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the 9/11 security state as failed right wing keynesianism

It is often said that war spending can bring an economy out of recession. I call this the Right Wing Keynesian Thesis. I’m usually skeptical. Spending on defense does not satisfy consumer demand, even if it does mean that some more people are employed in the short term.

In 2011, we have a new test of the theory – the post 9/11 security state. We have ten years of astronomical spending on two wars, homeland security and a vastly expanded intelligence apparatus. This spending has occurred as the economy recovered in the early 2000s, boomed in the mid-2000s and then tanked in 2007.

Collectively, we have spent about two trillion on defense and anti-terrorism beyond what was projected in the 1990s. The wars have cost $1.2 T. Homeland Security has cost about $50b a year, so add another $.5T to the total over last ten years. I have no idea about the cost of expanded intelligence, but the CIA alone costs about $27B – back in 1997. I’m sure it’s a bit more now. So let’s be conservative and say that it costs $50b a year since 2001. It’s probably way more.

Basically, the US economy, in the last ten years, has been stimulated to the tune of $2T. That’s about $200B+ a year. In other words, every single year, the US government, though defense, security and intelligence, has added on an extra “stimulus package” about 1/3 the size of the Obama stimulus, which was around $700b.

All this extra money, massive and likely underestimated, seems to have done nothing to tamper the business cycle. Furthermore, there’s a lot of evidence that wages have stagnated. Given that, the Right Wing Keynesians get a failing grade.

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Written by fabiorojas

June 22, 2011 at 12:55 am

8 Responses

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  1. Krugman would tell you that the problem is that on 9/11 we were close to full employment, so not much could happen, and during this Great Recession our deficits are still too small (and defense spending as a percent of GDP is still quite small compared to FDR’s day). Bush’s tax cuts might be regarded as right-wing Keynesianism, but I recall hearing that the scholarly consensus is that ricardian equivalence seemed to have held and they did not have much effect on the economy. As it happens, Krugman has since admitted that he was wrong about the resulting deficits from that period causing problems with regard to raising more federal debt, which is handy since he wants to encourage more deficits today (though of course on stuff more useful than invading Iraq).

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    TGGP

    June 22, 2011 at 1:17 am

  2. yeah, it seems like the way economics plays out in real life is that it not only matters how much you spend, but also how you spend and on whom – in addition to how widely the spending is distributed. tax cuts to the wealthy are probably going into the financial sector (i feel like the rich will probably buy up financial assets to fight inflation wiping out their wealth) – which could fuel speculative behavior. in fact, fred block has made the argument that when the rich get too much money speculation goes up.

    there’s also the argument that though in keynesian theory tax cuts and spending are about the same, dean baker and brad delong have also argued that tax cuts will just be hoarded whereas spending (which will ostensibly create jobs and thus wages) will “force” people to consume.

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    Andrew

    June 22, 2011 at 4:09 am

  3. I think speculation (investment) is as good as spending from the Keynesian perspective. It all goes into the GDP equation. It would be bad if people sit on their money, but as long as it keeps flowing it stimulates.

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    TGGP

    June 22, 2011 at 6:18 am

  4. I always thought the whole idea of a Reagan revolution in monetary/fiscal policy was overblown for this reason – it was basically Keynesian policy with a rightwing twist.

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    joshmccabe

    June 22, 2011 at 11:54 am

  5. From the conservative perspective, stimulating the economy is not an acceptable casus belli. Wars are fought for defense, sometimes for honor. You can argue the reality of that – Mexican War of 1848; maybe the Civil War; easily World War I; Vietnam, of course – but in every case, the stated purpose was national interest, not employment.

    Socialists worry about idle workers and socialists are amenable to war as World War I proved. Today, we call them “neo-conservatives” former New Deal liberals who want a strong (aggressive) US foreign policy.

    Among some of my Objectivist friends, there was a brief spat on one of the blogs over whether or not Ayn Rand’s essay “The Roots of War” revealed that she did not support America’s entry into World War II. The thesis and counter-arguments alike were extreme, but it underlines the fact that from Burke to Buckley the conservative philosophy gives very little attention to the problems that motivate the politicians resting on the theories of Keynes.

    That said, Prof. Fabio Rojas’s argument is undeniable. Conservatives are not concerned with the cost of war, but it does have a dense matrix of hidden costs.

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    Michael E. Marotta

    June 22, 2011 at 12:39 pm

  6. Even if we believe claims about the economic benefits of war as Keynesian stimulus, that probably shouldn’t shift anyone’s opinion on whether a particular war is overall a good idea. The multiplier can’t matter as much as the other consequences of war. That said, I think we should remain quite uncertain on the size of the multiplier and I don’t think any particular episode is very good evidence one way or the other.

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    Michael Bishop

    June 22, 2011 at 5:46 pm

  7. This is often referred to as the broken window fallacy. You break a window and employ people to fix it, demand, products……. The fallacy is that you are expending resources but not creating value. The people and products could have been used to create something new that someone would value (earning the providers satisfaction or remuneration). A war can focus a country on pulling together and sacrificing for the common good. But, obviously, the cost in lives, shattered emotions, etc…. can never justify war being good for anything other than overcoming some deep objective. So, it’s hard to imagine avoiding WWII or the Civil War. Though both had many critics. But, the idea that war is good for the economy is fallacious.

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    David Hoopes

    June 22, 2011 at 6:03 pm

  8. It usually helps when your additional spending doesn’t actively create harm. Even the “dig a ditch and fill it up” thought experiment is merely useless. In contrast a program that paid people to commit arson wouldn’t be that great for the economy.

    I’m thinking that a lot of the DHS activity is more arson than ditch digging. For instance, there’s a new NBER paper on declining revenues in the airline industry, much of which they attribute to the shock of 9/11. They don’t unpack this, but personally, I suspect that this is less about the fear of being murdered by terrorists than about (a) the time and annoyance of adding an additional half hour of humiliation compared to the status quo ante and (b) raising the taxes on tickets to pay for it. (About two weeks ago I was ashamed for my country when passing through JFK’s international terminal, where I saw TSA agents screaming at foreign tourists who were trying to comply but were confused by our byzantine security procedures).

    Of course, you can make a reasonable argument that absent these in-kind and pecuniary costs for DHS we would have even more severe direct and indirect costs from terrorism. For instance, I think it’s plausible that intrusive screening has pushed terrorists from carrying reliable pre-assembled bombs to crude bomb kits that take so long to assemble that other passengers notice what you’re doing and beat you to a pulp. However even if we accept that DHS is a necessary evil, this is not an argument about growth but about avoiding a counterfactual of even more severe problems. To put the shoe on the other political foot, the exact same argument applies to projections of the green economy. It may very well be that various efforts to make the economy more environmentally sustainable will help forestall catastrophic economic problems, but this is about avoiding a probable decline in wealth, not an argument about growth compared to the status quo.

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    gabrielrossman

    June 23, 2011 at 5:08 pm


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