whereaminow (73.77)

The Effect of Military Spending on the Economy

February 09, 2011 – Comments (16)

I spend alot of time arguing. Yeah, I know. I also blog about people with contrary views more often than not. Whether it's MMT or mainstream media or some bloviating politico or banking nuts, I can't ever seem to talk about things I actually like.

So let's do that now:

Less Bang for the Buck - by Thomas Woods

I'm going to walk you through Woods' article on the damaging effects that military spending has on an economy. This is an important topic. I am often fascinated that Americans believe they can fight endless wars for free.

Of course, no one says exactly that, but how many of your friends and family said, "well of course the economy is struggling. Wars cost money." None, right? How many times has an empty suit or skirt on TV made this insight? Never, right?

So if the average American cannot correlate our economic troubles with the vast military complex and adventurism of our politicians, they must not view it as a significant factor. They are dead wrong.

To get a sense of the impact the U.S. military has on the American economy, we must remember the most important lesson in all of economics: to consider not merely the immediate effects of a proposed government intervention on certain groups, but also its long-term effects on society as a whole. That’s what economist Frédéric Bastiat (1801–50) insisted on in his famous essay, “What Is Seen and What Is Not Seen.” It’s not enough to point to a farm program and say that it grants short-run assistance to the farmers. We can see its effects on farmers. But what does it do to everyone else in the long run?

Woods lays the groundwork for valid economic analysis in the opening paragraph. This is a fine place to start. Even academically trained economists fail this litmus test. In order to see the unseen effects of a policy, you must first recognize that there are unseen effects.  Sadly, few economists and even fewer pundits grasp this concept.

Woods continues:

Seymour Melman (1917–2004), a professor of industrial engineering and operations research at Columbia University, focused much of his energy on the economics of the military-oriented state. Melman’s work amounted to an extended analysis of the true costs not only of war but also of the military establishment itself. As he observed,

"Industrial productivity, the foundation of every nation’s economic growth, is eroded by the relentlessly predatory effects of the military economy. …Traditional economic competence of every sort is being eroded by the state capitalist directorate that elevates inefficiency into a national purpose, that disables the market system, that destroys the value of the currency, and that diminishes the decision power of all institutions other than its own." - Melman

On my blog I focus the most on the destuction of currency value, but that doesn't mean I dismiss other deleterious effects. What does Melman mean when he says, "elevates inefficiency into a national purpose?" We can't be sure without the full context, but I can guess.  I suspect he's talking about efficient versus inefficient use of resources. Military spending, particularly the preposterous level it is in America, is an inefficient use of resources. By equating military spending with patriotism (the last refuge of the scoundrel), a country turns inefficient resource allocation into a national purpose.

Back to Woods:

Throughout the Cold War, politicians and intellectuals all over the political spectrum could be heard warning of the catastrophic economic consequences of reductions in military spending. The radical left in particular, as part of its critique of American state capitalism (which it sometimes conflated with pure laissez-faire), lent important support to that position. As Marxists Paul Baran and Paul Sweezy warned: “If military spending were reduced once again to pre-Second World War proportions, the nation’s economy would return to a state of profound depression, characterized by unemployment rates of 15 per cent and up, such as prevailed during the 1930s.”

Yet these politicians and intellectuals were focusing on the direct effects of discontinuing a particular spending stream without considering the indirect effects – all the business ventures, jobs, and wealth that those funds would create when steered away from military use and toward the service of the public as expressed in their voluntary spending patterns. The full cost of the military establishment, as with all other forms of government spending, includes all the consumer goods, services, and technological discoveries that never came into existence because the resources to provide them had been diverted by government.

This would be a good time refresh your understanding of the Broken Window Fallacy.  Although Woods is correct in pointing out how intellectuals fail to see the unseen, it must also be pointed out that these same intellectuals believed that military spending was the reason the economy was doing well in the first place, as if by making bombs and blowing up factories we can improve our economic well being. Although it would be nice if modern day economists had moved beyond such draconian views, the infamous Paul Krugam committed the very same fallacy following 9/11, claiming that the ensuing boom in construction work would be a silver lining. Not much has changed.

Not All Growth Is Good

Measurements of “economic growth” can be misleading if they do not differentiate between productive growth and parasitic growth. Productive growth improves people’s standard of living and/or contributes to future production. Parasitic growth merely depletes manpower and existing stocks of goods without accomplishing either of these ends.

I want to stop for a second and point you to a fantastic article, particularly the first section on the dangers of economic aggregation.  It is fairly simple common sense to know that creating something useful is not the same as creating something that is not useful. Yet econometric modeling has difficulty distinguishing between the two.  This should be a wake up call for metric-centric friends. Instead they plow forward, dismissing common sense criticism as unscientific. What can you do?

Do you see where Woods is going? Sure, we can measure military spending and just lump it in with everything else to see how we're doing as a nation, but what good is that?  Military spending subtracts from the wealth of the nation. It doesn't add to it.

Granted, if you can invade a country, steal its resources, and then efficiently integrate them into your home economy, that could be a boon.  But if you don't trust government to run a health care program, how naive are you to believe that they can run trillion dollar resource-capture and extraction plan?

Military spending constitutes the classic example of parasitic growth. Melman believed that military spending, up to a point, could be not only legitimate but also economically valuable. But astronomical military budgets, surpassing the combined military spending of the rest of the world, and exceeding many times over the amount of destructive power needed to annihilate every enemy city, were clearly parasitic. Melman used the term “overkill” to describe that portion of the military budget that constituted this kind of excess.

Woods doesn't come out and say "all military spending is parasitic", nor did Melman. This is bit of a cop out, but understandable. It would take another 10,000 words to explain why state directed conquest is always parasitic and how that can be diffentiated from just defense. Since America has no military aim that can be considered just defense, at least in my point of view, that should tell you where I stand.

By the 1960s the U.S. government, in its strategic aircraft and missiles alone, was capable of unleashing in explosive power the equivalent of six tons of TNT for every person on Earth. “Now that we have 6 tons of TNT per person in our strategic missiles and aircraft alone,” Melman wondered, “have we become more secure than when we had only 1 ton of TNT per human being on earth?”

The labor, time, and other resources that were used to produce this overkill material were taxed away from the productive population and diverted from the creation of civilian goods.

The scale of the resources siphoned off from the civilian sector becomes more vivid in light of specific examples of military programs, equipment, and personnel. To train a single combat pilot, for instance, costs between $5 million and $7 million. Over a period of two years, the average U.S. motorist uses about as much fuel as does a single F-16 training jet in less than an hour. The Abrams tank uses up 3.8 gallons of fuel in traveling one mile. Between 2 and 11 percent of the world’s use of 14 important minerals, from copper to aluminum to zinc, is consumed by the military, as is about 6 percent of the world’s consumption of petroleum. The Pentagon’s energy use in a single year could power all U.S. mass transit systems for nearly 14 years.

Still other statistics illuminate the scope of the resources consumed by the military. According to the U.S. Department of Defense, during the period from 1947 through 1987 it used (in 1982 dollars) $7.62 trillion in capital resources. In 1985, the Department of Commerce estimated the value of the nation’s plants, equipment, and infrastructure (capital stock) at just over $7.29 trillion. In other words, the amount spent over that period could have doubled the American capital stock or modernized and replaced its existing stock.

Woods' statistics are illuminating, but what hits home with me is the hypocrisy of the progressive vision for America. After all, this worldwide empire, currently the designs of filty neoconservative scum, dates back to the progressive vision of making the world safe for democracy (whatever that means - and appearantly everywhere except Egypt.) 

Yet, how did progressives think such an outcome was going to be possible without extracting trillions of dollars from programs at home, without causing the annihilation of societies, without damaging the environment far more than any coal mine operator could wet dream, and without turning the state into a militant vulture?

After we take into account the total impact of military efforts, doesn't it seem that making the world safe for democracy runs directly counter to every other progressive ideal? 

Ok, back to Woods:

Military Corporatism

Then there are the damaging effects on the private sector. Since World War II, between one-third and two-thirds of all technical researchers in the United States have been working for the military at any given time. The result, Melman points out, has been “a short supply of comparable talent to serve civilian industry and civilian activities of every sort.”

Government jobs, whose funding source – taxation – is unavailable to private firms, have been able to offer substantially higher salaries than those in the private sector. By the 1960s major companies were already complaining of being unable to meet their hiring targets for new researchers.

Meanwhile, firms servicing Pentagon needs have grown almost indifferent to cost. They operate outside the market framework and the price system: the prices of the goods they produce are not determined by the voluntary buying and selling by property owners that comprise the market, but through a negotiation process with the Pentagon in isolation from market exchange.

A basic understanding of how government purchasing and bureaucracy "work" would help to accentuate Woods' point. Bureaucracies generally have no interest in cost-cutting measures. It's true that policies are implemented to mimic market behavior, typically by increasing the red tape involved in making purchases or by increasing bureaucrat awareness of market strategiees, but these are superficial at best.  At worst, they create a culture of ignorance in which the department heads truly believe they are working in a market system when they are clearly not. Remember, bureaucracy is a battle for funding. The unnecessary bureaucracy sees its funing cut or occasionally eliminated. But how do we judge what is necessary? Without a market system, there is no way. So bureaucracies maximize their budges, come up with new areas where they are "needed", implement new projects, etc. It's a simple survival strategy. The Pentagon is simply another bureaucracy competing for funds.

This "hitorical costing" is exactly the type of superficial strategy I referred to. It's not a market based exchange but it allows the uninformed to be duped into thinking the Pentagon is becoming more efficient.

Full Article

I'm going to skip to the end, not because the rest can be glossed over (it's very good), but to save time.

Out with the phony conservatives, the Tea Party movement says. We want the real thing. But the real thing, far from endorsing global military intervention, recoils from it. The conservative cannot endorse a policy that is at once utopian, destructive, impoverishing, counterproductive, propaganda-driven, contrary to republican values, and sure to increase the power of government, especially the executive branch.

The conservative temperament shuns utopian schemes, and seeks instead those finite but noble virtues we associate with hearth and home. These are the things the conservative is supposed to delight in and defend. Nathaniel Hawthorne once observed that a state was about as large an area as the human heart could be expected to love, and G.K. Chesterton reminded us that the genuine patriot boasts not of how large his country is, but of how small it is. As Patrick Henry said, “Those nations who have gone in search of grandeur, power and splendor, have always fallen a sacrifice and been the victims of their own folly. While they acquired those visionary blessings, they lost their freedom.”

I'm not sure what Woods means by real conservatives. But I want to add a point about utopianism.

In libertarian circles, we get hit with the baseless charge of being utopians all the time. It's baseless because libertarianism promises nothing! We don't offer a better world, a more equitable world, a more fair world, etc.

On the other hand, modern day economic and political doctrine is based on utopian visions of past pseudo-intellectuals, making the charge of libertarian utopianism incredibly ironic.

Paper money - derivied from utopain dreams of a moneyless, cheap-credit economy
Social contract theory - derived from utopian ideas about a mythical benevolent state
Egalitarianism - derived from utopian visions of pre-capitalist economies
Environmentalism - derived from Garden-of-Eden like theories about a pre-industrial pristine world.

So, uh, yeah, I don't have alot of time for people that slap the utopian label on libertarianism. Although it is simply a sign that have never actually investigated libertarian theory, so I guess I should have more patience with them. :)

David in Qatar