Back in the good old depression days, J Maynard Keynes worked out how to kick start a faltering economy: the government had to pump liquidity into its rusty bearings. It was okay for the government to run up debts during the downside of the cycle and when indices were indifferent, but it would be no bad thing if some of the money borrowed was buried in glass jars while some of the rest was used to hire the unemployed to dig it out. Of course, it would have been much better if the money were spent on useful things like infrastructure, schools and hospitals, but you did whatever was needed to get people working and buying again.
For the last 20 years, we have been told that Keynesianism is dead and that neoliberal economics are the way of the future, the keystone of economic success. Of course, this is very much a case of ‘do as I say, not as I do.’ Much of the recent growth of the US economy has in reality been based on a somewhat over-enthusiastic application of Keynesian principles by government.
The federal government has been running up debts for decades, and doing much cleverer things than burying money in jars. It has discovered the equivalent of a perpetual motion machine: it borrows money – from social security contributors, the Japanese, and all the other governments and individuals to whom it can pass off paper dollars as a reserve currency – and then it invests the funds in domestic subsidies for sugar, wheat, tobacco, prisons, police and, above all, military equipment builders.
To really see Keynesianism in operation, then you need a good war, preferably one that does not destroy your own assets. It’s not surprising that World War II marked the end of the depression for most countries, although it was certainly a depressing experience for too many individuals involved. Governments borrowed, taxed and printed money to fuel the war machine, which led to zero unemployment and high growth rates.
One of the modern age’s greatest economic inventions was the cold war, which, except for a few bloody interludes like Vietnam and Korea, offered all the benefits of a bellicose boost to the economy that a full scale, multi-theater war could give, without casualties or collateral damage to property.
The cold war was so successful that even now, eight years after the Berlin Wall has fallen, Congress is still waging it. Instead of burying money in jars, it mandates spending on weapons that we neither need nor want, like aircraft that are promptly mothballed to clog up the desert airfields of Arizona, or warships that rust in ports around the nation.
Almost 15 years after Reagan was seduced by a cabal of science-fiction buffs and industrial lobbyists, Star Wars gobbles up immense amounts of cash without producing a single workable system.
Although it has indeed put a lot of people to work, added oodles of shareholder value for some stockholders, and kept the economy rising relatively well, if not quite putting it in orbit, it has not actually put any weapons in space.
Since there’s no longer a serious threat of a nuclear holocaust, which was one of the more potentially serious downsides of the cold war, why shouldn’t they carry on? If the Dow can soar and the missiles stay in their silos, surely it’s good news all round?
Really, this is a roundabout way of achieving and maintaining economic growth.
The triumph of monetarist principles, if not practice, means that congresspersons do not want the government poking its nose into areas where it doesn’t belong.
Representatives who regard each welfare check to a single mother as an outrage against heaven are happy, indeed ecstatic, to vote money for missiles, prisons and police, because that’s what they think government is for. But at the same time, they are paralyzed at the thought of putting a dime or so tax on a gallon of gas – a dime that could almost wipe out the deficit at a stroke.
Without a hot war, or even a hint of a chill on the world horizon, it is difficult to get taxpayers to finance all this military stuff. And if you are the only country being so lopsidedly profligate, what effect does this waste of human resources have on your future competitiveness? What if all those Japanese and foreigners suddenly wanted their money back to put into euros or yen?
A science fiction fan myself, I’d like to put dibs on some of this cash.
Why not put the resources into manned expeditions to the moon and Mars? It beats baying at the moon – a frequent occupation on Capitol Hill – or invoking the god of war. It would create a huge demand for technical education, glamorize science and generally have lots of economic spin-offs.
People may say that the only spin-off from the moon-shot program was the non-stick frying pan, but that overlooks such science-linked benefits as better communications, satellite broadcasting and the Internet.
Of course, to get it going we’d have to persuade everyone that the Martians were enemies, perhaps by inviting people to draw their conclusions from Mars’ longstanding, suspicious name as the ‘red planet’.
But why not?
Anyone who’ll buy a stealth bomber the Pentagon says it doesn’t want surely would buy a Mars expedition – or even the Brooklyn Bridge – if the sales chat was good enough.
The Speculator
