Would Our Government Really Start a War to Try to Stimulate the Economy?

by Washington's Blog

Global Research, November 16, 2009

Washington's Blog - 2009-11-14

I've written two essays attempting to disprove "military Keynesianism" - the idea that military spending is the best stimulus. See this and this.

In response, a reader challenged me to prove that anyone would advocate military spending or war as a fiscal stimulus.

In fact, the concept of military Keynesianism is so widespread that there are some half million web pages discussing the topic.

And many leading economists and political pundits sing its praises.

For example, Martin Feldstein - chairman of the Council of Economic Advisers under President Reagan, an economics professor at Harvard, and a member of The Wall Street Journal's board of contributors - wrote an op-ed in the Journal last December entitled "Defense Spending Would Be Great Stimulus".

And as the Cato Institute notes:

Bill Kristol agrees. Noting that the military was "spending all kinds of money already," Mr. Kristol wondered aloud, "If you're buying 2,000 Humvees a month, why not buy 3,000? If you're refurbishing two military bases, why not refurbish five?"

***

This is not the first time that defense spending has been endorsed as a way to jump-start the economy. Nearly five decades ago, economic advisers to President Kennedy urged him to increase military spending as an economic stimulus...

Similar arguments are heard today. The members of Connecticut's congressional delegation have been particularly outspoken in their support for the Virginia-class submarine, and they haven't been shy about pointing to the jobs that the program provides in their home state. The Marine Corps' V-22 Osprey program wins support on similar grounds. Despite serious concerns about crew safety and comfort, the V-22 program employs workers in Pennsylvania, New Jersey, Delaware and Texas, and a number of other states.

Professors of political economy Jonathan Nitzan and Shimshon Bichler write:

 

Theories of Military Keynesianism and the Military-Industrial Complex became popular after the Second World War, and perhaps for a good reason. The prospect of military demobilization, particularly in the United States, seemed alarming. The U.S. elite remembered vividly how soaring military spending had pulled the world out of the Great Depression, and it feared that falling military budgets would reverse this process. If that were to happen, the expectation was that business would tumble,unemployment would soar, and the legitimacy of free-market capitalism would again be called into question.

Seeking to avert this prospect, in 1950 the U.S. National Security Council drafted a top-secret document, NSC-68. The document, which was declassified only in 1977, explicitly called on the government to use higher military spending as a way of preventing such an outcome.

Are they right about NSC-68?

Well, PhD economist Robert Higgs confirms the importance of NSC-68:

 

Previously administration officials had encountered stiff resistance from Congress to their pleas for a substantial buildup along the lines laid out in NSC-68, a landmark document of April 1950. The authors of this internal government report took a Manichaean view of America’s rivalry with the Soviet Union, espoused a permanent role for the United States as world policeman, and envisioned U.S. military expenditures amounting to perhaps 20 percent of GNP. But congressional acceptance of the recommended measures seemed highly unlikely in the absence of a crisis. In 1950 “the fear that [the North Korean] invasion was just the first step in a broad offensive by the Soviets proved highly useful when it came to persuading Congress to increase the defense budget.” As Secretary of State Dean Acheson said afterwards, “Korea saved us.” The buildup reached its peak in 1953, when the stalemated belligerents in Korea agreed to a truce.

 

And Chalmers Johnson - Professor emeritus of the University of California, San Diego, and former CIA consultant - writes:

 

This is military Keynesianism — the determination to maintain a permanent war economy and to treat military output as an ordinary economic product, even though it makes no contribution to either production or consumption.

This ideology goes back to the first years of the cold war. During the late 1940s, the US was haunted by economic anxieties. The great depression of the 1930s had been overcome only by the war production boom of the second world war. With peace and demobilisation, there was a pervasive fear that the depression would return. During 1949, alarmed by the Soviet Union’s detonation of an atomic bomb, the looming Communist victory in the Chinese civil war, a domestic recession, and the lowering of the Iron Curtain around the USSR’s European satellites, the US sought to draft basic strategy for the emerging cold war. The result was the militaristic National Security Council Report 68 (NSC-68) drafted under the supervision of Paul Nitze, then head of the Policy Planning Staff in the State Department. Dated 14 April 1950 and signed by President Harry S Truman on 30 September 1950, it laid out the basic public economic policies that the US pursues to the present day.

In its conclusions, NSC-68 asserted: “One of the most significant lessons of our World War II experience was that the American economy, when it operates at a level approaching full efficiency, can provide enormous resources for purposes other than civilian consumption while simultaneously providing a high standard of living”.

With this understanding, US strategists began to build up a massive munitions industry, both to counter the military might of the Soviet Union (which they consistently overstated) and also to maintain full employment, as well as ward off a possible return of the depression. The result was that, under Pentagon leadership, entire new industries were created to manufacture large aircraft, nuclear-powered submarines, nuclear warheads, intercontinental ballistic missiles, and surveillance and communications satellites. This led to what President Eisenhower warned against in his farewell address of 6 February 1961: “The conjunction of an immense military establishment and a large arms industry is new in the American experience” — the military-industrial complex.

By 1990 the value of the weapons, equipment and factories devoted to the Department of Defense was 83% of the value of all plants and equipment in US manufacturing. From 1947 to 1990, the combined US military budgets amounted to $8.7 trillion. Even though the Soviet Union no longer exists, US reliance on military Keynesianism has, if anything, ratcheted up, thanks to the massive vested interests that have become entrenched around the military establishment.

 

You can read NSC-68 here.

Leading political journalist John T. Flynn wrote in 1944 :

 

Militarism is the one great glamorous public-works project upon which a variety of elements in the community can be brought into agreement.

 

But Flynn warned that:

 

Inevitably, having surrendered to militarism as an economic device, we will do what other countries have done: we will keep alive the fears of our people of the aggressive ambitions of other countries and we will ourselves embark upon imperialistic enterprises of our own.

 

Indeed, the creator of the theory of military Keynesianism himself warned that those who followed such thinking would fearmonger, appeal to patriotism and get us into wars in order to promote this kind of economic "stimulus". As The Independent wrote in 2004:

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 United States.

I disagree that this is a partisan issue. The Independent piece portrays the "neo-liberal right" as special warmongers; I don't believe there is much difference with the "neo-liberal left", or "neo-conservative right", or whatever. Indeed, political labels are fairly meaningless. What is important is the actions one takes, not his rhetoric about his actions.

Washington's Blog is a frequent contributor to Global Research.  Global Research Articles by Washington's Blog

15 Signs American Society Is Coming Apart at the Seams

By David DeGraw, Amped Status
Posted on November 21, 2009, Printed on November 21, 2009

http://www.alternet.org/story/144109/

Editor's note: The following is an edited excerpt from the Amped Status report, "The Critical Unraveling of U.S. Society."

The economic elite have launched an attack on the U.S. public and society is unraveling at an increased rate. You may have missed it in the mainstream news media, but statistical societal indicators are reading red across the board. Let’s look at the top 15 statistics that prove we are under attack.

1) The inequality of wealth in the United States is soaring to an unprecedented level. The U.S. already had the highest inequality of wealth in the industrialized world prior to the financial crisis. Since the crisis, which has hit the middle class and poor much harder than the top 1 percent, the gap between the top 1 percent and the remaining 99 percent of the U.S. population has grown to a record high.

2) As the stock market went over the 10,000 mark and just surged to a 13-month high, the three big banks that took taxpayer money and benefited the most from the government bailout have just set a new global economic record by issuing $30 billion in annual bonuses this year, “up 60 percent from last year.” Bloomberg reported: “Goldman Sachs, the most profitable securities firm in Wall Street history, had a record profit in the first nine months of this year and set aside $16.7 billion for compensation expenses.” Goldman Sachs is on pace for the best year in the firm’s history, and it is also benefiting by only paying 1 percent in taxes.

3) The profits of the economic elite are “now underwritten by taxpayers with $23.7 trillion worth of national wealth."

As the looting is occurring at the top, the U.S. middle class is just beginning to collapse.

4) Workers between the ages of 55 to 60, who have worked for 20 to 29 years, have lost an average of 25 percent off their 401k. During the same time period, the wealth of the 400 richest Americans went up by $30 billion, bringing their total combined wealth to $1.57 trillion.

5) Home foreclosure filings "hit a record high in the third quarter (of 2009)… They were the worst three months of all time… 937,840 homes received a foreclosure letter" in this three-month period; “3.4 million homes are expected to enter foreclosure by year’s end, with some experts estimating that next year will be even worse.”

President Obama has enacted a $75 billion taxpayer funded program that has been a spectacular failure in stemming the foreclosure crisis and has proven to be another massive waste of billions of taxpayer dollars.

6) 25 million people are unemployed or underemployed.

This means we have 25 million people who urgently need to increase their income, and they’re quickly running out of options. The unemployment rate is expected to rise further and remain high for several years. “The president’s chief economic adviser warned that the nation’s unemployment rate could stay ‘unacceptably high’ for years to come."

The New York Times reports: "Americans now confront a job market that is bleaker than ever in the current recession, and employment prospects are still getting worse. Job seekers now outnumber openings six to one, the worst ratio since the government began tracking….” As this ratio continues to grow, it will lead to a further reduction in wages -- average worker wages have seen a sharp decline over the past year.

Economist Nouriel Roubini, a man who accurately predicted our current crisis, just reported on unemployment stating: “Think the worst is over? Wrong. Conditions in the U.S. labor markets are awful and worsening…. So we can expect that job losses will continue until the end of 2010 at the earliest. In other words, if you are unemployed and looking for work and just waiting for the economy to turn the corner, you had better hunker down. All the economic numbers suggest this will take a while. The jobs just are not coming back.”

7) As the few elite banks thrive, there have been 123 U.S. bank failures thus far this year. Recently, three banks that the government declared “healthy” and gave taxpayer money, have folded. The Wall Street Journal reports: “U.S. regulators have seized or threatened at least 27 banks that got capital infusions from the Troubled Asset Relief Program, including some lenders government officials knew were troubled when they awarded the money. The troubles put taxpayers at risk of losing as much as $5.1 billion invested in the banks since TARP was launched in October 2008.”

8) As bankruptcies surge across the board, 10 U.S. states are on the verge of bankruptcy, with several ready to declare a financial state of emergency. California, Arizona, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin are all “barreling toward economic disaster, raising the likelihood of higher taxes, more government layoffs and deep cuts in services."

9) This is occurring at a time when the “federal budget deficit for the fiscal year that just ended was $1.4 trillion, nearly a trillion dollars greater than the year before."  In total, "U.S. public debt topped $12 trillion for the first time in history… The public debt topped $10 trillion in September 2008. The debt is quickly approaching the statutory limit of $12.104 trillion, meaning Congress would have to raise the ceiling to prevent a shutdown of government operations."

Economist Dean Baker explains the risk of running such a large deficit: "The debt limit must be increased at regular intervals in order to allow the government to function normally because the government is currently operating at a deficit. If the debt limit is not passed, then at some point the government will not be able to pay workers and contractors. It won’t be able to send out Social Security checks or make payments for Medicaid and unemployment insurance to state governments. And, it will not be able to make interest payments on government bonds, effectively defaulting on the national debt."

Needless to say, all of this will make life drastically more difficult for American citizens. As the middle class continues on the path of economic decline, the number of citizens living in poverty has already hit an all-time high.

10) Although the government’s official figure tries to low-ball the number, 47.4 million U.S. citizens live in poverty, and the U.S. poverty rate is the highest in the industrialized world.

Predictably, homelessness is rising at an increased rate as well. "The U.S. government does not tally the numbers but interested organizations say that more than 3 million people were homeless at some point over the past year…. The fastest growing segment of the homeless population is families with children.”

Children have been hit especially hard by the economic crisis:

11) * 50 percent of U.S. children, one out of every two children, will need to use food stamps to eat.

One out of every two children in the United States of America will need to use a food stamp… to EAT!

If you didn’t think starvation was a serious threat in the U.S., just read this new Washington Post report: “The nation’s economic crisis has catapulted the number of Americans who lack enough food to the highest level since the government has been keeping track, according to a new federal report, which shows that nearly 50 million people — including almost one child in four — struggled last year to get enough to eat… Several independent advocates and policy experts on hunger said that they had been bracing for the latest report to show deepening shortages, but that they were nevertheless astonished by how much the problem has worsened. 'This is unthinkable. It’s like we are living in a Third World country,' said Vicki Escarra, president of Feeding America."

The United States Department of Agriculture released these findings in a study that was completed in December 2008, which means these numbers don’t take into account the millions more unemployed throughout 2009. The numbers of people living in poverty and struggling to eat has seen a significant increase since then.

This a national tragedy. But it gets much worse.

12) In 2008, according to the Census Bureau, the number of U.S. citizens without health care grew to a record 46.3 million. “The new figures, however, understate the severity of the economic downturn because a large portion of the nation’s job losses and unemployment rate increases occurred after the Census survey data was collected in March as part of the annual Current Population Survey."

13) Lack of health insurance has caused 45,000 preventable U.S. citizen deaths in the past year. The American Journal of Medicine recently released a study that stated, “Nearly two out of three bankruptcies stem from medical bills, and even people with health insurance face financial disaster if they experience a serious illness.”

A Johns Hopkins Children’s Center study reported that 17,000 children have died due to lack of health care. You can also add in a recent report that revealed that 2,266 U.S. veterans have died in 2008 due to lack of insurance.

The 50 million now uninsured and the 45,000 preventable deaths per year statistics are expected to drastically rise over the next few years. As the Senate continues to strip meaningful amendments from a health care bill that wouldn’t even take effect until 2013, it has become clear that, despite the media hype, the health care bill is going to fall far short of meaningful reform and continue to rig the game in favor of large insurance company profits at the expense of the U.S. population. With the highest cost healthcare in the world, current trends will continue and much needed change is not on the horizon.

Never before has the United States had so many citizens with so little means, little to no income and heavy debt. Debt and costs of living have now shackled U.S. citizens just as they have shackled people throughout the world. The economic hit men have now hit the United States as well and millions of American citizens are now effectively sentenced to a slow death.

Economic Imperial blowback has hit the mainland.

And the clock is ticking louder by the day…

And here’s two more facts for you:

14) The gun and ammunition manufacturing industry in the United States has over 200 companies producing billions of dollars in annual revenues. This huge manufacturing base cannot fulfill demand quickly enough. The demand for guns and ammunition has hit a record high and the gun industry cannot produce enough bullets to keep up with orders.

Americans are arming themselves to the teeth!

15) In the past year, 100 new armed militia groups have been formed, as militia members have doubled in numbers. Federal authorities are gravely concerned about the “uptick in militia activities." One federal authority recently said, “All it’s lacking is a spark. I think it’s only a matter of time before you see threats and violence."

So let’s break down these numbers.

You have a population of 50 million people who are in desperate need of money, they most likely have no health insurance and can’t afford to get health care or help of any kind. Part of this population probably also has loved ones who can’t get life sustaining medical treatments, or loved ones who have already died due to lack of costly medical treatment. The clock is ticking loud for these people and they are running out of options fast, and time delayed is time closer to death.

While the richest 1 percent have never had it so good, a significant percentage of the U.S. population now has firsthand experience in this. Millions upon millions of Americans are poor, broke, struggling, starving, desperate… and armed.

We are sitting on a powder keg!

We are now witnessing the critical unraveling of U.S. society.

You can read the rest of the report here.

© 2009 Amped Status All rights reserved.


View this story online at: http://www.alternet.org/story/144109/