The reverse logic of Starmer's "Military Keynesianism"

Given their rejection of Keynesian economics across the rest of government, citing Keynes to push a military spending splurge is clearly just reverse logic to justify what they already wanted to do

Government ministers have been pushing the idea of "Military Keynesianism" as justification for Keir Starmer’s military spending splurge, but given their outright rejection of Keynesian economic concepts across the rest of government, it’s clearly just reverse logic aimed at justifying what they already wanted to do.

The "Military Keynesianism" argument contends that increased spending on stuff like munitions factories will provide jobs and increase economic demand.

This isn’t actually untrue, because pretty much any kind of government spending ends up creating jobs and increasing economic demand.

It’s possible for the government to create jobs and increase economic demand by employing people to dig holes and fill them in again, but nobody would argue that that’s an efficient use of public funds. And this is the crux of the issue.

One key element of Keynesian economics is the concept of Fiscal Multiplication, which sounds complicated, but is just a method for calculating returns on public investment.

It turns out that there are much more efficient ways of creating jobs and stimulating economic demand than building munitions factories.

Investment in flood defences in a classic example that returns £8 in avoided economic damage for every £1 spent.

Other strong fiscal multipliers include home insulation schemes; social housing construction; infrastructure projects; education; public health policies; and poverty alleviation (poor people tend to spend virtually all of their additional income straight back into the economy).

The problem of course is that Starmer’s government is insistent on restricting public spending in a lot of these areas, and imposing social security cutbacks that increase poverty, rather than reducing it (keeping the two-child economic sanctions on families, cutting the Winter Fuel Allowance, impoverishing disabled people).

Another problem is that the Office for Budgetary Responsibility (OBR) consistently undervalues returns on investment on public spending, and misleadingly classifies spending in extremely broad categories as having the same fiscal multiplication effects (for example tax cuts for the poor are treated as if they have the exact same multiplier effect as tax cuts for corporations and the mega-rich!).

The OBR don’t just clump disparate policies into extremely broad groups as if they have the exact same multiplier effect, they also assume that spending on things like infrastructure projects and education have no positive returns after just five years!

Given their bone-headed refusal to properly analyse and estimate fiscal multiplier effects, it’s no surprise that the OBR has consistently overestimated the UK’s economic performance in their projections, and consistently underestimated the damaging impact of short-term austerity penny-pinching.

It should seem obvious (to everyone but the OBR at least) that many fiscal multiplier benefits accrue long after a five year parliamentary term is over.

It may may take a decade for the economic benefits of a new rail link to surpass its construction costs; a unit of social housing may take decades of rent payments to pay back what it cost to build; the returns on investment on education and Sure Start will only start to fully kick in when the children who benefited become working adults; and the benefits of public health policies like better nutrition, alcohol and smoking reduction, and heart disease prevention will obviously accrue decades down the line.

Short-term austerity penny pinching delivers lower investment in infrastructure, social housing, education, and public health, which results in much poorer economic outcomes decades down the line, but contemporary politicians don’t care about this, because it’s only a problem for some other government of the future.

If the Labour government honestly gave a damn about Keynesian economics, they wouldn’t be invoking Keynes to justify the military spending splurge they already wanted to do, they’d be looking into which areas of public spending generate the strongest returns on investment and invest there. They’d be alleviating poverty instead of exacerbating it; they’d be pushing the OBR to stop misleadingly undervaluing returns on investment and clumping disparate policies together as if they have the same multiplier effect; and they’d take a long term approach to building economic prosperity, rather than fixating on short-term austerity penny pinching.

It’s downright deceptive for the government to cite JM Keynes’ economic theories when they consider them useful in justifying a military spending spree, but outright ignore them across the rest of government, especially when many of the cuts and spending restrictions they’re imposing across other government departments run entirely contrary to Keynesian economics.

It’s economically absurd to cite JM Keynes whilst imposing cuts and spending restrictions on proven fiscal multipliers, and increasing public spending on munitions factories that have much weaker multiplier effects.

If they were honest, they’d admit that they’re intent on reducing Britain’s future economic prosperity by making public spending less efficient, purely because they see militarisation as a more important priority.

But they just can’t help lying, and pretending that there’s some Keynesian economic benefit to splurging on munitions factories, when the money could obviously be spent much more effectively on other things.