The Misdirection of Military Keynesianism


Christopher Sims is a Non-Resident Fellow with the Modern War Institute at West Point

The muscular force posture articulated in the United States 2017National Security Strategy emphasizes a return to symmetrical military confrontation.  Some important historical clues as to the future trajectory and priorities involved in facing a return to great power rivalry can be found in the example of America at the end of World War Two. In the shadow of strategic uncertainty created by the post-war Soviet Union, an interagency top-secret report led by the Department of State promoted a policy of military Keynesianism that would come to shape US Cold War policy. Entitled the United States Objectives and Programs for National Security, and known as NSC (National Security Council)-68, this capstone Cold War report was delivered to President Truman in 1950 and fostered a prolonged era of enhanced defensespending in order to combat escalating Soviet aggression and simultaneously reinvigorate the domestic economy.

The NSC-68 document contained a message of enduring relevance to today’s world of Sino-US competition: namely, that the emerging Cold War would not be won through military confrontation alone, but was part of a wider global struggle to promote allegiance to competing political, social, and economic systems. The subsequent internal collapse of the Soviet system amplified by external economic forces reflected the relative societal, rather than military, strengths of the two powers.

Today therefore, a paramount aspect of national security in the face of this return to major power conflict lies in the implementation of focused and enhanced domestic spending that can produce the knowledge required to confront adversaries in society-centred warfare. One way in which this can be done is in giving particular emphasis to both broad-based and STEM education initiatives.

The Economic Foundations of Defense

The British economist John Maynard Keynes postulated the central role of the military in government spending in 1936 in what would later become known as military Keynesianism. Conflicts, Keynes observed bluntly, had the potential to create full employment as a nation mobilizes to confront an existential threat. The Polish economist Michal Kalecki investigated the relationship more deeply. Writing in 1943, Kalecki observedthe potentially stabilizing effects on society when using a government spending program to strengthen the services – the profession of arms in the United States being a respected national body under civilian authority, entrusted to defend the Constitution and the rights of American people. World War Two in the United States aligned theory and practice when defense investment offset the systemic unemployment of the Great Depression that had only been marginally stabilized by the New Deal-era. In the war’s aftermath, influential government bodies argued that the U.S. was not utilizing assets wisely, allowing competitors to gain clandestine military and economic advantages in a new and emerging confrontation between free and tyrannical societies.

The uncertainty prevalent in this newly disordered international system led the Truman Administration to create an ad hoc interagency working group in late 1949. The group’s top-secret report was handed to the president on 7 April 1950. Entitled United States Objectives and Programs for National Security and known as NSC (National Security Council)-68, it laid the foundations for Cold War military expansion in the United States. The report’s authors offered a blueprint to expand military spending as the default strategy for creating full employment. The document’s authors sought to offset the troubling growth in atomic weaponry stockpiled by the Soviet Union while simultaneously consolidating the defense industrial base that now faced shrinking contracts in the aftermath of the war. Macroeconomic growth would be achieved because enhanced defense spending would increase aggregate output. The authors of the document stressed the need to increase spending on armaments because “maintenance of a strong military posture is deemed to be essential” for national security and containment of the Soviet Union. The effects of increased defense spending for domestic livelihoods are made explicit: “One of the most significant lessons of our World War II experience was that the American economy, when it operates at a level approaching full efficiency, can provide enormous resources for purposes other than civilian consumption while simultaneously providing a high standard of living.”

The eminent economist James M. Cypher has highlighted the role that NSC-68 played in institutionalizing Keynesian macroeconomic theory into U.S. government practice. A senior staff member of the working group, Leon Keyserling, was working under Truman in the Council of Economic Advisers, where he advocated the use of federal deficits to facilitate economic growth. Keyserling integrated this thinking into NSC-68. Subsequently, defense spending as a percentage of Gross Domestic Product almost tripled between 1950 and 1953, increasing from 5 percent to 14.1 percent. This military spending expansion, and the rationale behind it, parallels the situation today. With recent sizeable increases in defense expenditure, the trend is set to continue in fiscal year 2019. The enlarged defense budget facilitates continuing overmatch and commences in fiscal year 2019 a multiyear force transformation “toward a new paradigm of thinking about and preparing for the possibility of major war.”But at the same time, increasing military expenditure by widening the budget deficit, the gap between government spending and receipts, will increase publicly-held debt. This will escalate an existing national security issue by preventing the government from adapting tax and spending policies to respond to unexpected challenges. It risks inflexible economic responses to unforeseen societal shocks, which would weaken political power in the face of major power competition.

The Dangers in Misdirected Discretionary Spending

TheNational Security Strategyreflects the context and content of the post-World War Two-era NSC-68 in ways that require comparison of the two reports. Both documents recognize the United States as a great power failing to utilize economic assets wisely, allowing rival actors to gain advantages in the international system. Just as NSC-68 characterized a national complacency in the aftermath of World War Two, so too the National Security Strategyidentifies a “strategic complacency” by the United States in the aftermath of the collapse of the Soviet Union during which time the armed forces were neglected, allowing repressive regimes to become relatively empowered and jeopardizing the stability of the post-Cold War unipolar moment. Reemphasizing major power tensions has a specific effect. It drives significant and complex military projects needed to combat near-peer competitors. The document states: “Significant investment is needed to maintain a U.S. nuclear arsenal and infrastructure that is able to meet national security threats over the coming decades.” David Sanger and William Broad writing in the New York Times identified the parallel government announcements “to spend billions of dollars building the factories needed to rejuvenate and expand America’s nuclear capacity.” These are next-generation nuclear weapons components intended to match Russia in a new nuclear arms race. The irony is that, in possession of a peerless fighting force, strengthening nuclear weapons stockpiles and promoting an arms race prevents conventional military escalation where the U.S. has an unparalleled advantage.

Similarly, the National Security Strategy advances space as a military domain. The intention to develop space-based platforms that could form the basis for a sixth military service echoes the Eisenhower Administration’s aspiration towards “full spectrum dominance” in creating the Advanced Research Projects Agency in 1958 to align technological developments to national security in the wake of Soviet advances in space-based technology. Next-generation nuclear weapons and the creation of a stand-alone space force will be potent tools used to push subsequent defense budgets higher than the growth in line with inflation set by the future years defense program. As Todd Harrison, Director of Defense Budget Analysis at the Center for Strategic and International Studies notes, the program is “an expression of administration policy, not a predictor of the future.”

There are three reasons to anticipate even higher spending in subsequent budgets. Firstly, the intellectual case of Russian and Chinese military expansion. For example, the issue of space security was raised recently by a State Department official, noting Russian deployment of a space object exhibiting “very abnormal behavior” which was a “very troubling development”. Secondly, the historical case. The Department of Defense has framed spending relative to Gross Domestic Product. In this way spending is at “near historic lows”, given the consistent growth in Gross Domestic Product in the last five decades. In absolute terms however, when adjusted for inflation, defense spending is at historic highs, more than a third higher than in 2000. Thirdly, military Keynesianism. The National Security Strategy aims to “Rejuvenate the Domestic Economy” by developing the defense industrial base, “a critical element of U.S. power and the National Security Innovation Base.” As Susanna V. Blume and Lauren Fish calculate in their detailed series of commentaries on the fiscal year 2019 defense budget, procurement has grown by 15 percent, more than any other title. Defense spending is therefore increasing despite the drawdowns in Iraq and Afghanistan. This self-perpetuating economy now emphasizes the militarization of new domains and arms races in competition with revisionist powers. That strategic grammar is a miscalculation that does not draw on the lessons of the Cold War. It fails to recognize that the critical battle will be a societal, rather than military one. To win, the government must harness national security thinking and expenditure to facets of the domestic arena that create broad-based societal gains, particularly in education because Western society is both a strength, and through its penetrability, a self-evident weakness.

The trade-offs in pursuing a strategy of military Keynesianism are well-known. The eminent British economist Joan Robinson in her 1971 Richard T. Ely Lecture to the American Economic Association argued that where diplomatic and military efforts had been “founded on economics” then there emerged a significant trade-off between domestic consumption and militarization to the detriment of the former. Failure to recognize society as the key domain in conflict between nuclear powers will jeopardize American hegemony in the Twenty-First Century. Continued and untrammelled pursuit of military Keynesianism as a macroeconomic tool is misplaced and the arms race misguided. Despite short-term macroeconomic gains, the strategy will erode much-needed domestic spending. Without change, diminished relations between the government and those it governs will weaken America’s “essential values”, complicating valuable alliances and hindering effective diplomacy.

Exacerbating the pernicious effects of military Keynesianism, the enlarged defense budget is a contributing factor to the increasing federal budget deficit. The non-partisan Congressional Budget Office (CBO) has estimated that by 2022, the budget deficit as a percentage of Gross Domestic Product will reach a historic high comparable to the aftermath of the 2007-2009 recession. The CBO predicts that these deficits will increase the total debt held by the public to 96 percent of Gross Domestic Product by 2028. That will be the largest volume since 1946 and more than double the average of the past fifty years. This debt will create a significant national security issue. Specifically, it will prevent the government from adapting tax and spending policies to respond to unexpected challenges. It will far surpass the 90 percent identified by Carmen Reinhart, Vincent Reinhart and Kenneth Rogoff as the historic threshold beyond which economic growth stalls.

This is a prominent, visible burden imposed on the nation by the pursuit of a policy of military Keynesianism. Even if the reverse and well-backed argument on the necessity of a budget deficit to promote growth, exemplified in the work of the Nobel-Prize winning economist Paul Krugman, holds true, current defense spending misdirected to complex weapons systems and militarizing domains still risks exacerbating the disconnect between current emphasis and future battles. Democracy is a political system that rewards legislators achieving short-term gains. But legislation does not occur in a vacuum: political actions have social consequences. One such example where district-level interests exist in tension with the larger defense mission is in congressional resistance to base closures that would have a deleterious impact on local communities. Senator John McCain consistently highlighted the problematic “military-industrial-congressional complex” that in its relationship to the economy is responsible for “priorities disconnected from threats that actually confront us today and are likely to confront us tomorrow.”

Broad-Based Education as a National Security Priority

Society remains the key arena in which victory between nuclear powers will be decided. In the journal Survival, Ariel Levite and Yoni Shimshoni stress the centrality of society in state actors’ strategies against Western interests: “Regardless of the particular form it assumes, warfare is essentially a confrontation between societies; hence, the social dimension of strategy is always pertinent.” Military Keynesianism places a heavy emphasis on military tools to dissuade aggression and can induce myopic decision-making that leads to catastrophic expenditure of blood and treasure. To change the focus, as the authors note, will be an arduous but fundamentally important task: ““society-oriented or -centric challenges are today even more prevalent and comprehensive in nature than has been understood (or at least acknowledged) by scholars and strategists, and that this has profound implications for strategy formulation in the West.” One way in which a generational change and evolution in language and conceptualization can be accomplished is through education.

Democracies have self-evident weaknesses in this battle, particularly the ease of penetrability. It was the authors of NSC-68 that observed: “Every institution of our society is an instrument which it is sought to stultify and turn against our purposes” and antagonists will continue “to make them sources of confusion in our economy, our culture and our body politic.” Recent concerns within the intelligence community at election tampering highlights the continuing relevance of that assessment and ongoing attempts to damage the legitimacy and viability of the democratic edifice. It behooves military planners to take a holistic view of defense, because the linkages between national security, the economy, and society are so obviously interrelated. Preventing the exploitation of domestic social fissures is a national security priority which will best be addressed by redirecting emphasis on defense from space and nuclear domains to producing world-leading human capital.

The societal benefits are explicit. In examining the potential effects of military versus domestic spending packages, a 2011 study found that investment in domestic spending priorities creates a larger number of jobs across all pay ranges with deeper benefit to the economy: “investments in the green economy, health care and education will produce between about 50–140 percent more jobs than if the same amount of money were spent by the Pentagon.” Whilst jobs in the defense sector are largely well remunerated, employment in sectors such as education can often additionally benefit low-income professionals. The authors found that dollar for dollar, “Spending on education is the largest source of job creation by a substantial amount, generating about 26,700 jobs overall through $1 billion in spending, which is 138 percent more than the number of jobs that are generated through $1 billion in military spending.” The American military budget is peerless. Now, emphasis should be accorded to the domestic arena where more valuable society-centric initiatives can be achieved with fewer dollars.

A significant societal deficiency exists in STEM education which if left unaddressed will become a major national security vulnerability. The complexity of today’s globalized world requires harnessing new knowledge to national security to understand its dimensions. It is a vastly different, more porous economic landscape that confronts the national security establishment today than in 1950. At the same time, and in different aspects of interaction, the United States can be engaged in collaborative, competitive, and confrontational stances with the same state actor. In what ways these exchanges and interactions constrain the military dimension of national policy are important and not well understood. The federal government should look to direct new STEM initiatives over and above ad hoc individual state programmes in what has become a“STEM-deficient nation” in order to produce future leaders able to address these current knowledge deficiencies.

All educational disciplines matter but in a transformative era of information technology a primary question for society and by extension national security policymakers, is how these emerging fields in STEM impact other disciplines. Whilst still very much in its infancy therefore, there is an urgent requirement to enhance interdisciplinary thinking in the academy, centered on the ways in which our understanding of the natural world, object design, and spatial and numerical relationships can enhance comprehension in other disciplines.

In the realm of national security, strong signals indicate the importance of concepts such as non-linearity, and the field of machine learning are already altering the ways in which theorists consider defensive and offensive initiatives. Overlapping economic, diplomatic and informational efforts to coerce democratic states, below the threshold that would risk military escalation require novel tools to inform our understanding. The effects are already pronounced. One recent paper, quoting George Kennan, argued that gone are the basic distinctions between “war” and “peace”, replaced instead with the “perpetual rhythm of struggle”. MIT’s recent announcement of a new College of Computing created in part to give its five schools “a shared structure for collaborative education, research, and innovation in computing and AI” emphasizes the potential value in collaborative disciplinary effort girded by innovative technology fields.

Insomuch as there may be a lesson of history, it is a simple but important one. Whilst NSC-68 articulated a highly militarized response to the rise of Communism, the ensuing Cold War was not won on any battlefield. The threat of nuclear war prevents decisive military escalation. Instead, the Soviet Union’s internal societal failure hastened by external forces facilitated a negotiated settlement. As a nation drawn again to confrontation with nuclear powers, society in the United States should be considered a vital aspect of strategic overmatch against adversaries. To that end, education spending should be considered a national security imperative. Whilst primarily a state and local obligation, as a sector, education does the most to ensure comprehensive job creation, promote domestic spending and more broadly, through systematic instructional development inoculates society against prejudicial interference in domestic affairs. Accordingly, the federal role in the system through broad-based initiatives such as Head Start and a deeper STEM focus should be amplified as critical national requirements. The ensuing opportunities facilitated by education and increasingly robust relations of reciprocity between government and those it governs will emerge as potent societal stabilizers in society-centered warfare.

Image: SGM Kenneth Agueda, then-sergeant major of the RDECOM G-3, talks with students June 17 during the five-day eCYBERMISSION National Judging and Educational Event at Hunt Valley, MD, via the US Army.

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