The
2008 US Recession,
Military Keynesianism And
The Wars In The Middle East
By Peter Custers
30 October,
2008
Countercurrents.org
1.Introduction
In the first part of 2007, there was a striking coincidence between
two kinds of speculative talk - speculation about the then impending
recession in the US economy, and speculation about an open war by
the US against Iran. Both forms of speculation were rife when the
US's financial crisis had just started. As the incapacity of small
house owners to pay for rising interest rates on their mortgages backfired
against American banks who had provided them with loans, - the former
president of the US Federal reserve, Greenspan, warned that these
troubles could well snowball into a recession. Simultaneously, speculation
in March/April of 2007 intensified about plans by US policymakers
to launch air strikes against Iran. Such speculation about the eventuality
of yet another US war, in which nuclear weapons would likely be employed,
was of course not new. However, quite noteworthy is the fact that
such speculative talk about war expansion ran parallel to talk about
a new recession.
Meanwhile, the financial crisis which in early 2007 had barely started,
has engulfed the entire world economy. Moreover, the crisis by now
has actually emanated in a recession, a crisis in the realm of industrial
production. The new periodic crisis has come very soon, i.e. hardly
five years since the US had emergend from its previous recession in
March/April of 2003. Signs that the financial crisis has reached the
real economy became especially strong in July last, when international
press reports highlighted the fact that US automobile manufacturers,
foremost General Motors, had incurred huge losses during 2007 and
during the first half of 2008. These facts moreover were quickly corroborated
with facts indicating that the slump in the sales of cars is not limited
to US car manufacturers alone, but affects production of other leading
manufacturers of cars, including Japanese and German corporations.
Yet while there is now broad recognition of the fact that the US economy
and other Western economies face a periodic crisis, there is little
discussion as yet on how the recession and militarism intersect.
2.Previous US Recessions and US Wars
In order to face this issue head-on, let's briefly review how previous
recessions in the US economy have been related to US wars. Both the
1991 and the 2001-2003 recession happened to coincide, not with speculative
talk about war, but with the launching of bloody wars in the Gulf
region of the Middle East. The 1991 war, ostensibly intended to end
Iraq's occupation of Kuwait, happened to take place at the very moment
when the US economy passed through a brief recession. This was not
accidental, for the war was premised amongst others on calculations
made by US economic and military policymakers, that a shift in policy-orientation
had become inevitable. Paradoxically, the 1991 Gulf war was not aimed
at increasing the reliance of the US state on military allocations
as leverage to keep the business cycle going, - but aimed at the opposite:
a relative reduction in the size of the US's military budget, and
a relative reduction in state orders for those corporation which dominate
the US's military sector.
To understand this paradox, we need to be aware of the fact that military
allocations during the period of the Reagan administration of the
1980s had functioned both as main leverage to steer the US's overall
accumulation process, and had contributed towards the occurrence of
a new recession. Since the world's media appear to have forgotten
how they reported on Reagan's macro-economic policymaking in those
years, it is necessary to emphasize the point: throughout the eighties,
meaning from the beginning of the new business cycle in 1982 onwards,
the US government did rely on military keynesianism to drive the economy.
It notably engaged in deficit spending so as to support the overall
demand for goods in society, which deficit was largely caused by the
Pentagon's lavish purchases of armament systems, and by other purchases
of military and civilian goods for the US army. And when this course
of action by the end of the 1980s had become untenable, and the state
had to partly scale down its military purchases, the Bush sr. government
used the 1991 Gulf war inter alia to help US arms' corporations bag
additional export orders, in replacement of orders by the US state.
The war which the US launched in 2003 for the overthrow of Iraq's
Saddam Hussain regime once again was related, not just to the US's
interest in controlling Middle Eastern oil, but also to a transition
towards a new business cycle in the US economy. During the Clinton
years of the 1990s, the military budget had remained exceedingly high,
with observers reporting that US arms' spending continued to be equal
to half the world's total. Yet military allocations were no longer
a primary driving force of the business cycle, since this role during
the given decade was fulfilled by the production of information technology.
The 'plight' of the armament corporations can graphically be illustrated
via the example of 'forced' mergers in the military sector. In order
to maintain their capacity to produce, armament corporations were
advised to merge, by none other than the US state secretary of 'defense'.
The official encouragement resulted in a dramatic concentration of
economic power in the military sector: only five giants remained.
The launching of the 2003 war has never been adequately explained,
but was premised on the determination of the Bush administration to
get a new business cycle going, by relying once again largely on military
allocations. This was understood well by the world's press media,
when they reported that during the second quarter of 2003 US military
allocations accounted for 60 percent of resumed economic growth. The
policy mix which the US government has been used this time round cannot
be fully equated with that of the 1980s. For the Pentagon, even while
obtaining a huge expansion in its budget along with huge extra-budgetary
war allocations, has continued to advise military corporations that
they should give due importance to exports, and has promoted a transatlantic
policy of capital concentration to facilitate their access to import
orders of European states. Nevertheless, a proper assessment of all,
official and hidden, millitary-related allocations along with recognition
of their multiplier effect, does lead to the conclusion that the Bush
jr. government has been pursuing a policy of military keynesianism
all through.
3.What Outcome from the Current Recession?
The above reflections on the history of US recessions and wars in
the Middle East sufficiently indicate the need to discuss the present
US recession in its relation to militarism. In what manner will US
economic policymakers seek to draw the economy from its slump this
time? First, there will be no let-up in war making in the Middle East.
Although the launching of an open war against Iran seems unlikely
at the present, - there is all reason to fear that the US will continue
with its multiple aggressions against, and slaughter of people in,
the Middle East. Very telling is the fact that Barack Obama, who seems
set to win the upcoming US presidential elections, has announced he
intends to intensify the war in Afghanistan, where the US and its
NATO allies are bogged down in fighting the Taliban. In fact, there
are increasing signs that the US considers the whole region of the
Middle East and West Asia, including Pakistan and Syria, a legitimate
theatre for the waging of war.
At the same time, there is little doubt that the US will continue
to bank on military keynesianism as its preferred economic strategy.
With military related spending having reached over a trillion (a thousand
billion) US dollars, - the existence of macro economic effects covering
both the military and the civilian sectors of the US economy can hardly
be disputed. Surprisingly, the Bush administration earlier this year
has taken recourse to a (small) programme of civilian spending to
stimulate aggregate demand. Yet the 438 billion dollar budget deficit
over 2008 has continued to be axed primarily on military and military
related spending. Moreover, where ideological barriers against state
intervention are being broken down, as part of overall western efforts
to counter the threat of a financial collapse, it is not unlikely
that the US and European policymakers will jointly seek to institute
draconian state controls and regulate their economies along the lines
of an expanded version of military keynesianism. Nouriel Roubini,
the Wall Street economist who has gathered world fame by predicting
the current world financial crisis, has already warned that the US
economy may end up as a 'war economy', just as happened during the
20th century world wars. Clearly, it is time economists catch up,
and engage in debate on the military underpinnings of economic policymaking
in the US and beyond.
(Peter Custers is a theoretician on the political economy of arms'
production, and is the author of 'Questioning Globalized Militarism.
Nuclear and Military Production and Critical Economic Theory' (Tulika,
New Delhi/Merlin Press, London/Independent Publishers' Group, Chicago,
2007)
