Military Keynesianism is a government economic policy in which the government devotes large amounts of spending to the military in an effort to increase economic growth. This is a specific variation on Keynesian economics, developed by English economist John Maynard Keynes. Instances commonly offered as examples of such policies are Germany in the 1930s and the United States in the 1980s, although whether these assessments are accurate is the subject of vigorous debate.

Economic Effects

The economic effects advanced by supporters of military Keynesianism can be broken down into four areas, two on the demand side and two on the supply side.

On the demand side, increased military demand for goods and services is generated directly by government spending. Secondly, this direct spending induces a multiplier effect of general consumer spending. These two effects are directly in line with general Keynesian economic doctrine.

On the supply side, the maintenance of a standing army removes many workers, usually young males with less skills and education, from the civilian workforce. This demographic group ordinarily faces an especially high level of unemployment; some argue that drawing them into military service helps prevent crime or gang activity. In the United States, enlistment is touted as offering direct opportunities for education or skill acquisition, possibly to target this demographic.

In this sense, the military might act as an employer of last resort – it is an employment opportunity which tends to hire from the bottom (least qualified) part of the workforce, provides a decent standard of living, serves a useful social purpose, and offers jobs regardless of the state of the general economy.

Also on the supply side, it is often argued that military spending on research and development (R&D) increases the productivity of the civilian sector by generating new infrastructure and advanced technology. Frequently cited examples of technology developed partly or wholly through military funding but later applied in civilian settings include radar, nuclear power, and the internet.

Criticisms

The primary criticism of military Keynesianism faults not its economic intuitions but adverse social effects. Many assert that the maintenance of large peacetime armies and growth of military spending will lead a nation into war, while also encouraging militarism and nationalism. These critics often attack the argument that the military prevents young men from sinking into crime by claiming that many soldiers who return from war are worse off physically or mentally than they would have been as an unemployed worker at home.

A similar critique is military Keynesianism accelerates the growth of a military-industrial complex – industrial sectors largely dependent on military spending. Because the military-industrial complex is a large employer and constitutes a significant fraction of aggregate demand, it is politically difficult for the government to reduce deficit spending. The end result of this, it is feared, is a cycle of constant war and continually high military spending.

Other critics point out that while military R&D can sometimes find later application in civilian industries, it is less efficient than simply researching civilian applications directly. Many point to the recent examples of Japan and Germany, economies which have had great success in developing new technology despite low military spending compared to nations like the United States.

Finally, some critics, and even some supporters, contend that in the modern world, these policies are no longer viable for developed countries because military strength is now built on high-technology professional armies, and the military is thus no longer viable as a source of employment of last resort for uneducated young people.

Examples of Military Keynesianism

While the term was not in use at the time, the clearest historical example of military Keynesianism in action is usually acknowledged to be 1930s Germany, which rebuilt a crippled economy with enormous military production under a fascist government. This example illustrates both the potential positives of such policies in generating rapid growth, and also the negative social effects presented by critics.

In today’s discourse, the term is most frequently discussed in relation to the United States, particularly the administration of President Ronald Reagan in the 1980s. Reagan’s administration pushed for significant tax cuts, while increasing military spending to combat the Soviet Union. While this was in practice a policy suggestive of military Keynesianism, Reagan’s reasoning for the policy was not that it would spur economic growth, but that military spending was necessary to combat the threat of Communism.

For many in the United States worried about the adoption of these economic policies, fears of this were somewhat averted by reduced military spending in the 1990s in what was commonly described as a peace dividend for the end of the Cold War. However, the War on Terrorism and War in Iraq have brought such concerns to prominence once more.