[PEN-L:4642] Re: On Military Keynesianism

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

Max Sawicky wrote:

> A few factoids-cum-notes, none of which bear on whether NATO
> should be in Yugoslavia:
>
> 1.  Since the mid-80's the economic policy of the U.S. cannot be
> said to conform to any sort of military Keynesianism, since the
> basic drive has been for deficit reduction.  Accordingly, the
> Keynesian element here is problematic.  It also happens that
> military spending relative to the budget and the economy have
> been reduced.  Defense peaked as a share of GDP in 1986 (6.3).
> Before that, it hadn't been as high unless you go back to 1972.
> In 1998, defense/GDP is 3.2%.
>
> 2.  The Clinton budget does not propose an increase in defense if
> one discounts for inflation.  This also means, naturally, that
> defense/GDP continues to decline.
>
> 3.  Conflicts on the scale of the Gulf War cannot alter the basic
> trend of stagnation in military spending.  Defense/GDP continued
> to decline from 1989 to the present.  There was no uptick, not
> even a temporary one.
>
> 4.  The real grease in military spending -- the economic rents,
> if you will -- come from hardware and R&D, not from soldiers' pay and
> gumboots.  In the budget wars, the soldiers always lose; just take a
> look at their barracks.  Military conflicts are not
> necessarily the best way to get more funds allocated to hardware
> R&D.  In fact, the debate for more hardware/R&D had already been
> decided before the Kosovo affair.  By supporting anti-missile
> defense, Clinton and the Democrats already gave the contractors
> all they could have asked for.  By encouraging Serbian terrorism,
> in fact, this intervention threatens to take the focus away from
> the mythical missile threat to the more likely one, relatively
> speaking, of two guys in a pickup truck, thereby sapping the
> drive to finance the fancy hardware.
>

You neglected the lead time factor.  Military Keynesianism involves
first the depletion of inventory and then the replacement phase later.
Armed conflicts accelerates this cycle.

> 5.  The last thing a hardware vendor wants is a legitimate test
> of his product.  To maximize sales, both buyer and seller have an
> interest in hoked-up tests that make them look good, not real
> tests which could end unhappily.  Think of the possible fall-out
> from the shoot-down of the "Stealth" fighter.

The technical and budgetary fallouts are more R&D and upgrades.
The B2 is now costing $3 billion each due to upgrades.  The Stealth
fighter will cost 30% more to make it less vulnerable.  The new price
will be around $65 million each. Manufacturers are not afraid of field
tests.

>
> 6.  Military Keynesianism may have meant something back in the
> 1950's, or in 1962 when defense/GDP was near ten percent.
> Presently the defense budget is about $270 billion.  An unlikely
> increase of, say, $80 billion, all in one year, and all
> deficit-financed, might add a percent or so of GDP in a time of
> economic slack.  It's hard to imagine the fate of capitalism
> hinging on this.

It is precisely that MK has not been an significant factor in cushioning
the economy in the post Cold War decade that gives new incentives for
violent conflicts.
MK has always had an international strategic dimension.  Reagon used it
in Star Wars to bankrupt the USSR, paying the price of record deficits
and national debts.
After the Cold War, the US economy was fueled by neo-liberal
globalization which you might have heard got itself busted in 1997.
In that respect, capitalism does depend on being saved by MK.

Military Keynesianism is now an necessary option, but it takes time and
eventually it will take a total war to work as in WWII.  The NMD and TMD
systems are part of the trend.  By 2003, MK will be in full swing with
military expenditure again  at 25% of GDP.   Regional conflicts now,
such as Iraq and the current Kosovo bombing, run about $100 million a
day in the first phase and $200 million in the intensive later phases.
Pretty soon, that adds up to a lot of money.

The reason MK at this moment in history contributes relatively little to
the US GDP is because the US economy is so much bigger than its
perceived adversaries. In that sense, your are correct to observe that
its role has shifted from domestic economic stimulant to global
geopolitical weaponry.  But the very nature of war has changed, the link
between economic warfare and physical conflicts has become continuous.

Henry