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The 2008 US Recession,
Military Keynesianism And
The Wars In The Middle East

By Peter Custers

30 October, 2008


In the first part of 2007, there was a striking coincidence between two kinds of speculative talk - speculation about the then impending recession in the US economy, and speculation about an open war by the US against Iran. Both forms of speculation were rife when the US's financial crisis had just started. As the incapacity of small house owners to pay for rising interest rates on their mortgages backfired against American banks who had provided them with loans, - the former president of the US Federal reserve, Greenspan, warned that these troubles could well snowball into a recession. Simultaneously, speculation in March/April of 2007 intensified about plans by US policymakers to launch air strikes against Iran. Such speculation about the eventuality of yet another US war, in which nuclear weapons would likely be employed, was of course not new. However, quite noteworthy is the fact that such speculative talk about war expansion ran parallel to talk about a new recession.

Meanwhile, the financial crisis which in early 2007 had barely started, has engulfed the entire world economy. Moreover, the crisis by now has actually emanated in a recession, a crisis in the realm of industrial production. The new periodic crisis has come very soon, i.e. hardly five years since the US had emergend from its previous recession in March/April of 2003. Signs that the financial crisis has reached the real economy became especially strong in July last, when international press reports highlighted the fact that US automobile manufacturers, foremost General Motors, had incurred huge losses during 2007 and during the first half of 2008. These facts moreover were quickly corroborated with facts indicating that the slump in the sales of cars is not limited to US car manufacturers alone, but affects production of other leading manufacturers of cars, including Japanese and German corporations. Yet while there is now broad recognition of the fact that the US economy and other Western economies face a periodic crisis, there is little discussion as yet on how the recession and militarism intersect.

2.Previous US Recessions and US Wars

In order to face this issue head-on, let's briefly review how previous recessions in the US economy have been related to US wars. Both the 1991 and the 2001-2003 recession happened to coincide, not with speculative talk about war, but with the launching of bloody wars in the Gulf region of the Middle East. The 1991 war, ostensibly intended to end Iraq's occupation of Kuwait, happened to take place at the very moment when the US economy passed through a brief recession. This was not accidental, for the war was premised amongst others on calculations made by US economic and military policymakers, that a shift in policy-orientation had become inevitable. Paradoxically, the 1991 Gulf war was not aimed at increasing the reliance of the US state on military allocations as leverage to keep the business cycle going, - but aimed at the opposite: a relative reduction in the size of the US's military budget, and a relative reduction in state orders for those corporation which dominate the US's military sector.

To understand this paradox, we need to be aware of the fact that military allocations during the period of the Reagan administration of the 1980s had functioned both as main leverage to steer the US's overall accumulation process, and had contributed towards the occurrence of a new recession. Since the world's media appear to have forgotten how they reported on Reagan's macro-economic policymaking in those years, it is necessary to emphasize the point: throughout the eighties, meaning from the beginning of the new business cycle in 1982 onwards, the US government did rely on military keynesianism to drive the economy. It notably engaged in deficit spending so as to support the overall demand for goods in society, which deficit was largely caused by the Pentagon's lavish purchases of armament systems, and by other purchases of military and civilian goods for the US army. And when this course of action by the end of the 1980s had become untenable, and the state had to partly scale down its military purchases, the Bush sr. government used the 1991 Gulf war inter alia to help US arms' corporations bag additional export orders, in replacement of orders by the US state.

The war which the US launched in 2003 for the overthrow of Iraq's Saddam Hussain regime once again was related, not just to the US's interest in controlling Middle Eastern oil, but also to a transition towards a new business cycle in the US economy. During the Clinton years of the 1990s, the military budget had remained exceedingly high, with observers reporting that US arms' spending continued to be equal to half the world's total. Yet military allocations were no longer a primary driving force of the business cycle, since this role during the given decade was fulfilled by the production of information technology. The 'plight' of the armament corporations can graphically be illustrated via the example of 'forced' mergers in the military sector. In order to maintain their capacity to produce, armament corporations were advised to merge, by none other than the US state secretary of 'defense'. The official encouragement resulted in a dramatic concentration of economic power in the military sector: only five giants remained.

The launching of the 2003 war has never been adequately explained, but was premised on the determination of the Bush administration to get a new business cycle going, by relying once again largely on military allocations. This was understood well by the world's press media, when they reported that during the second quarter of 2003 US military allocations accounted for 60 percent of resumed economic growth. The policy mix which the US government has been used this time round cannot be fully equated with that of the 1980s. For the Pentagon, even while obtaining a huge expansion in its budget along with huge extra-budgetary war allocations, has continued to advise military corporations that they should give due importance to exports, and has promoted a transatlantic policy of capital concentration to facilitate their access to import orders of European states. Nevertheless, a proper assessment of all, official and hidden, millitary-related allocations along with recognition of their multiplier effect, does lead to the conclusion that the Bush jr. government has been pursuing a policy of military keynesianism all through.

3.What Outcome from the Current Recession?

The above reflections on the history of US recessions and wars in the Middle East sufficiently indicate the need to discuss the present US recession in its relation to militarism. In what manner will US economic policymakers seek to draw the economy from its slump this time? First, there will be no let-up in war making in the Middle East. Although the launching of an open war against Iran seems unlikely at the present, - there is all reason to fear that the US will continue with its multiple aggressions against, and slaughter of people in, the Middle East. Very telling is the fact that Barack Obama, who seems set to win the upcoming US presidential elections, has announced he intends to intensify the war in Afghanistan, where the US and its NATO allies are bogged down in fighting the Taliban. In fact, there are increasing signs that the US considers the whole region of the Middle East and West Asia, including Pakistan and Syria, a legitimate theatre for the waging of war.

At the same time, there is little doubt that the US will continue to bank on military keynesianism as its preferred economic strategy. With military related spending having reached over a trillion (a thousand billion) US dollars, - the existence of macro economic effects covering both the military and the civilian sectors of the US economy can hardly be disputed. Surprisingly, the Bush administration earlier this year has taken recourse to a (small) programme of civilian spending to stimulate aggregate demand. Yet the 438 billion dollar budget deficit over 2008 has continued to be axed primarily on military and military related spending. Moreover, where ideological barriers against state intervention are being broken down, as part of overall western efforts to counter the threat of a financial collapse, it is not unlikely that the US and European policymakers will jointly seek to institute draconian state controls and regulate their economies along the lines of an expanded version of military keynesianism. Nouriel Roubini, the Wall Street economist who has gathered world fame by predicting the current world financial crisis, has already warned that the US economy may end up as a 'war economy', just as happened during the 20th century world wars. Clearly, it is time economists catch up, and engage in debate on the military underpinnings of economic policymaking in the US and beyond.

(Peter Custers is a theoretician on the political economy of arms' production, and is the author of 'Questioning Globalized Militarism. Nuclear and Military Production and Critical Economic Theory' (Tulika, New Delhi/Merlin Press, London/Independent Publishers' Group, Chicago, 2007)

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