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Home | Blog | We Are All Keynesians Now

We Are All Keynesians Now

For all those closeted Keynesians still lurking out there touting the positive effects of government spending on economic growth, I offer this follow-up to Jeff Tucker's post. An article in the NY Times states:
Neither [political] party addressed the unexpected contribution of military spending to economic growth. It accounted for $17.4 billion of the $108.5 billion increase in the G.D.P. in the first quarter, adjusted for inflation. Not since the second quarter of last year, when the war started, has military spending been so important to growth. Most of the increased spending went to the Air Force, for "base support equipment," the Bureau of Economic Analysis reported. Very little went for weaponry, although that might change if the fighting continues to escalate.
This all brings to mind a principle that Ludwig von Mises enunciated so well in Human Action: As war becomes the driving force of an economy, it is inevitable too that it will become "a convenient pretext for innumerable measures of government interference with business which in many countries step by step led to full 'war socialism'." The current administration has advanced the cause of both domestic and foreign intervention. And in the long run, this turn toward the war economy is going to have vast implications for both freedom and prosperity. Well, in this context, Keynes was right about one thing: "In the long run, we are all dead."
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