The Rise and Fall of Military Keynesianism
By Staff News & Analysis - March 18, 2013

Has military Keynesianism come to an end? … The outcome of the sequester ultimatum appears to have taken everyone by surprise. Two long summers ago, when the president and House speaker John Boehner conjured a prospect so terrible that even spending on defense would be deeply cut, they both assumed Congress would buckle rather than approve such a blow to the nation's pride. According to Bob Woodward's The Price of Politics, Boehner said, "Guys, this would be devastating to Defense. This is never going to happen." But neither man appears to have taken account of the clearly stated views of the Tea Party. There are few better ways of appreciating how the Republican Party has transformed in the last two years from a party of defense hawks to a party of deficit hawks than tracking how the sequester has turned from a threat to the nation's defenses to an unparalleled opportunity to bring the government to heel. – Reuters

Dominant Social Theme: The system as it is will go on no matter what.

Free-Market Analysis: This is, in our opinion, a much better article than the Salon article we commented on above. It is a "big picture" article that takes into account the reality of trends that are affecting the US economy.

The article is a "good read" as well because unlike almost anything that appears in the mainstream, it acknowledges that a main driver of the US economy is militarization and quasi-militarization.

The article also acknowledges the reality of the libertarian split in US politics and in the body politic itself. Ironically, while many mainstream commentators decry libertarianism and maintain it is not practical, much of the US population is libertarian in many ways.

The US population is libertarian on both sides of the aisle because the founding culture of the United States was free-market oriented and Thomas Jefferson, perhaps the most influential founding father, wrote the Declaration of Independence, which is certainly the single-most anti-state political document of note that has ever been penned.

Many Democrats do not want the US government, the federal government in particular, legislating moral and bedroom habits. Many Republicans do not want the fedgov involved with financial matters, including escalating taxes.

What this means is that there is a sizeable group of citizens that hold sentiments opposed to more government interference generally. What is little understood is that the Internet is magnifying this sentiment.

On the "right," the so-called Tea Party has often been declared dead or dormant, but this article makes some very intelligent observations. The Tea Party is not a controllable entity but a mass populist movement driven by Internet information and a general sense that the current sociopolitical scenario is not sustainable. And it is not.

Here's an additional excerpt:

No surprise there: If you take money out of an economy, activity flags and the economy shrinks. What is surprising about the Tea Party calling the sequester bluff is not so much that fiscal conservatives are doing just what they said they would – one thing about a short, simple, absolutist dogma is that the slightest departure from the true creed is readily observable – as the quiet emanating from the defense industry, the defense hawks in Congress, the defense unions and the defense lobbyists.

The whole panoply of vested interests surrounding defense that has ensured that federal spending on guarding our shores and keeping tyranny at bay has, since Eisenhower, become the main Keynesian engine of economic growth. Does the hushed response to this most profound assault upon defense spending mean the end of Keynesian militarism?

Keynes, long dead before American defense hawks adopted him as their patron saint, offered few views on whether spending on war was an appropriate use of his remedies for boosting economic activity. He had jokingly advocated absurd and wasteful ways of spending public money to increase demand, including filling bottles with bank notes, burying them in a hole, then paying others to dig them up.

But as someone who helped the British Cabinet run the ruinous and murderous World War One, Keynes knew that spending on war was hardly as beneficial to society as building new roads and homes. But in the midst of a collapse in aggregate demand, any large-scale spending, including on war materiel, is welcome. In 1939, as Congress was granting Franklin Roosevelt billions to arm America for war against the Axis dictators, Keynes wrote, "If expenditure on armaments really does cure unemployment, a grand experiment has begun. We may learn a trick or two which will come in useful when the day of peace comes."

In fact, expenditures on armaments did keep the United States fairly prosperous during the Cold War years, but it turns out this prosperity was supported by a complex series of Money Power arrangements that depended on the petro-dollar and the willingness of the Saudis to bar other sorts of currencies when it came to oil payments.

The petro-dollar is shrinking, however, and other countries are turning to different payment methodologies when it comes to global trade. It becomes increasingly clear, as the great financial crisis continues to unwind, that not every part of the current Western economic paradigm is controllable and that past prosperity was purchased with future debts.

After Thoughts

Unlike the previous article that leads this issue of the Daily Bell, this one acknowledges the reality of the current unsustainability of Western economic practices. But both articles leave us with the same question: What is to be done about it, and when …

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