consume our own society, especially those who are unable to care for themselves?

THIS is what Ryan and his ilk are arguing for! The simple truth is Ryan’s path leads to self-destruction.

Ryan is a “merchant of death” peddling his “wares” to anyone who cares to believe his lies.

We MUST say NO to Ryan and stop the insanity!

Posted by PseudoTurtle | Report as abusive

We’re talking a 4% reduction in Defense spending. That’s hardly a crashing stop to a decades long spending spree.

But, as the the old joke about “What do you call a plane load of lawyers crashing into the ocean?”…It’s a start.

Posted by CaptnCrunch | Report as abusive

The quiet emanating from the defense contractors may simply be a tactic to sit back and wait. They know that cancelling contracts will pay them huge penalties. And while small contractors distributed throughout the States may suffer, the major ones won’t. And fear is a powerful weapon, as already seen by the deployment of anti-missile defenses to Alaska, at the tune of over $1 billion.

And the Paul Ryan budget spares the defense department.

And you will have Generals and Admirals, looking ahead to their next gig in the defense industry after retirement, parading before Congress warning of dire consequences of cutting back on the programs they have a vested interest is seeing continue.

This is just a pause. The Tea Party will fade, but the defense-industrial-Congressional complex won’t.

Posted by pavoter1946 | Report as abusive

We certainly need an adequate Department of Defense.

But what we do not need is a absurd expansive definition of “defense”. The real job of DoD is to defend the USA from direct attacks by identifiable enemies that are nation-states. It is not to maintain any particular foreign regime or potentate in power. If they cannot stand on their own that is their problem, not mine. Not ours. We are not and should never again be the “policeman” of the planet. Nor should we prefer to send our resources both financial and human abroad to spending them here at home. We should maintain no foreign bases, none at all. We should not deploy troops abroad other than in time of declared war against a nation state with defined boundaries. Declarations of war should be confirmed by direct popular vote annually or expenditures and deployments must cease immediately.

Stop this un-American insanity.

Posted by usagadfly | Report as abusive

Social Security or a Tank? Hummmmm?

Not a tough choice for me.

“F” the Military.

Don’t touch SS or Medicare/Medicaid.

Posted by Foxdrake_360 | Report as abusive

Unfortunately the sequester only puts a mere dent in the deficit. In order to stabilize US finances over the long haul more drastic measures are needed. These defense cuts are unwise in their manner of implementation, not the size. To do all the cuts on the DOD would be devastating. As would to do it all through tax hikes, or through entitlements. Only a balanced approach can deal with the problem. And the problem only gets worse over time. Deal with it now while the cuts are painful, rather then later when they are crippling. Its about taking a long view and preparing for the future. I’m in my twenties, and I need this country to keep going for a long time, and I’d like the generations that come after me to have a better one, unlike the mess the baby boomers gave us.

Posted by agsocrates | Report as abusive

From the wiki on the DOD budget

“The US Government Accountability Office (GAO) was unable to provide an audit opinion on the 2010 financial statements of the US Government because of ‘widespread material internal control weaknesses, significant uncertainties, and other limitations’.[15] The GAO cited as the principal obstacle to its provision of an audit opinion ‘serious financial management problems at the Department of Defense that made its financial statements unauditable’.[15]”

If fixing that means I join the teaparty, so be it.

Posted by ARJTurgot2 | Report as abusive

THE BIG LIE, everywhere, ignorant journalists, pudits, news organization is that the military budget is going to be cut. NOPE. Only the RATE OF GROWTH is going to be cut. Even Rush Limbaugh admits that.

Posted by doren | Report as abusive

Since 1936 when our defense industry took considerable control of our government, followed by more control from special interest groups & PAC’s, we are now a much less ‘democratic’ country than China, where big industries have been “China’s Communist Party’ itself, their government.

While China has been slowly ‘democratizing’ we have been going in the opposite direction.

We need to clean up the profiteering criminals that have invaded our government.

Posted by EthicsIntl | Report as abusive