Military Keynesianism

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Military Keynesianism is a government economic policy in which the government devotes large amounts of spending to the military in an effort to increase economic growth. This is a specific variation on Keynesian economics, developed by English economist John Maynard Keynes. Instances commonly supplied as examples of such policies are Germany in the 1930s and the United States in the 1980s, although whether these assessments are accurate is the subject of vigorous debate.

1 Economic Effects
2 Criticisms
3 Examples of Military Keynesianism
4 See also
5 External links

[edit] Economic Effects

The economic effects advanced by supporters of Military Keynesianism can be broken down into four areas, two on the demand side and two on the supply side.

On the demand side, increased military demand for goods and services is generated directly by government spending. Secondly, this direct spending induces a multiplier effect of general consumer spending. These two effects are directly in line with general Keynesian economic doctrine.

On the supply side, the maintenance of a standing army removes many workers, usually young males with less skills and education, from the civilian workforce. This demographic group ordinarily faces an especially high level of unemployment; some argue that drawing them into military service helps prevent crime or gang activity. In the United States, enlistment is touted as offering direct opportunities for education or skill acquisition, possibly to target this demographic.

In this sense, the military might act as an employer of last resort – it is an employment opportunity which tends to hire from the bottom (least qualified) part of the workforce, provides a decent standard of living, serves a useful social purpose, and offers jobs regardless of the state of the general economy.

Also on the supply side, it is often argued that military spending on research and development (R&D) increases the productivity of the civilian sector by generating new infrastructure and advanced technology. Frequently cited examples of technology developed partly or wholly through military funding but later applied in civilian settings include radar, nuclear power, and the internet.

[edit] Criticisms

The primary criticism of Military Keynesianism faults not its economic intuitions but adverse social effects. Many assert that the maintenance of large peacetime armies and growth of military spending will lead a nation into war, while also encouraging militarism and nationalism. These critics often attack the argument that the military prevents young men from sinking into crime by claiming that many soldiers who return from war are worse off physically or mentally than they would have been as an unemployed person at home.

A similar critique is that military Keynesianism accelerates the growth of a military-industrial complex – industrial sectors largely dependent on military spending. Because the military-industrial complex is a large employer and constitutes a significant fraction of aggregate demand, it is politically difficult for the government to reduce deficit spending. The end result of this, it is feared, is a cycle of constant war and continually high military spending.

Other critics point out that while military R&D can sometimes find later application in civilian industries, it is less efficient than simply researching civilian applications directly. Many point to the recent examples of Japan and Germany, economies which have had great success in developing new technology despite low military spending compared to nations like the United States.

One of the central economic critiques of Military Keynesianism is known as the broken window fallacy. Based on a parable by the 19th century French economist Fredric Bastiat it points out that if a person broke a window in a bakery then some people could argue that it was a benefit to the town, as it would provide a job for a glass maker, who would then buy more from the clothes maker and so on. Bastiat pointed out that this is deceptive and illogical reasoning, as it ignores what the baker would have bought had he not been forced to buy a new window - it ignores, in modern economic terminology - opportunity cost. Military Keynesianism fails to take into account opportunity cost - ie. what those soldiers would have been doing in the absence of being a soldier and also ignores what arms companies could have been making instead of materiel.

Another economic critique of Military Keynesianism is based on a rather obvious observation - military spending comes from general taxation. It requires high levels of taxation to fund military spending, and that taxation must come from the productive sectors in the economy, thus being a long term drag on economic growth (this is one of the central criticisms of Keynesianism in general).

Some critics, and even some supporters, contend that in the modern world, these policies are no longer viable for developed countries because military strength is now built on high-technology professional armies, and the military is thus no longer viable as a source of employment of last resort for uneducated young people.

[edit] Examples of Military Keynesianism

There have been no clear cut historical examples of military Keynesianism in action. The reason for this is that the theory of military Keynesianism requires that the increased military spending is intended to fulfill an economic goal (i.e. to enhance growth, or increase employment), however the goal of the military spending has in all cases been to achieve some military, or political goal.

1930s Germany, which rebuilt a crippled economy with enormous military production under a National Socialist government has been cited as an example of military Keynesianism, however the purpose of increased military spending in Germany was not to increase economic growth, but to prepare for the war of conquest that Hitler always intended to launch. This example illustrates both the potential positives of such policies in generating rapid growth, and also the negative social effects presented by critics, however the aim of heightened German military production in the 1930s was preparation for the Second World War.

In today’s discourse, the term is most frequently discussed in relation to the United States, particularly the administration of President Ronald Reagan in the 1980s. Reagan’s administration pushed for significant tax cuts, while increasing military spending to combat the Soviet Union. While this was in practice a policy suggestive of military Keynesianism, Reagan’s reasoning for the policy was not that it would spur economic growth, but that military spending was necessary to combat Communism by outspending the Soviet Union.

For many in the United States worried about the adoption of these economic policies, fears of this were somewhat averted by reduced military spending in the 1990s in what was commonly described as a peace dividend for the end of the Cold War. However, the ongoing "War on Terrorism" and current Iraq War have brought such concerns to prominence once more.