Germany embraces an era of ‘military Keynesianism’

It appears that an era of “military Keynesianism” has begun in Europe, focusing on military expenditures as a means to boost profitability amidst declining new investments.

German economist Lucas Zeise, in his analysis published in the newspaper junge Welt (jW), points out that the idea of “military” or “defense” Keynesianism is older than “widespread and civilian” Keynesianism.

Robert Skidelsky, whom Zeise describes as John Maynard Keynes’s biographer and “one of the few sensible voices” in the British House of Lords, also reiterated this last week.

According to Zeise, Skidelsky writes that military Keynesianism is the only form of Keynesianism that conservatives accept, noting that Keynesian politics originated not in peace, but in war.

Zeise states, “Rearmament and war eliminated unemployment in the US and Great Britain. During the Second World War, economic growth was 17% annually,” and argues that the typical form of post-war Keynesianism was also “military Keynesianism.” Between 1950 and 1970, US military spending constituted half of the federal government’s budget, and in the US case, this involved not just rearmament but “conducting active wars,” particularly in Korea and Vietnam.

Zeise points out that Skidelsky’s comments were triggered by the new German government and the removal of the constitutional debt brake introduced in 2009 to prevent Keynesian economic policies. He recalls that on the day this decision was made with the former Federal Assembly composition, jW termed it “armament Keynesianism.”

The jW author notes that Johann Wadephul, a CDU Foreign Minister, advocated for allocating 5% of the gross domestic product to military expenditures, as requested by then-US President Donald Trump. He also highlights that SPD Finance Minister Lars Klingbeil, despite describing himself as an “investment minister,” has not specified which infrastructure projects from the 500 billion euro special fund will be realized through government contracts.

On the other hand, unlike the debt authorization for armaments, each project in the infrastructure fund will be examined to determine if it constitutes an “additional” investment. No steps will be taken in this direction until the 2025 budget and the law establishing the “special infrastructure fund” are drafted in June.

Thus, according to Zeise, “Keynesian growth stimulus” through public procurement will not occur outside the defense sector. As Klingbeil and the coalition agreement state, this will be “subject to financing.”

Therefore, according to Zeise, Klingbeil and Merz only mentioned “investment incentives.” This allows companies to amortize 30% of their investments made within the current year for tax purposes, thereby increasing their post-tax profits.

In the current situation, such expansionary investments only serve to increase capacity in the arms sector. Consequently, Zeise believes Germany has arrived at a pre-Keynesian “military Keynesianism,” tolerated by “conservatives” and “stripped of civilian elements.”