The Overlooked Costs of the Permanent War Economy

Tom Duncan, Assistant Professor of Economics at Radford University makes the following point at a talk directed at students in a political economy of conflict class and a game theory class at VMI (Heres’s the actual paper:Duncan and Coyne 2013 (3)) :

“How does the permanent war economy interact, and subsume, the private, non-military economy? Can the two remain at a distance while sharing resource pools? Starting with World War II, the U.S. embarked upon a path of permanent war, at least economically speaking. The crisis of the war opened the floodgates of federal funding and created room for the establishment of the early military-industrial complex that arose to ensure the continuation of the permanent war economy. Since its inception, the entanglement of industry, the Department of Defense (and later Homeland Security), and Congress has further developed until there exists a military economy that is seemingly removed from that of the non-military consumer-driven economy. While the two share economic space and resources, the decision making processes in the separate sectors are dramatically different. This complex relationship can be analyzed through the lens of public choice, institutional economics and market process theory to better understand the economic logic behind its distortive and pervasive nature.

Following the Second World War, military procurement is no longer considered a necessary sacrifice of wartime, but has become a permanent fixture of the America peacetime economic landscape. The institutional structure of the military-industrial complex is what allows to the permanent war economy to continue and extend itself over time. During the crisis of war, procurement decisions became centralized rather than relying on market forces, and over time this process of centralized decision making has persisted. Rather than relying on market feedback mechanisms to ensure that consumers are getting the level of defense and security they demand, the levels are determined administratively. These administrative determinations are then asserted over the consumers who have no, or at best a weak, avenue of resources should that level prove undesirable. The nature of the budgetary process, upon which such administrative decision making must rely, does not allow for profit and loss in the economic sense. While the administration may cancel (reduce) or grant (increase) funding for specific defense programs, these decisions are based on the central plan rather than on market information which is crucial for reallocating scarce resources to their highest valued uses. Absent these mechanisms inherent in a true system of profit and loss, outcomes may become distorted in a variety of areas. The military-to-market disconnect allows unnecessary costs in the form of misallocated resources, both those misallocated within the military sector and overinvested into the military sector more generally, to persist for significant periods of time due to the absence of information regarding higher value-added resource allocations.”

Strong economies are necessary for winning wars. Does a war economy — to the extent it misallocates resources and therefore reduces future economic growth — then carry with it the seeds of defeat, particularly for long drawn out wars? What are the economic trade offs inherent in the calculus of prosecuting long wars?

Posted in Free Markets, grand strategy, patience and conflict, Philosopy of capitalism, Political economy of conflict, war economy | 34 Comments

The ethics of free markets

We recently had a panel discussion on the ethics of free markets at the Virginia Military Institute funded by the Charles Koch Foundation.

Professor Duncan Richter talked about the role of free markets in the context of positive and negative rights. He raises questions — given that free markets are clearly beneficial in providing goods and services efficiently — about how free markets can impact positive rights. His basic thesis is here: The Ethics of Free Markets.

Professor Michael Anderson talked about free markets from a Christian perspective — particularly the idea that Christians are stewards of  God’s gifts. In that argument, free market efficiency ensures the best stewardship of  God’s gifts.  His basic thesis is here: Ethics of Free Markets_Anderson abstract.

Professor Wight explored Adam Smith’s view of free markets as expounded in the The Theory of Moral Sentiments. Professor Wight emphasized the role of trust as the predominant moral sentiment in the establishment of free markets as the most efficient form of economic activity. His thesis is available here: Ethics of Free Markets Wight Synopsis.

The view points expressed here begin to form a framework around which one can form a philosophy of individual behavior and the role and extent of government. It also suggests how human society can advance through productive means as opposed to predatory means — peace versus conflict. What do my respondents think? Comments welcome.

Posted in Free Markets, Philosopy of capitalism, Political economy of conflict, Uncategorized | 25 Comments

Patience reduces conflict

The idea here — Patience and productivity – is that delayed gratification is linked to successful investing. The articles cited here suggest that humans are hardwired (see http://www.nature.com/neuro/journal/v13/n5/full/nn0510-523.html) to make trade-offs between today and tomorrow in a way that discounts tomorrow. I argue that delayed gratification is also linked to cooperative behavior. Patience reduces conflict. Why? Cooperation can be destroyed by free riders. But if free riders can be punished then they may cooperate. But punishment is in the future. So impatient folk will not particularly care about the future punishment and get the benefits of free riding now. What kind of free riders might care about this future punishment? Patient free riders. So patient free riders might want to avoid free riding and cooperate to avoid a future punishment that looms larger for them than impatient free riders. At least that’s the insight of the famous Folk Theorem in game theory. What do you think? Can patience evolve?

Posted in evolutionary game theory, patience and conflict, Political economy of conflict | Tagged , , , | 29 Comments

Pax Capital?

Eric Gartzke claims that capitalism reduces conflict. What do you think is the basis of the statistical regularities reported in his paper “The Capitalist Peace“?

Posted in Free Markets, Political economy of conflict | Tagged , , , | 32 Comments