Psychology and Economics

Keynes observed, basically, that the economic function of the government in a successful economy has to be to do whatever the private sector is failing to do at the time. When the economy is good and corporations can afford to spend their money, creating jobs and wealth for everyone, the government must tighten its belt and act conservatively to pay off its debts or build up savings. But when times are tough — precisely when people expect the government to be saving money — it needs to borrow and spend as much as possible, giving people the jobs the private sector can’t afford, to get money moving through the economy again.

Because this is so politically difficult — in a good economy, people want the government to be giving everyone a slice of its pie, and in a bad economy, they expect it to be working hard to make savings like everyone else is — it has sometimes been claimed that Keynesian economics is, practically, impossible to use as the basis of monetary policy in a democratic political system.

But this conveniently ignores all the times when it has worked, most notably in the United States in World War II. Though some progress had been made in the previous ten years to alleviate the effects of the Depression, the United States’s entry into the war provided the perfect opportunity to do what it had needed to do all along: spend, spend, spend. Suddenly, everyone who needed a job could get one, working for the war effort. American industry got a huge boost, and in the end the US came out of the war as one of the world’s new superpowers, with a healthy, gigantic economy supporting it.

Naturally, it horrifies me that the only apparent way to politically manage (sometimes necessary, often not) increases in government spending is to portray a conflict that needs to be won by killing people. Yet it consistently works: the ‘War on Terror’ allowed huge increases in military spending with very little outcry over the effect it had on monetary policy, quite apart from the increases in bureaucracy and surveillance which it has been used to justify.

Framing the government’s spending increases using a conflict has an obvious psychological basis: there’s fear of losing the conflict, and (in some wars) of what might happen if the war is lost; there’s patriotism, in the military form of a desire for one’s own country to be proved capable of overcoming whatever apparent threats it faces; and there’s direct news, in the form of ongoing reports from the conflict, which serve as a long-term reminder of the need to spend money.

Such is the power of war as a framing device, I doubt there’s any better way for a country’s government to get things done with the support of the public. But military spending is an extremely inefficient and ill-balanced way to spend public money: it naturally ends up going to the industries the army relies on most, which are quite different from those whose growth most benefits the general public.

Culturally, how can we frame increased public spending in a way that doesn’t involve killing and which actually benefits normal people, rather than the military–industrial complex?