Why Keynesian stimulus packages will not work
by Titus North, Pennsylvania Green Party
In 1971 Richard Nixon famously proclaimed “we are all Keynesians now.” That statement was made in the context of a slowing economy, and Nixon, believing a recession was responsible for his razor-thin loss to John Kennedy in the 1960 election, was ready to give up his traditional fiscal conservatism and engage in deficit spending in order to boost the economy and improve his re-election chances the following year.
Ironically, by 1971 true Keynesianism was already dead in the United States. Defi≠cit spending during recessions is only half of British economist John Maynard Keynesí prescription for fiscal management. The other half is running budget surpluses during times of economic expansions. And it was the Vietnam War that marked the end of Keynesianism, as large-scale deficit spending even during economic expansions be≠came the norm.
Except for the Internet Bubble years of 1999-2000, the federal government has run budget deficits (not including Social Security) every single year since Nixonís statement, and typically quite massive ones. So during almost all the boom years, we ignored Keynesí advice to run surpluses, but now when facing a depression we expect Keynesian stimulus to save us. It wonít work, and donít blame it on Keynes, regardless of what you think of him. He never said “borrow megabucks from China during expansions and then just print money during recessions.” Printing dollars to pay for stimulus will eventually lead to runaway inflation and completely undermine international faith in the dollar. Hyperin≠flation can cause depressions as easily as deflation.
Our economic system can well be de≠scribed as “economic militarism.” By this I mean not just that our economy is oriented towards war making, but also our economy is dependent on military might to allow us to dominate the international system and impose an economic order that in turn finances our military. Not only do we use our military to secure resources and markets, but we also use it to, in effect, bully foreign governments to purchase U.S. treasuries, keep dollars as a reserve currency, and support U.S. dominated international financial institutions.
However, domination is not the same as dictatorial control, and American domination has always required a considerable amount of cooperation from other countries. Furthermore, power has always been shared with markets. Moreover, recent history has shown that there are limits to what can be done with military might. The economic crisis demonstrates Americaís economic dependence on other countries and on markets is quite considerable. The co≠operation required to maintain the current U.S. dominated system cannot be taken for granted.
Therefore, in responding to the economic crisis, what we need is not a further ballooning of our already massive deficit, but rather a reorientation of our priorities. We must recognize that economic militarism is unsustainable. We already depend on funds borrowed from other countries to pay for our wars and overseas bases, but nobody will be willing to loan us real money only to be repaid with newly printed monopoly money. We might as well fold our cards and recognize the militaristic game we have been playing was not worth winning anyway.
Rather than deficit spending for its own sake, we should spend money on what we really need, like health care, genuine renewable energy, and education, and stop spending it on wars, overseas bases, and endless weapons systems. Economically speaking, we get very little “bang” from these bucks. I know that years of militaristic propaganda have given many Americans a deep psychological attachment to all things military, but we could even link the cut in military spending to cuts in income tax, dollar for dollar. What better way to educate people about how much militarism has been costing them?
There would still be plenty of corporate welfare programs, such as corn-based ethanol, that could be eliminated to make room for more important spending priorities. And do we really need to be sending people into space? Who are we trying to impress? There are a lot of worthy programs included in the Obama stimulus package, but the whole thing is doomed to failure if we go into hyperinflation. Iím not saying we have to balance the budget this year, but letís cut out the massive waste that not just does no good but does us real harm.
Titus North teaches political science at the University of Pittsburgh and is a two-time Green Party candidate for U.S. Congress. His latest novel, Operation Patriotic Toilet Seat, is available through enlightened-pyramid.com.
We must recognize that economic militarism is unsustainable.