In October 1973, the US responded to the latest Arab-Israeli war with significant military aid to Israel and requests for additional appropriations to support US power in the region. At just the same time, the deepest economic downturn since the 1930s was beginning. Internal documents show that the Nixon administration saw a connection between these two developments. At a December 1973 national security meeting, Nixon said “Don’t discuss jobs outside this room, but unemployment could go to 6–7%…To goose the economy, the private sector is the best place. In government the best place is the military.”
This wasn’t just idle talk but serious (or at least semi-serious) domestic policy. At one of these meetings, budget director (and major defense contractor) Roy Ash told Nixon, “We need to spend on things that have maximum impact on the economy in the short term,” estimating that a supplemental defense appropriation in January would hit in the summer. Nixon asked US Army Chief of Staff Creighton Abrams how to spend money so that it “would affect production.” The general quickly answered, “Tanks.” Always thinking of Southern California, then suffering from a post-Vietnam and post-Apollo “aerospace depression,” Nixon asked: “Won’t the C–5 and 747 produce jobs quickly?” But, even in private, the president felt obliged to make clear that the foreign policy goals were sincere, rather than contrivances created purely to serve domestic ends: “Don’t write any memos on this. We are doing it for the right reasons—the recession just gives us the excuse.” The right reason was that military spending “helps the country,” while “public service jobs—that means nothing to the country.”
Word of all this reached Congress, which had been in an increasingly anti-militarist mood thanks to inflation, the defeat in Vietnam, and the urgency of competing budget priorities. George H. Mahon, chair of House Defense Appropriations, said he had it “on good authority” that the budget “had been increased by about $5‐billion ‘late in the budget cycle for the reason of stimulating the economy.’” Under questioning, Schlesinger admitted that “there is an element of economic stimulus in this budget. I think that is sound economic policy.” This statement, reported in the New York Times under the headline “Military Budget Spurs Economy,” echoed from the bulletin of Americans for Democratic Action to the newsletter of First National City Bank. As late as 1982, Schlesinger’s “excess of candor” was being cited in Congress as evidence of the economic origins of rising defense budgets. The remark remains one of the most open articulations of military Keynesianism in American history.