“Keynesianism” is named for the English economist John Maynard Keynes, author of The General Theory of Employment, Interest, and Money, published in 1936, and other influential books. In his writings and his public career, Keynes developed a scheme to save capitalist economies from cycles of boom and bust as well as the severe decline of consumer spending that occurs in periods of depression. He was less interested in what causes these cycles or in whether capitalism itself promotes underemployment and unemployment, than in what to do when an inequitable distribution of income causes people to be unable to buy what their economy produces. To prevent the economy from contracting, a development likely to be followed by social unrest, Keynes thought that the government should step in and, through deficit spending, put people back to work, even if this meant creating jobs artificially. Some of these jobs might be socially useful, but Keynes also favored make-work tasks if that proved necessary, simply to put money in the pockets of potential consumers. Conversely, during periods of prosperity, he thought government should cut spending and rebuild the treasury. He called his plan countercyclical “pump-priming.”
During the New Deal in the 1930s, the United States tried to put Keynesianism into practice. Through various schemes the government attempted to restore morale—if not full employment.76 These included “social security” to provide incomes for retired people; giving unions the right to strike (the Wagner Act); setting minimum wages and hours and prohibiting child labor; creating jobs for writers, artists, and creative people generally (the Works Projects Administration); financing the building of dams, roads, schools, and hospitals across the country, including the Triborough Bridge and Lincoln Tunnel in New York City, the Grand Coulee Dam in Washington, and the Key West Highway in Florida (the Public Works Administration); organizing projects for young people in agriculture and forestry (the Civilian Conservation Corps); and setting up the Tennessee Valley Authority to provide flood control and electric power generation in a seven-state area.
The New Deal also saw the rudimentary beginnings of a backlash against Keynesianism. Conservative capitalists feared, as the German political scientist and sociologist Jürgen Habermas has noted, that too much government intervention would delegitimate and demystify capitalism as an economic system that works by allegedly quasi-natural laws. More seriously, too much spending on social welfare might, they feared, shift the balance of power in society from the capitalist class to the working class and its unions.77 For these reasons, establishment figures tried to hold back countercyclical spending until World War II unleashed a torrent of public funds for weapons.
In 1943, the Polish economist in exile Micha Kalecki coined the term “military Keynesianism” to explain Nazi Germany’s success in overcoming the Great Depression and achieving full employment. Adolf Hitler did not undertake German rearmament for purely economic reasons; he wanted to build a powerful German military. The fact that he advocated governmental support for arms production made him acceptable to many German industrialists, who increasingly supported his regime.78 For several years before Hitler’s aggressive intentions became clear, he was celebrated around the world for having achieved a “German economic miracle.”
Speaking theoretically, Kalecki understood that government spending on arms increases manufacturing and also has a multiplier effect on general consumer spending by raising workers’ incomes. Both of these points are in accordance with general Keynesian doctrine. In addition, the enlargement of standing armies absorbs many workers, often young males with few skills and less education. The military thus becomes an employer of last resort, like the old Civilian Conservation Corps, but on a much larger scale. Increased spending on military research and the development of weapons systems also generates new infrastructure and advanced technologies. Well-known examples include the jet engine, radar, nuclear power, semiconductors, and the Internet, each of which began as a military project that later formed the basis for major civilian industries.79 By 1962-63, military outlays accounted for some 52 percent of all expenditures on research and development in the United States. As the international relations theorist Ronald Steel puts it, “Despite whatever theories strategists may spin, the defense budget is now, to a large degree, a jobs program. It is also a cash cow that provides billions of dollars for corporations, lobbyists, and special interest groups.”80
The negative aspects of military Keynesianism include its encouragement of militarism and the potential to create a military-industrial complex. Because such a complex becomes both directly and indirectly an employer and generator of employment, it comes to constitute a growing proportion of aggregate demand. Sooner or later, it short-circuits Keynes’s insistence that government spending be cut back in times of nearly full employment. In other words, it becomes a permanent institution whose “pump” must always be primed. Governments invariably find it politically hard to reduce military spending once committed to it, particularly when munitions makers distribute their benefits as widely as possible and enlist the support of as many politicians as possible, as they have in the United States. In short, military Keynesianism leads to constant wars, or a huge waste of resources on socially worthless products, or both.
By the mid-1940s, everyone in the United States appreciated that the war boom had finally brought the Great Depression to an end, but it was never understood in Keynesian terms. It was a war economy. State expenditures on arms in 1944 reached 38 percent of gross domestic product (the sum total of all goods and services produced in an economy) or GDP, which seemed only appropriate given the nation’s commitment to a two-front war. There was, however, a profound fear among political and economic elites as well as the American public that the end of the war— despite all the promises of future peacetime wonders like TVs, cars, and washing machines—would mean a return to economic hard times. Such reasoning lay, in part, behind the extraordinary expansion of arms manufacturing that began in 1947. The United States decided to “contain” the USSR and, in the early 1950s, to move from the production and use of atomic bombs to the building and stockpiling of the much larger and more destructive hydrogen bombs.
Between the 1940s and 1996, the United States spent at least $5.8 trillion on the development, testing, and construction of nuclear weapons alone. By 1967, the peak year of its nuclear stockpile, the United States possessed some 32,500 deliverable bombs, none of which, thankfully, was ever used. But they perfectly illustrate Keynes’s proposal that, in order to create jobs, the government might as well decide to bury money in old mines and then pay unemployed workers to dig it up. Nuclear bombs were not just America’s secret weapon but also a secret economic weapon. As of 2006, we still have 9,960 of them.
The Cold War contributed greatly to the country’s sustained economic growth that began in 1947 and lasted until the 1973 oil crisis. Military spending was around 16 percent of GDP in the United States during the 1950s. In the 1960s, the Vietnam War sustained it at around 9 percent, but in the 1970s, strong economic competition from the free riders, Japan and Germany, forced a significant decline in military spending with a consequent U.S. decline into “stagflation” (a combination of stagnation and inflation).
The American response was a classic example of military Keynesianism—namely, Reaganomics. In the 1980s, President Reagan carried out a policy of large tax cuts combined with massive increases in defense spending allegedly to combat a new threat from communism. It turned out that there was no threat, only a campaign of fear-mongering from the White House bolstered by the CIA, which consistently overstated the size and growth of the Soviet armed forces during this period. The USSR was in fact starting to come apart internally because of serious economic imbalances and the deep contradictions of Stalinism. Reagan’s policies drove American military expenditures to 6.2 percent of GDP, which in 1984 produced a growth rate for the economy as a whole of 7 percent and helped re-elect Reagan by a landslide.81 During the Clinton years, military spending fell to about 2 percent of GDP, but the economy rallied strongly
in Clinton’s second term due to the boom in information technologies, weakness in the previously competitive Japanese economy, the government’s more nationalistic support of the economy internationally, and serious efforts to reduce the national debt.
With the coming to power of George W. Bush and the launching of his Global War on Terror, military Keynesianism returned with a vengeance. According to Andrew Gumbel, a regular contributor to the Independent newspaper of London, during the second quarter of 2003, when the Iraq war was in full swing, some 60 percent of the 3.3 percent GDP growth rate was attributable to military spending.82 In the U.S. budgets for the years between 2003 and 2007, defense occupied just over 50 percent of all discretionary spending by the government. This is money the president and Congress can actually appropriate, as distinct from mandatory spending in compliance with existing laws (for social security payments, medicare, interest on the national debt, and so on).
The official 2007 Pentagon budget is $439.3 billion—not including the costs of America’s current wars. It essentially covers salaries and weapons—the funds for missile defense and other operations in outer space (between $7.4 billion and $9 billion a year since fiscal year 2002), new ships and submarines for the navy, and aircraft that were designed to fight the former Soviet Union’s air force but that have been kept as active projects because of industry and air force lobbying. As Jonathan Karp of the Wall Street Journal observes, “Weapons spending has swelled faster than the overall Pentagon budget, soaring 43 percent in the past five years to $147 billion, with the majority of the funding going to programs conceived before 9/11. The estimated lifetime cost of the Pentagons five biggest weapons systems is $550 billion, 89 percent more than the top-five programs were projected to cost in 2001.”83
One of the absurdities of the Bush administration’s defense appropriations is that the official defense budget has nothing to do with actual combat in Afghanistan and Iraq. We have built a fantastically high-tech military, but in order to use it, Congress has to appropriate separate annual “supplements” of around $120 billion a year. In the fiscal 2007 budget, the Congressional Research Service estimates that Pentagon spending will be about $9.8 billion per month for Operation Enduring Freedom and Operation Iraqi Freedom, or an extra $117.6 billion for the year.84 As of 2006, the overall cost of the wars in Iraq and Afghanistan since their inception stood at about $450 billion.
To understand the real weight of military Keynesianism in the American economy, one must approach official defense statistics with great care. They are compiled and published in such a way as to minimize the actual size of the official “defense budget.” The Pentagon does this to try to conceal from the public the real costs of the military establishment and its overall weight within the economy. There are numerous military activities not carried out by the Department of Defense and that are therefore not part of the Pentagon’s annual budgets. These include the Department of Energy’s spending on nuclear weapons ($16.4 billion in fiscal 2005), the Department of Homeland Security’s outlays for the actual “defense” of the United States against terrorism ($41 billion), the Department of Veterans Affairs’ responsibilities for the lifetime care of the seriously wounded ($68 billion), the Treasury Department’s payments of pensions to military retirees and widows and their families (an amount not fully disclosed by official statistics), and the Department of State’s financing of foreign arms sales and militarily related developmental assistance ($23 billion).
In addition to these amounts, there is something called the “Military Construction Appropriations Bill,” which is tiny compared to the other expenditures—$12.2 billion for fiscal 2005—but which covers all the military bases around the world. Adding these non-Department of Defense expenditures, the supplemental appropriations for the wars in Iraq and Afghanistan, and the military construction budget to the Defense Appropriations Bill actually doubles what the administration calls the annual defense budget. It is an amount larger than all other defense budgets on Earth combined.85 Still to be added to this are interest payments by the Treasury to cover past debt-financed defense outlays going back to 1916. Robert Higgs, author of Crisis and Leviathan and many other books on American militarism, estimates that in 2002 such interest payments amounted to $138.7 billion.86
Even when all these things are included, Enron-style accounting makes it hard to obtain an accurate understanding of our reliance on a permanent arms economy. In 2005, the Government Accountability Office reported to Congress that “the Pentagon has no accurate knowledge of the cost of military operations in Iraq, Afghanistan, or the fight against terrorism.”87 It said that, lacking a reliable method for tracking military costs, the army merely inserts into its accounts figures that match the available budget. “Effectively, the Army [is] reporting back to Congress what it had appropriated.”
Joseph Stiglitz, the Nobel Prize-winning economist, and his colleague at Harvard Linda Bilmes have tried to put together an estimate of the real costs of the Iraq war. They calculate that it will cost about $2 trillion.88 This figure is several orders of magnitude larger than what the Bush administration publicly acknowledges. Above all, Stiglitz and Bilmes have tried to compile honest figures for veterans’ benefits. For 2006, the officially budgeted amount is $68 billion, which is absurdly low given the large number of our soldiers who have been severely wounded. We celebrate the medical miracles that allow some of our troops to survive the detonation of an “improvised explosive device” hidden in the Earth under a Humvee, but when larger numbers of soldiers who once might have died in such situations are saved, the resulting wounds, often including brain damage, require that they receive round-the-clock care for the rest of their lives.
We almost surely will end up repudiating some of the promises we have made to the men and women who have volunteered to serve in our armed forces. For instance, the government’s medical insurance scheme for veterans and their families, called Tricare, is budgeted for 2007 at a mere $39 billion. But the future demands on Tricare are going to go off the chart. And we cannot afford them unless we radically reorient our economy. The American commitment to military Keynesianism and the nontransparent manner in which it is implemented have combined into a set of fatal contradictions for our country.
In Blowback, I set out to explain why we are hated around the world. The concept “blowback” does not just mean retaliation for things our government has done to and in foreign countries. It refers to retaliation for the numerous illegal operations we have carried out abroad that were kept totally secret from the American public. This means that when the retaliation comes—as it did so spectacularly on September 11, 2001—the American public is unable to put the events in context. So they tend to support acts intended to lash out against the perpetrators, thereby most commonly preparing the ground for yet another cycle of blowback. In the first book in this trilogy, I tried to provide some of the historical background for understanding the dilemmas we as a nation confront today, although I focused more on Asia—the area of my academic training—than on the Middle East.
The Sorrows of Empire was written during the American preparations for and launching of the invasions and occupations of Afghanistan and Iraq. I began to study our continuous military buildup since World War II and the 737 military bases we currently maintain in other people’s countries. This empire of bases is the concrete manifestation of our global hegemony, and many of the blowback-inducing wars we have conducted had as their true purpose the sustaining and expanding of this network. We do not think of these overseas deployments as a form of empire; in fact, most Americans do not give them any thought at all until something truly shocking, such as the treatment of prisoners at Guantanamo Bay, brings them to our attention. But the people living next door to these bases and dealing with the swaggering soldiers who brawl and sometimes rape their women certainly think of them as imperial enclaves, just as the peoples of ancient Iberia or nineteenth-century India knew that they were victims of foreign colonization.
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p; In Nemesis, I have tried to present historical, political, economic, and philosophical evidence of where our current behavior is likely to lead. Specifically, I believe that to maintain our empire abroad requires resources and commitments that will inevitably undercut our domestic democracy and in the end produce a military dictatorship or its civilian equivalent. The founders of our nation understood this well and tried to create a form of government—a republic—that would prevent this from occurring. But the combination of huge standing armies, almost continuous wars, military Keynesianism, and ruinous military expenses have destroyed our republican structure in favor of an imperial presidency. We are on the cusp of losing our democracy for the sake of keeping our empire. Once a nation is started down that path, the dynamics that apply to all empires come into play—isolation, overstretch, the uniting of forces opposed to imperialism, and bankruptcy. Nemesis stalks our life as a free nation.
History is instructive on this dilemma. If we choose to keep our empire, as the Roman Republic did, we will certainly lose our democracy and grimly await the eventual blowback that imperialism generates. There is an alternative, however. We could, like the British Empire after World War II, keep our democracy by giving up our empire. No more than the French and Dutch, the British did not do a particularly brilliant job of liquidating their empire, and there were several clear cases where British imperialists defied their nation’s commitment to democracy in order to keep their foreign privileges. Kenya in the 1950s is a particularly savage example. But the overall thrust of postwar British history is clear: the people of the British Isles chose democracy over imperialism. For this reason, I can only regard Britain’s willingness to join the United States in its invasion of Iraq as an atavistic response.
Nemesis: The Last Days of the American Republic Page 36
