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Keynes in Uniform

by Edelbert Richter Saturday, Feb. 05, 2005 at 2:38 PM

Bush seems to have learned the same thing as former president Reagan from the histori-cal experience of the 1930s.. What helps are tax cuts and cuts in social spending.


By Edelbert Richter

[This article originally publoished in: Ossietzsky 5/2004 is translated from the German on the World Wide Web,]

That the “war against terror” began in a severe economic crisis encouraged the old dumb ideas. If we go back in history, the military hegemony of the US undeniably had its origin in the unmastered economic crisis of the 1930s.

Roosevelt with the New Deal succeeded in softening the crisis but could not overcome it. Compared to later interventionism, the state was still kept in modest limits. Growing resistance from the Supreme Court and his own ranks of the Democratic Party hindered the president in his second term in office. Thus the 1938 reform zeal ended. The number of unemployed that amounted to over twelve million in 1933 and then fell to under eight million rose again to more than ten million in 1938. The US share in world industrial production was even less than in 1932.

The mobilization for war and arms production led the economy of the United States out of the ten-year crisis. Unlike Europe, the US experienced the war as a time of economic upswing, not as a time of economic distress. From 1939 to 1945, the number of unemployed fell from ten million to less than one million. Industrial production doubled and the gross domestic product grew from billion to 1 billion. This was attained by increasing state activity in relation to the private economy. Until then this was unthinkable from the American tradition. The state relieved businesses of the financial risks of conversion to arms production and allowed violations of anti-trust laws. The armed forces were the greatest investor and customer of the economy. Thus the annual spending for the military that only amounted to three billion dollars in the 1920s and nine billion in the 1930s rose to billion by 1945.

With that, the ground was laid for the civil Keynesianism of the “Golden Age” (Eric Hobsbawm) that lasted to the start of the 1970s. However this long-lasting prosperity was secured through enormous arms spending above all in the Korean- and Vietnam wars. This military Keynesianism continued even after the neoliberal turn of 1980. The so-called military-industrial complex that emerged from the war economy of the early 1940s still exists today.

The conclusion seems obvious that the US economy automatically demands armaments and otherwise cannot function. Didn’t Roosevelt with his arms policy react primarily to the hopeless situation of his own civil economy and not to the threat by Hitler? Wasn’t the Cold War together with the threat of nuclear destruction a great theater to keep American capitalism going more than to combat socialism? Didn’t Reagan’s massive armaments force social interests to their knees, not primarily the Soviet Union? According to an analysis from the Reagan era (Erwin Muller: “Armament Policy and Armament Dynamic”: The Case of the US). This so-called internal control theory cannot explain the armament dynamic of the US. The foreign policy and foreign economic causes must be considered.

However Bush seems to have learned the same thing as former president Reagan from the historical experience of the 1930s. Socially oriented programs like the New Deal do not help capitalism out of crisis. What helps are tax cuts and cuts in social spending. That explains the great tax cut programs announced in 2001 and 2003. These would supposedly lead to such an economic dynamic that the state would even collect more taxes at the end. When that did not happen (and cannot happen), the state openly accepted new indebtedness. While the Federal budget still registered a surplus in 2000, there was already a deficit of 5 billion in 2002 that expanded to 5 billion in 2004 and will probably reach 5 billion in 2005. This impudent indebtedness is new in relation to the 1930s. This indebtedness opposes the liberal economic command of a balanced budget. The subservience toward the wealthy is openly admitted. The initiative is transferred to them.

The republicans have learned a second thing from the history: One should not wait as long as Roosevelt with armaments and war to master the crisis. Therefore Bush raised arms spending 30 percent compared to 2000. The costs of the Iraq war are not clear. So war becomes the normal means of politics again.

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