Military Keynesianism in Iraq
By Staff News & Analysis - September 13, 2010

Iraq seeks U.S. arms worth $113 billion … As U.S. forces move into the final phase of the withdrawal from Iraq, Baghdad is seeking to buy U.S. weapons worth up to $13 billion. These include F-16 fighter jets and M1A1 main battle tanks, the same systems the Americans used to crush Saddam Hussein in 2003. That's a bonanza for U.S. defense contractors, who increasingly rely on exports to keep production lines running for U.S. forces, and should keep Iraq, Iran's western neighbor, in the U.S. military orbit for the next couple of decades. U.S. officials say about half the contracts involved have been finalized, with the others still under negotiation. – UPI

Dominant Social Theme: America will continue to protect Iraq's fledgling democracy.

Free-Market Analysis: We have no idea where Iraq is getting the money to buy its weapons. Presumably, Iraq will print some money and borrow the rest. The money will essentially act as a claim on Iraq's productivity as the Iraq political and military elite arm themselves first for domestic reasons and then to combat vague international threats, according to the article. An expanded dominant social theme would be, "Iraq has emerged as a democracy within the region and now must protect its freedom by being prepared for war."

In fact, these purchases reveal more about how war is waged by the Anglo-American axis and why it is so immensely profitable for those directly involved with the supplies for war, etc. These purchases also reveal why there is so much nervousness in Baghdad over America's quasi-departure. It seems more obvious than ever that those who are currently cooperating with the American invasion of Iraq and who are invested in the current political process stand to benefit a good deal from the upcoming "peace."

It has been fascinating, generally, to watch the Iraq war because unlike the Viet Nam war where there was literally no justifiable pretext for the invasion other than Saddam Hussein's brutality. Of course if this is to be America's trigger point for war, then the US should actively invade a number of other countries as well around the world. For us, the invasion was not helping Iraqis or even about nation-building. It was really part of a larger strategy aimed at intimidating and then pacifying the Muslim world for purposes of global government.

The Middle East and Islam generally remains unavailable to Western-style regulatory democracy but from our point of view through various applications of hard and soft force the Anglo-American elite aims to change this. We remain unsure as to whether they will succeed. Here's part of an article in Arab News on the costs of the war and its effects:

– Iraq remains destabilized and torn by sectarian strife. The local police and security forces are ill-equipped to enforce law and order due to divisions among themselves, lack of training and experience. It was for nothing that Americans disbanded the Iraq Army immediately after the invasion.

– It is estimated to have cost 100,000 to 150,000 Iraqi lives and over 4,400 allied troop lives. There is another cost: The trauma of an entire generation of Iraqi children witnessing inordinate levels of violence, death, guns, bombs, and bullets. Over 2 million Iraqis live as refugees. An equal number has fled the country. …

– It is unfortunate that many US presidents get embroiled in unnecessary and unwinnable wars; e.g. Johnson and Nixon in Vietnam, Bush Sr. and Bush Jr. in Iraq and now Obama in Afghanistan …

The wars in Iraq and Afghanistan, unfortunate as they are, may be seen not only within the larger ambit of the elite's ambition for global governance but as the outcome of the West's increasingly perverse economic system.

It is acknowledged by many, even within the mainstream historical community, that World War II helped remove the United States and to a lesser extent Britain from severe and ongoing economic difficulties. Likewise, one could argue, military adventurism in Iraq helped provide an antidote to the US economic malaise of the late 1980s; the entry into the first Iraq war at the beginning of the 2000s may have proved helpful in ameliorating the damage done by the tech crash.

We have recently stumbled on the phrase "military Keynesianism," and more and more we wonder if this is not an apt description of the system that the Anglo-American axis has put into place. We found a definition of military Keynesianism at Wikipedia as follows:

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 supplied as examples of such policies are Germany in the 1930s and the United States in the 1980s and 2000s, although whether these assessments are accurate is the subject of vigorous debate. Noam Chomsky refers to the current US implementation of Military Keynesianism as "The Pentagon System".

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, from the civilian workforce. In the United States, enlistment is touted as offering direct opportunities for education or skill acquisition. 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.

Of course all this is nonsense. It is part of the well-known "broken-window fallacy" and therefore partakes of the dubious assumption that one can create prosperity by destroying things and then rebuilding them. In fact, there is certainly logic to the idea that destruction creates prosperity if one simply looks at World War II from the American point of view. But a ruined Europe surely paid the price for America's resurgence.

When we researched the literature further, we found that free-market thinker Robert Higgs, Senior Fellow in Political Economy for The Independent Institute, had written on this very issue in January 2009. In article entitled Military Keynesianism to the Rescue?, he responds to an editorial in the Wall Street Journal appearing in December 2008, by Martin Feldstein entitled Defense Spending Would Be Great Stimulus. Below, we have excerpted some of Higgs' rebuttal.

The title tells you everything you need to know: military Keynesianism is the medicine being prescribed by a leading figure of the politico-economic Establishment – a Harvard professor, former chairman of the Council of Economic Advisers, former president of the American Economic Association, president emeritus of the National Bureau of Economic Research and member of the President's Foreign Intelligence Advisory Board. That a man so drenched in professional honors and attainments would be peddling such long-discredited claptrap speaks volumes about the state of mainstream economics. When you think it can't sink any lower, it does. …

Keynesian economics rests on the presumption that government spending, whether for munitions or other goods, creates an addition to the economy's aggregate demand and thereby brings into employment labor and other resources that otherwise would remain idle. The economy gets not only the additional production occasioned by the use of these resources, but still more output via a "multiplier effect." Hence comes the Keynesian claim that even government spending to hire people to dig holes in the ground and fill them up again has beneficial effects: even though the shovelers create nothing of value, the multiplier effect is set in motion as they spend their money income for consumption goods newly produced by others. …

How much better it would have been if the wisdom of Ludwig von Mises had been taken to heart. In Nation, State, and Economy (1919), Mises wrote: "War prosperity is like the prosperity that an earthquake or a plague brings." The analogy was apt in World War I, in World War II, and during the Cold War. It remains apt today. Contrary to the claims of Keynesian economists, government's deficit spending will not generate something for nothing; it certainly will have opportunity costs. When the government's spending goes to maintain a bloated military-industrial-imperial apparatus, the opportunity costs are even greater, because they include lives and liberties, as well as the usual economic sacrifices.

Robert Higgs' recent interview with The Daily Bell can be seen here: Robert Higgs Interview.

Keynesianism is truly a disease of the West, an economic theory that does not die. Simplified to its most basic components, it uses force to grant government (and the shadowy, mercantilist elite behind it) the power to print money via central banks. Central banks then overprint money causing endless economic misalignments that result in booms and busts. Having impoverished society, those in charge of the printing presses are tempted to "stimulate" the domestic economy (and their own bank accounts) by creating war.

After Thoughts

Always, Keynesianism is destructive. It spreads poverty at home and violence abroad. It centralizes power wherever it is practiced, so that the banking establishment and the military complex are inexorably pressed together until they are virtually one unit. Eventually, a large portion of a nation's creativity and creation may be co-opted by military production and subsequent sales. This is the political system that the West has exported to Iraq and is in the process of attempting to spread to Afghanistan. We prefer free markets.