This is a presentation by economist Grace Blakely speaking last month at a DiEM25 event in Brussels charmingly titled, “WTF Happened To Europe?” She’s the author of Vulture Capitalism: Corporate Crimes, Backdoor Bailouts, and the Death of Freedom (2024). (1)
What she discusses in her 20-minute presentation is the implications of “military Keynesianism” in the new European push to develop military defenses as independent as possible from the rogue state that Trump 2.0 is trying to make of the US. Military Keynesianism is not at all a new term. But it’s acquired new significance, especially in the European context.
Following the Russian invasion of Ukraine, Western governments are committed to increased defense expenditure. But their armaments industries, under conditions of peace-time economic efficiency, do not have the spare capacity to ramp up production. Many are already operating shifts around the clock to satisfy orders comings in. To increase production they need to invest in new capacity. However, this is only worthwhile if armaments companies can be assured of contracts into the future expected lifetime of any new productive equipment. Industrialists with interests in arms supplies are now complaining about the time it takes to get contracts signed. An additional worry for them is the prospect of peace breaking out, which may leave armaments manufacturers with costly, but unused productive capacity that may have to be scrapped with the next technological innovation. (Much the same dilemma is faced by oil and natural gas producers who are being urged to expand production to replace sanctioned Russian supplies).Classical Marxist theory looked forward to the day when “private property in the means of production” would be abolished by nationalization. Marx himself in one of his most famous phrases called it the moment when: “The expropriators are expropriated.” (3)
In short, weapons producers want governments to underwrite the profitability of their investments. This is precisely the alliance between industry and the state that formed the basis of the military Keynesianism that Michal Kalecki criticized during the 1950s. He showed how, at the height of the Cold War, Western governments subsidized private capital with arms contracts paid for by taxpayers. This arrangement lay at the heart of what has come to be described, somewhat misleadingly, as a ‘golden age’ by heterodox economists, who lament its replacement by “neoliberalism.” The real danger is not neo-liberalism but the takeover of the state by industrial interests which cannot be denied because of the external and internal threats to democracy. (2)
Of course, expropriating expropriators doesn’t require anything so dramatic as the Bolshevik Revolution. In fact, the US does this with banks on a regular basis when they fail. The Federal Deposit Insurance Corporation (FDIC) puts them into receivership, reorganizes their operations and recapitalizes them, then privatizes them again. It’s a process that’s much less destructive than good ole financial panics and bank runs. And it works well, so I hope nobody tells Elon Musk and his incel programmers about it yet. They would probably try to shut down such an un-“libertarian” practice immediately.
I’m fond of the idea of the US expropriating its own private health insurance industry in favor of government-managed insurance. A system we could call “Medicare for All,” or something like that.
In theory, nationalizing the defense industry would also make practical sense because it would theoretically remove the private-property incentives that drive the current military-industrial complexes. Less drastically, the US during the Second World War pursuing active investigations into corruption in military contracting, including the Senate Special Committee to Investigate the National Defense Program headed by Missouri Sen. Harry Truman, more commonly called the Truman Committee.
In reality, of course, a nationalized company can also generate corruption and practice lobbying. Auditing and oversights are at least as important for public agencies and public-owned companies as they are for private ones. (4)
It’s notable that Trump’s Muskovites are putting more energy into concocting fake claims of “waste, fraud, and abuse” in Social Security and Medicaid than they are focusing on the difficulties of the Pentagon in passing audits. The “Department of Defense (DOD) is the only federal agency that has never passed a financial statement audit.” (5)
Military Keynesianism and economic stimulus
Military spending can be stimulative to a national economy. In fact, it’s tacitly assumed in US politics that military spending is always good for the economy in general. The Pentagon has been careful to put spreads such benefits to all Congressional districts in the country, making military spending a very visible benefit at home for every Member of Congress. The Congressional Research Service last year put out a current description of such benefits:
Every congressional district has some military-connected constituents, such as active-duty servicemembers, reservists, retirees, DOD employees, contractors, and/or military families. During the legislative cycle, Members may weigh decisions about compensation, benefits (e.g., health care, leave time), and other policies that affect these populations. The basic MILPERS spending questions facing Congress on an annual basis typically include “How many people?” and “How much to pay them?” (6)Grace Blakely in her presentation points out something that has been the case for decades: the war economy, by the way, is also a very inefficient way of doing Keynesianism. It's going to eat up a lot of resources that ultimately get destroyed or worn out doesn't create as many jobs.
The multiplier effect
Economists use the term “multiplier effect” to describe how government spending generates more economic activity. The federal government spends money on an infrastructure project like a new bridge. Buying the materials and paying the workers to build the bridge mean that suppliers have more money to spend or invest and so do the works. The faster that increased spending occurs, the quicker the multiplier effect functions. John Maynard Keynes himself explained the concept with this example:
If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing. (7)Military expenditures tend to be more capital-intensive because many weapons have high-tech components and also because, certainly in the US, defense contractors can extract large profits, which don’t immediately translate into spending money that generates immediate economic activity to the extent that civilian investment would. As Keynes’ buried-bottle example suggests, the kind of government financial activity that most immediately stimulates the economy by translating into spending by consumers includes things like unemployment insurance payments, which mostly translate directly into spending.
Like many issues, how much multiplier effect military spending has is complicated to measure. It’s not like checking the weather app to see what the local temperature is. But most people do understand at some level that government expenditures from highway construction to schoolteachers do help the economy. (8)
Blakely:
Europe remains incredibly reliant on American military technology. A lot of it gets sucked abroad. You know, what would be a really good alternative. How is Putin funding this war? By selling Europe and the rest of the world fossil fuels. Europe has actually sent more money to Russia in the form of fuel payments than it has given to Ukraine in aid since the beginning of this war.Maybe it’s old-fashioned. But I would say nuclear weapons proliferation is our biggest and more significant threat. A full-on nuclear war would create catastrophic and immediate climate chaos. That would also be a climate problem, but one orders of magnitude larger than what relentless fossil-fuel pollution is already causing.
Why doesn't Europe consider decarbonization that would reduce our reliance on autocrats all over the world who depend on fossil fuels, that would deal with one of the biggest and most significant threats - probably the … biggest and [most] significant threat to us, which is climate breakdown - and would create three times as many jobs than any other form of stimulus program.
Why not? Well, because doing so would not be in the interests of the European ruling elite and its friends within the arms industry. You know, when [British Prime Minister] Keir Starmer says we're going to cut aid and boost defense spending, who's going to benefit?
BAE Systems also has a very close relationship with the British state. It was at the center of what was called one of the largest and most corrupt arms deals in history, between the UK and another massive fossil fuel producer, Saudi Arabia. This corruption is endemic to this industry and it's part of why these calls for the war economy are happening so loudly now. I think it's jobs or their wages.
That's not [the only reason] we're hearing calls for the war economy today. They want their defense companies to be strong and powerful so they can beat other defense companies.
Why not military and civilian stimulus?
Be on the lookout for headlines like this: (9)
The EU as a whole can afford both “guns and butter” if they are willing to impose a reasonably progressive tax on there wealthiest citizens who get far and away more material benefits from their societies than the majority of their people. But billionaires are generally chronically allergic to taxes on themselves.
Still, the fact that the changed defense picture is forcing them into adopting more expansive spending policies without arbitrary limitations like the “debt brakes” that have no actual economic justification is a good thing in itself. It opens the way for their publics to make additional demands on civilian spending, as well.
To hark back to Dwight Eisenhower, in a major speech early in his Presidency, he declared:
A nation's hope of lasting peace cannot be firmly based upon any race in armaments but rather upon just relations and honest understanding with all other nations. …And arms races can contribute mightily to making war more likely. And in one important sense, weapons are neutral. If they can be used for just and necessary purposes, they can also be used for bad and unnecessary goals. So paying attention to serious warnings about excessive military spending is always important.
Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed. This world in arms is not spending money alone.
It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children.
The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities.
It is two electric power plants, each serving a town of 60,000 population.
It is two fine, fully equipped hospitals. It is some 50 miles of concrete highway.
We pay for a single fighter plane with a half million bushels of wheat.
We pay for a single destroyer with new homes that could have housed more than 8,000 people.
This, I repeat, is the best way of life to be found on the road. the world has been taking.
This is not a way of life at all, in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron. (10)
Heidi Reichinnek, the head of the Left Party (Die Linke) caucus in the German Bundestag (lower House of Parliament), recently addressed this issue in an interview:
Our criticism of this [budget] package is that the debt brake is suspended only for arms spending of 1 percent of GDP or more, and that these special funds [i.e., military spending over the “debt brake” limit] exist at all – and not a clean solution for all areas. There is a blank check for armaments and in the same breath it is already being announced that savings must be made in the social sector. Not only the exploratory paper points to this, Friedrich Merz [expected to be the next German Chancellor] has also said it explicitly. The pressure to consolidate [the budget, i.e., to make non-military cuts] is increasing.This is the kind of comparison that is very important for progressive politicians to make: If we can toss out the debt brake for armaments, we can toss it out for civilian spending, as well. Germany is chronically conservative in its fiscal policy due to a widespread commitment to neoliberal economic thinking and, of course, to business and billionaire lobbies that think the most important thing about government is that the wealthy should never have to pay taxes to support it.
He [Merz] also mentioned the social sector in his speech during the vote, and that there is an urgent need to come to grips with it. Yet this is where we urgently need more: We need a higher parental allowance, especially for lower income groups and single parents. We would need a higher child benefit, better still a real basic child-related income. We would need more money for youth work, for the protection of senior citizens from loneliness, for the protection of women from violence. And we are stand now, very likely to face cuts. (11)
But my understanding is also that the exemption from the debt ceiling is also inclusive of essential infrastructure spending. For Germany’s ailing railway system, for instance. The most famous job-creating public works project of Hitler’s regime, the building of the Autobahn, was primarily for the purpose of facilitating the rapid movement of military vehicles and supplies during the wars that Hitler intended from the start to wage. A reminder that military-related projects can be broadly defined.
Notes:
(1) The War Economy Is Not the End of Neoliberalism, It’s the Next Phase—Grace Blakeley. DiEM25 YouTube channel 04/01/2025. <https://youtu.be/NZQrd3hNz3M?si=ZZTZc9_ZJ5Msdkkv> (Accessed: 2025-04-04).
(2) Taporowski, Jan (2023): The War in Ukraine and the Revival of Military Keynesianism. Institute for New Economic Thinking 01/09/2023. <https://www.ineteconomics.org/perspectives/blog/the-war-in-ukraine-and-the-revival-of-military-keynesianism> (Accessed: 2024-02-04).
(3) See: Balibar, Etienne (2020): “The Expropriators Are Expropriated.” Abolition & Democracy 11/27/2020. <https://blogs.law.columbia.edu/abolition1313/etienne-balibar-the-expropriators-are-expropriated/?cn-reloaded=1> (Accessed: 2024-02-04).
(4) Clark, Bryan (2024): Testimony before the Oversight and Accountability Subcommittee on National Security, the Border, and Foreign Affairs 07/24/2027. Hudson Institute. <https://s3.amazonaws.com/media.hudson.org/Bryan+Clark+House+Oversight+Hearing+Statement+July+24+2024+Final.pdf> (Accessed: 2024-02-04).
(5) Jones, Kristyn E. (2025): Fixing the DOD’s Audit Problem. Center for Strategic and International Studies 01/23/2025. <https://www.csis.org/analysis/fixing-dods-audit-problem> (Accessed: 2024-02-04).
(6) Congressional Research Service (2024): Defense Spending and Your District 12/16/2024. <https://www.congress.gov/crs-product/IF12274> (Accessed: 2024-02-04).
(7) Keynes, John Maynard (1936) from: The General Theory of Employment, Interest, and Money. In: The Collected Writings of John Maynard Keynes. Vol 7 (2013), 129. Cambridge: Cambridge University Press.
(8) For an example of how complicated the actual measurements can be, see: Cutcu, Ibrahim et al. (2024): What is the long-run relationship between military expenditures, foreign trade and ecological footprint? Evidence from method of Maki cointegration test. Environment, Development and Sustainability 03/30/2024. <https://link.springer.com/article/10.1007/s10668-024-04647-w> (Accessed: 2024-04-04).
(9) <https://www.politico.eu/article/europe-sacrifices-citizens-ukraine-far-right-russia-populist/>
(10) Eisenhower, Dwight (1953): Address "The Chance for Peace" Delivered Before the American Society of Newspaper Editors. 04/16/1953. The American Presidency Project. <https://www.presidency.ucsb.edu/documents/address-the-chance-for-peace-delivered-before-the-american-society-newspaper-editors> (Accessed: 2024-04-04).
(11) „Wir sehen den Beginn einer Aufrüstungsspirale“. Jacobin (Deutsch) 27.03.2025. <https://jacobin.de/artikel/heidi-reichinnek-die-linke-linkspartei-schuldenbremse> (Accessed: 2024-04-04). My translation from German.
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