ECONOMY (CONT) 

At the time, Kalecki's best example of military Keynesianism was Nazi Germany. But the concept does not just operate under fascist dictatorships. Indeed, it has been taken up with enthusiasm by the neo-liberal right wing in the United States.

Ronald Reagan famously resorted to deficit spending, using talk of the Evil Empire and communist threats from Central America as his excuse to ratchet up the military budget. In 1984, the deficit rose to a whopping 6.2 per cent of GDP. Consequently, the economy grew by more than 7 per cent that year, and he was re-elected by a landslide.

The corollary of the Reagan military boom was a sharp cutback in social spending, something that was not reversed under Bill Clinton and is now back on the agenda with George Bush. State and local budgets are all in crisis because of the recession of the past two years. The fact that the White House is not using federal dollars to help them finance schools, hospitals and police forces hurts all the more because these things have now been underfunded for a generation.

The Bush deficit has not yet reached Reaganesque proportions (it stands at roughly 4.5 per cent of GDP). But Professor Pollin, for one, predicts that the resulting debt burden could rapidly rise to the levels seen in the 1980s, with interest repayments eating up as much as 18-19 per cent of the overall federal budget.

Professor Pollin does not share the Clinton administration view that deficits are always bad. In classic Keynesian fashion, he believes they are necessary and desirable to pull countries out of recession. But he, like the generation of economists who criticized Reagan's policies, thinks the priorities are wrong - as well as overtly bellicose - and will have repercussions for years or even decades to come.

"The long-term effects of military Keynesianism are obviously negative on public infrastructure, health, education and so on, and there are limits on how long you can keep it up," he said. "What we borrow we will eventually have to pay back, with interest."

Published on Tuesday, January 6, 2004 by the lndependent/UK

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