No, Military Keynesianism Does Not Make Us Wealthier

In his latest column, Paul Krugman continues to shill for higher tax rates, claiming that raising taxes somehow will strengthen the economy. I really don't have the time to deal with arguments that we have gone over before, so I will leave it at that. And, yes, Barack Obama won. The economy soon will explode with 12 million new jobs. Bill Clinton said that in a campaign speech, so it must be true.

Instead, I wish to look at a November 4 op-ed in the NYT, "The Permanent Militarization of America," by Aaron B. O'Connell, who teaches history at the U.S. Naval Academy in Annapolis. O'Connell writes that to a certain extent, Dwight Eisenhower's famous warning about the "Military-Industrial Comples" in his farewell speech in January 1961. However, writes O'Connell, much of the government spending in defense has had a positive economic effect and has contributed to economic growth:

The military-industrial complex has not emerged in quite the way Eisenhower envisioned. The United States spends an enormous sum on defense — over $700 billion last year, about half of all military spending in the world — but in terms of our total economy, it has steadily declined to less than 5 percent of gross domestic product from 14 percent in 1953. Defense-related research has not produced an ossified garrison state; in fact, it has yielded a host of beneficial technologies, from the Internet to civilian nuclear power to GPS navigation. The United States has an enormous armaments industry, but it has not hampered employment and economic growth. In fact, Congress’s favorite argument against reducing defense spending is the job loss such cuts would entail.

At one level, he is right. Some new technologies that were developed for the armed forces have found their ways to civilian uses, but the story is much different than what he might think. First, new technologies by themselves are not useful to the economy at large unless entrepreneurs can find a way to integrate these technologies into goods and services that individuals not only find useful, but are willing to give up scarce things in their possession in order to obtain.

Without the entrepreneurial component, vaunted new technologies tend either to be unused or applied in very esoteric ways that have little or no effect upon the general population. Take the Internet, for example. A lot of people have reminded me that government agents developed the first elements of what we know today as the Internet more than 40 years ago. That is true, but also irrelevant.

First, the Internet would not have been invented had entrepreneurs not first developed and applied what we know as telecommunications. I'm sorry folks, but Alexander Graham Bell and those who followed him were not working for the Department of War or Defense. Second, the Internet as we know it was of no commercial or economic use until entrepreneurs both developed and applied technologies like fiber optics and they developed mechanisms by which ordinary people could access what now is a technological and commercial wonder.

Furthermore, O'Connell's claim that this vast amount of government spending "has not hampered employment and economic growth" is one of those "proving a negative" statements. What he really is saying is that since the U.S. economy has been relatively strong since Eisenhower's speech, the diversion of huge amounts of resources from marketable uses to military spending has had no negative economic effects.

One cannot make that statement, economically speaking. First, we don't know if the economy would be stronger than it is now (I believe that it would) had this spending not occurred. Second, for O'Connell to be correct, military spending would have to have moved ALL factors of production from lower-valued to higher-valued uses in all situations involving Pentagon expenditures. If that is not true, then military spending has made us worse off.

No, I am not arguing for complete cessation of military spending. Certainly keeping this country from being invaded is a good use of resources, but that has not been the case with the USA for a long, long time. And, as O'Connell unwittingly notes, members of Congress are violently opposed to cutting any spending in their districts or states because that means some people there lose their jobs, at least in the short run.

But government employment is not the same as economic growth, even if O'Connell cannot see that (and few history professors these days are able to move beyond their own socialistic views). As for the rest of the article, I agree much with him, but I also find it interesting that he completely left out the militarization of the civilian police forces, and the militarization of the enforcement arms of federal agencies.

In fact, other than having our living standards lowered by gargantuan military spending, the one way we will come in meaningful contact with militarization is an encounter with the police. Why am I not surprised that a history professor missed that important point? You supply your own answer.

Opportunity Cost for thee, but not for me

In a number of posts, I have alluded to the fact that Krugman denies that the Law of Opportunity Cost and the Law of Scarcity apply when the economy supposedly is in a "liquidity trap." Today, he seems to give some credence to real-live economic laws (as opposed to the stuff made up by J.M. Keynes), although he does not apply those laws evenly, which I guess is OK in the rarified air of the Princeton economics department.

His post continues the "weaponized Keynesianism" theme covered in a blog post earlier, and at one level, I agree with him. When a Republican makes the claim that cutting military spending will hurt the economy because it eliminates military-connected jobs, but yet claims that a "stimulus" either will have no effect or will be harmful, then he or she needs to be called out on that contradiction, and Krugman has every right to do it.

One of the reasons I cannot support most of the Tea Party candidates is that they support both the police state at home and military empire abroad, and both are destructive. (I'd say that they were destructive to a "free society," but our society long ago stopped being free, thanks to a tag-team effort by the Right and the Progressives.) Military spending that supports invasions abroad is destructive because it does not protect the people of this country, instead making them more vulnerable to revenge attacks from disaffected peoples abroad.

For that matter, I would much rather see a United States as a country where entrepreneurs are free to pursue ideas rather than the country it has become: a nation of people getting rich by being politically-connected with a gargantuan government that is increasingly protecting itself by means of utter brutality against innocent people who are deemed as "threats" to the existing order. If one wishes to invoke the term "sustainability," this is the perfect situation.

Unfortunately, Krugman takes another road and at the same time exposes his partisan viewpoints that masquerade as "economic" analysis. He writes:

...there are also darker motives behind weaponized Keynesianism.

For one thing, to admit that public spending on useful projects can create jobs is to admit that such spending can in fact do good, that sometimes government is the solution, not the problem. Fear that voters might reach the same conclusion is, I’d argue, the main reason the right has always seen Keynesian economics as a leftist doctrine, when it’s actually nothing of the sort. However, spending on useless or, even better, destructive projects doesn’t present conservatives with the same problem.

I'm not sure that Krugman really needs to play the role of the Official Psychoanalyst of the Right, but from what I can see, the Right is being consistent in that people from that political perspective believe that government should "protect" us from assaults from abroad, and in their view, military spending performs that duty. Many of us on the libertarian front argue, however, that the current direction of military spending does NOT fall into that "protect us" category, even if the original premise -- that government should protect us -- is correct.

Unfortunately, he then veers into a non sequitur that cries out for a response:

Beyond that, there’s a point made long ago by the Polish economist Michael Kalecki: to admit that the government can create jobs is to reduce the perceived importance of business confidence.

Appeals to confidence have always been a key debating point for opponents of taxes and regulation; Wall Street’s whining about President Obama is part of a long tradition in which wealthy businessmen and their flacks argue that any hint of populism on the part of politicians will upset people like them, and that this is bad for the economy. Once you concede that the government can act directly to create jobs, however, that whining loses much of its persuasive power — so Keynesian economics must be rejected, except in those cases where it’s being used to defend lucrative contracts.

What Krugman is saying here is that it does not matter if government blocks efforts of entrepreneurs and private business firms because, after all, government can easily replace the private economy through massive spending, financed by borrowing and monetary "creation." Thus -- and his logical construct really stretches credulity here -- if someone makes the claim that cutting military spending is bad because it eliminates certain jobs, that is "proof" that massive government regulations and control do not have any kind of negative effect.

Furthermore, throughout the article, he seems to be saying that government spending on military items prevents government spending elsewhere, an Opportunity Cost situation. Yet, Krugman has been arguing that government spending can be limitless (or close to it) in a "liquidity trap," so it would seem to me that if Krugman wanted to be consistent, he would say that we can have it all, both Military Keynesianism and Civilian Keynesianism.

So, we see The Great One invoking Opportunity Cost on one side of the ledger, but not on the other. This is pretty typical of his "analysis," which is unfortunate, given that some people think that Krugman is writing about economics, which is not the case. He is a political operative, period.

Say What? on the Debt

I have read bizarre stuff from Paul Krugman before -- heck, here is a guy who believes prosperity is created by the government printing press -- but I must admit this latest blog post of his comes close to being the most bizarre of all. First, and most important, he declares that the gargantuan public debt really is not much of a big deal.

Second, he wants us to take the word of the Obama administration on the budget numbers up to 2020. Yes, now that the profligate politicians he likes are in power, we are supposed to believe whatever the administration tells us. Right.

However, it gets better. After mentioning that other "independent sources are moderately more pessimistic" (they believe the federal deficit will be five or six percent of GDP instead of the Obama prediction of 3-4 percent), he writes this:

That’s not, in economic terms, a huge number. We could raise taxes that much and still be one of the lowest-tax nations in the advanced world. Or we could save a significant share of that total by not being totally prepared for the day when Soviet tanks sweep across the North German plain.

And it gets better:

The only reason to doubt our ability to get things under control a decade from now is politics: if we’re still deadlocked, if sane Republicans are cowed by the Tea Party, then sure, we can have a fiscal crisis. And longer term, we’ll be in a mess unless we get health care costs under control — which is exactly what we’re trying to do, in the face of cries about death panels.

Yeah, it is those dastardly tea-partiers that are going to cause a fiscal crisis. Why? Well, they oppose "healthcare reform," and everyone knows that a huge combination of new taxes, draconian regulations, mandates and subsidies are going to vastly cut medical costs and help revive the economy.

I will agree that the "War on Terror" has eaten a portion of our nation's production that is equal or greater than any set of costs associated with medical care, and there seems to be no end in sight. What is just as bizarre to me as Krugman's assertion that the Obama numbers are honest is the campaign of the Heritage Foundation, "Four Percent for Freedom," that claims we are not adventurous enough when it comes to military spending and wars abroad.

You see, it never has occurred to the people at Heritage that the financial ruin that has come about in large part because of the "War on Terror" and the vaunted "Ownership Society" initiative of the Bush administration (pushed by Heritage and the Cato Institute) which deteriorated into "let's put everyone into home ownership whether or not they can afford it." Because the Bush administration was profligate, it created a crisis that helped lead to the current political situation, and ultimately to, yes, the real ascension of Krugman to his current "superstar" status. By creating a fiscal crisis, the "conservatives" gave credibility to Krugman, who became well-known in large part because of his public criticism of the Bush administration.

So, we have few voices for fiscal sanity, anymore. On the one hand, Krugman claims that we are supposed to believe Obama's budget numbers as though they came from God, and the "conservatives" want even more war and military spending abroad. Neither side can come to grips with the fact that this government is broke, broke, broke.

Don't kid yourselves. We are on the same path as was Argentina in the mid-20th Century, when a rich and proud nation morphed into poverty and political chaos. Those "advanced" countries of Europe Krugman so praises are headed in the same direction, brought down by the cold hard reality that in order to have a high standard of living, a country must produce something other than paper money. It is unfortunate that the USA is being destroyed by a tag team of the Left and the Right, but here it is.