That Time Joe Biden Tried to Ban Military Keynesianism
“It is not a proper function of the Department of Defense to make allowances for amounts needed to help stimulate the economy”
Yesterday, Politico reported that “the White House has been quietly urging lawmakers in both parties to sell the war efforts abroad as a potential economic boom at home.”1 Almost exactly 50 years ago, in the face of another war in the Middle East, the Nixon administration got in a bit of trouble over a similar bit of military Keynesianism. Joe Biden is old enough that he played a fascinating, entirely forgotten, role in the ensuring controversy.
In October 1973, the US responded to the latest Arab-Israeli war with significant military aid to Israel and requests for additional appropriations to support US power in the region. At just the same time, the deepest economic downturn since the 1930s was beginning. Internal documents show that the Nixon administration saw a connection between these two developments. At a December 1973 national security meeting, Nixon said “Don’t discuss jobs outside this room, but unemployment could go to 6–7%…To goose the economy, the private sector is the best place. In government the best place is the military.”
This wasn’t just idle talk but serious (or at least semi-serious) domestic policy. At one of these meetings, budget director (and major defense contractor) Roy Ash told Nixon, “We need to spend on things that have maximum impact on the economy in the short term,” estimating that a supplemental defense appropriation in January would hit in the summer. Nixon asked US Army Chief of Staff Creighton Abrams how to spend money so that it “would affect production.” The general quickly answered, “Tanks.” Always thinking of Southern California, then suffering from a post-Vietnam and post-Apollo “aerospace depression,” Nixon asked: “Won’t the C–5 and 747 produce jobs quickly?” But, even in private, the president felt obliged to make clear that the foreign policy goals were sincere, rather than contrivances created purely to serve domestic ends: “Don’t write any memos on this. We are doing it for the right reasons—the recession just gives us the excuse.” The right reason was that military spending “helps the country,” while “public service jobs—that means nothing to the country.”2
Word of all this reached Congress, which had been in an increasingly anti-militarist mood thanks to inflation, the defeat in Vietnam, and the urgency of competing budget priorities. George H. Mahon, chair of House Defense Appropriations, said he had it “on good authority” that the budget “had been increased by about $5‐billion ‘late in the budget cycle for the reason of stimulating the economy.’” Under questioning, Schlesinger admitted that “there is an element of economic stimulus in this budget. I think that is sound economic policy.” This statement, reported in the New York Times under the headline “Military Budget Spurs Economy,” echoed from the bulletin of Americans for Democratic Action to the newsletter of First National City Bank. As late as 1982, Schlesinger’s “excess of candor” was being cited in Congress as evidence of the economic origins of rising defense budgets. The remark remains one of the most open articulations of military Keynesianism in American history.
Schlesinger’s candor drew attention, but few seemed surprised by the practice itself. Michael Levy, a Conference Board economist, found it “not necessarily a bad way of priming the pump.” Charles Schultze (later head of Jimmy Carter’s CEA) worried only that the stimulus might be mistimed. As it happened, Schlesinger himself was a PhD economist, whose teachers included Alvin Hansen and who had published on Keynesian economics as well as special topics related to foreign policy. He justified his remarks to Congress by pointing them to “the macroeconomic literature.”
These were technical questions. Newly elected Senator Joseph Biden (D-DE) had normative objections. Provoked by Schlesinger, he proposed an amendment clarifying that “it is not a proper function of the Department of Defense, in determining the amount of the budget for that department for any fiscal year, to make allowances for amounts needed to help stimulate or otherwise effect a change in the domestic economy.”
Senator John Tower (R-TX) was willing to concede that defense should not be contrived solely for economic reasons but reminded his colleagues, “The fact is that defense spending is an economic stimulus in various areas of the country.” Tower insisted that Biden clarify that his amendment was not intended to prohibit “legitimately needed military expenditure” that also happened to serve as stimulus. Biden agreed, and with this stipulated, even the Pentagon “had no objection” to the amendment. The difficulty of identifying “pure” stimulus made it hard to outlaw military Keynesianism—however scandalous the idea of destructive job creation might be to an earnest Catholic boy from Scranton.
As unemployment rose to 9 percent, Congressional antimilitarism receded. One Hill staffer reported, “prospects of higher unemployment make increased defense spending particularly attractive” in 1974. The next year, the Wall Street Journal reported that the Ford administration believed “the current recession may protect much of the military budget from deep cuts.” In 1976, Congress reversed its post-Vietnam practice of cutting Pentagon proposals, instead adding billions to the request. Just as defense spending put a floor under the business cycle, the business cycle now put a floor under defense spending. New justifications, stressing the balance of trade or productivity gains, were found to fit the new maladies of the 1970s. A decade of record-breaking defense budgets was underway.
Since the end of the Cold War, the defense budget has declined markedly as a share of GDP. But the military Keynesian linkage—the idea, as James Schlesinger’s old teacher Alvin Hansen once put it, that “our military expenditures have not made us poor, they have put us to work”—remains part of the American political imaginary, no matter what’s going on with the economy at any given time. A report on U.S. Foreign Policy for the Middle Class, published in late 2018 by a team including Jake Sullivan and Jennifer Harris, reported “strong support for sustaining or increasing defense spending that provides an economic lifeline for working families and communities.” Klein and Pettis' Trade Wars are Class Wars, which appeared in mid-2020 and soon came to look like a clear augury of the Bidenomics shift, offered the following conclusion:
Federal spending could also help sustain demand for American manufactures even if the domestic market remained swamped by gluts from abroad. Increasing defense procurement is the easiest approach, but other measures could be more effective and should be considered. The goal should not be preventing foreigners from selling to Americans, but to [maintain] the existence of a domestic industrial base despite the distortions caused by underspending in the rest of the world (p. 227, emphasis added).
For the moment, at least, military Keynesianism is more likely to appear as rhetorical sugar coating for otherwise controversial foreign policy imperatives, rather than an actual domestic policy program. But it is striking how widely most people have come to accept the basic linkage which one struck a young Joe Biden (and not just him) as obscene and perhaps even criminal. The broader lesson, or one of them, is that the decades since the 1970s have witnessed a mutation of older Keynesian practices, not their negation. Since its origins in the 1930s, functional finance has taken different forms and served different projects—a point noted by Adam Tooze on more than one occasion:
Keynes dreamed of a shorter work week and the socialization of investment. Nixon bought South Vietnam the fourth largest air force in the world. But the Cambridge don and the crook from Orange County both recognized that private investment could not guarantee full employment. In our society, people need jobs but not everyone gets to have one. So long as that remains the case, we can expect to find, in some form, “strong support for sustaining or increasing defense spending that provides an economic lifeline for working families and communities.” The task Biden took up briefly in the 1970s remains our own.
Part of this post is adapted from my previous publication on Nixon’s military Keynesianism.
A minor point, but “boom” here seems like a solecism for “boon.” Either that, or the administration is wildly overhyping the potential effects of its supplemental appropriations request, which represents less than half of one percent of US GDP.
The complexity of the military-Keynesian tango comes out in this comment by Nixon:
We are helped right now by the Israeli crisis. That will help with the airlift; and energy, which will cause some slack in the economy. Not much, but we will get Congressional support to boosting the budget a bit. We need the money in defense—particularly in hardware areas. But we won’t get it unless there are good reasons. We won’t get unlimited amounts but we want to look at some ideas…My major concern is the power balance. But in order to sell it, we have to use the energy and airlift factors to get the money. (emphases added)
In other words, Nixon thinks the Israeli crisis is helpful because it contributes to energy crisis, which in turn will cause a recession, which in turn will make Congress more sympathetic to military spending. The recession is useful in winning a battle over the defense budget, rather than the defense budget being first-order useful in fighting an inherently undesirable recession.