What do the war in Iraq and the economic recovery in the United States
have in common? More than one might expect, to judge from the last couple of rounds of US growth figures.
The war has been a large part of the justification for the Bush administration
to run ever-widening budget deficits, and those deficits, predicated largely on military spending, have in turn pumped money
into the economy and provided the stimulus that low interest rates and tax cuts, on their own, could never achieve.
The result, according to
economists, is a variant on Keynesianism that has particular appeal for Republicans. Instead of growing the government in
general - pumping resources into public works, health care and education, say, which would have an immediate knock-on effect
on sorely needed job creation - the policy focuses on those areas that represent obvious conservative and business-friendly
constituencies. Which is to say, the military and, even more
specifically, the military contractors that tend to be big contributors to Republican Party funds.
"It may be very inefficient and obviously not fair, but it is nevertheless
causing almost 5 per cent more money to be pumped into the economy than is being taken out in tax revenues," observed Robert
Pollin, professor of economics at the University of Massachusetts at Amherst. "At the same time, it fits into the broader ideological goals of the
administration because they can paint it as part of a national emergency, the fight against terrorism, the fight against Saddam
Hussein, and so on."
During the second quarter
of 2003, when the war in Iraq was in full swing, some 60 per cent of the 3.3 per cent GDP growth rate was attributable to
military spending. Expenditure on manpower and weaponry was relatively flat, according to Professor Pollin's analysis, while
the lion's share of the stimulus came from the multi-billion dollar contracts handed out to Halliburton, Bechtel and other
A smaller proportion of the roaring 8.2 per cent growth recorded for
the third quarter was directly attributable to the military, but Professor Pollin and others argue that it is still the military
that is driving the deficit, and the deficit - budgeted at about $500 billion (£270bn) for next year - that is driving the recovery.
Just last month, the Pentagon awarded a $4 billion contract to California
company Northrop Grumman to work on the Star Wars missile defense program. It is the sort of figure that can regenerate the
economy of an entire region. California - the state where US economic booms have a tendency to begin and end - is also a beneficiary
of the boom in security-related spending, since much modern security paraphernalia depends on Silicon Valley computer technology.
The Bush administration itself prefers to attribute the recovery to its
tax cuts, targeted disproportionately towards the richest Americans. Many non-administration economists, however, say this
is nonsense, and that the tax cuts are far more political than they are stimulative. A more significant role has been played
by buoyant household spending, helped by low mortgage interest rates which have inspired many homeowners to borrow against
the rising value of their properties. But there are signs that interest rates are now on their way back up and that the refinancing
fad has ended.
"The administration is conducting a highly irresponsible fiscal policy,
and there is no legitimate economist on the face of the earth who doesn't say the tax cuts are just loony," said Kent Sims,
a San Francisco economic consultant and public policy expert. "The chosen weapon for dragging the economy off the floor -
now that an election is coming - is the deficit. Military expenditure is usually the least effective of short-run ways of
spending money, because it doesn't build infrastructure that give you returns over time. But it does create a short-term lift."
or military Keynesianism as it is now known in academic circles, was first theorized 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.
Ronald Reagan famously resorted to deficit spending, using talk of the
Evil Empire and communist threats from Central America as his excuse to ratchet up the military budget. In 1984, the deficit rose to a whopping 6.2
per cent of GDP. Consequently, the economy grew by more than 7 per cent that year, and he was re-elected by a landslide.
The corollary of the Reagan military boom was a sharp cutback in social
spending, something that was not reversed under Bill Clinton and is now back on the agenda with George Bush. State and local
budgets are all in crisis because of the recession of the past two years. The fact that the White House is not using federal
dollars to help them finance schools, hospitals and police forces hurts all the more because these things have now been underfunded
for a generation.
The Bush deficit has not yet reached Reaganesque proportions (it stands
at roughly 4.5 per cent of GDP). But Professor Pollin, for one, predicts that the resulting debt burden could rapidly rise
to the levels seen in the 1980s, with interest repayments eating up as much as 18-19 per cent of the overall federal budget.
Professor Pollin does not share the Clinton administration view that
deficits are always bad. In classic Keynesian fashion, he believes they are necessary and desirable to pull countries out
of recession. But he, like the generation of economists who criticized Reagan's policies, thinks the priorities are wrong
- as well as overtly bellicose - and will have repercussions for years or even decades to come.
"The long-term effects of military Keynesianism are obviously negative
on public infrastructure, health, education and so on, and there are limits on how long you can keep it up," he said. "What
we borrow we will eventually have to pay back, with interest."
© 2003 Independent