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?

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34 Responses to The Overlooked Costs of the Permanent War Economy

  1. Gant says:

    I believe that Mr. Duncan’s main point, that defense spending is too high and needs to become more efficient is correct. During my summer training with the Navy I have seen items that have cost several million dollars and have only limited applications, many of which are already done by other pieces of equipment. However, I do not agree with his approaches to making it more efficient. By reducing the contracts that the United States gives to the corporations in the Military-Industrial Complex, those corporations lose their only source of income and will fail. What he missed here is that these are crucial corporations that do not have alternatives because of the high upfront costs associated with their products. If these corporations were to fail, then there would be no production of military goods, so if a crisis were to occur we would have to rely upon the outdated and inefficient goods that had already been made, or we would have to remobilize the entire Military Industrial Complex again. This remobilization model was used up until WWII and it was inefficient and would take crucial months, if not years, to modernize our military to the point of our opponents’.
    Another option that he presented when I discussed with him after the presentation how he brought up the increasing ability of private individuals to provide their own security was for the increased creation of private security firms, or mercenary companies similar to Blackwater. While this does give people more direct say in how their security is provided, which is what he wants, it has major destabilizing and negative effects. First, this destroys the monopoly over violence that the state has, which is the purpose of a state, and distributes the use of violence to competing organizations. This will increase the occurrence of violence within states as localities or individuals compete for control of limited, high value resources or capital. Second, we are currently witnessing the rise of self-protection in the developing world, and it is taking the form of terrorist organizations, militias, and organized crime rings to name a few options. These groups arose because of increasing access to arms, and decreasing control of the state over its territory, and they are the main threat in the current global situation. Third, there are numerous incidents throughout history where this has been the case, and none of these incidents have been pleasant. Examples include: Warlord China, Warlord Japan, most of modern Africa, the Middle Ages, and even Machiavelli discusses how detrimental mercenary armies are. He says that it is in the interest of mercenary groups to avoid wars, but this is not the case. It is in the interests of mercenary groups to engage in conflict, since that is the only way that they can ensure their continued employment. Therefore, the occurrence of conflict would be higher with private security firms subsuming the responsibilities of the state.

    Once again, his overall point is correct, the United States needs to reduce its military spending, but not in ways that are detrimental for the state or its citizens. Furthermore, there is no way to ensure that the taxpayer money will be put to better use if not used for the military, it could be put into alternative energy research that fails, increased entitlement programs, or into an increased bureaucracy. Perhaps the best way to ensure the continued survival of the Military Industrial Complex is to give them low-cost, long term research projects so that the technological envelope for military goods is constantly pushed and so that we retain our capacity to produce military goods. What we should also do is avoid what he advocates, the erosion of the state’s monopoly on the use of violence, because that would not end well for anyone.

    • Gotwalt says:

      One of the points that I believe Prof. Duncan misses the mark on is the secondary effects of the war economy. He specifically cites wasteful spending by BAE in York, PA. I happen to be a resident of York and perhaps this gives me a unique insight. Many of my friends and family work for the company as does much of area. The town once had three primary industrial employers, Catipillar, Harley Davidson, and BAE. Catipillar up and left many years ago. When the recession began a few years ago, Harley Davidson attempted to relocate. Thanks to pleas from the job starved community, and local government, Harley Davidson kept the plant open, but only as a shell of what it once was, with many of the jobs relocating to a new Harley plant. BAE remains as one of the last big employers in the area with the low employment rates (especially considering full time, non-minimum wage jobs), if BAE were to leave the, York would face unprecedentedly low unemployment rates.
      Duncan does some what touch on this concern, explaining how congress is trying to keep military production up more for the benefit of their districts rather than the US Military, but both do have something to gain here.
      Though this war economy may involve some wasteful spending, I believe that one would have to measure the benefit of the jobs it produces, and money it puts into the economy, via the spending habits of the people that are employed by these wastefully producing defense companies.
      If the concern is wasteful spending, the military needs to find a way to encourage these producers the re-purpose themselves ever so slightly in order to produce things that are truly needed, however this may only be a band-aid. BAE did transition from Bradley’s to M-RAPs which are now overly and wastefully produced as well.

  2. Jeff says:

    Professor Duncan’s presentation did not show an accurate portrayal of U.S. national defense spending. Professor Duncan stated that US defense spending is higher now than even in 1986, when the USSR was a superpower. In fact, a more proper comparison would be to scale defense spending by U.S. GDP, to give it context. If you go to the BEA website (I have provided the link) and request table 1.1.5 (http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&903=5), you have the option to download the data yourself. Select annual data from 1929. You will get the components of GDP. Now, divide military spending by GDP to get the military spending’s share of GDP. Here is what you find. Excluding WWII, the largest share of GDP is from 1952 – 1953, when the share is about 15.6% of GDP. If we exclude the three wars (WWII, Korea, and Vietnam), the largest share of GDP is in 1986 and 1987, when defense spending is 7.6% of GDP. This corresponds to the date in Professor Duncan’s presentation. From there it drops to a low of 3.8% of GDP in the year 2000 (the so-called Peace Dividend associated with President Clinton). From 2000, the share climbs, but gets to its highest level (5.6%) in 2010.
    A linear trend across all three time periods, 1929 – 2013, 1950 – 2013, and 1975 – 2013, all show an overall decline in military spending as a percent of GDP. The issue is that this permanent war economy that is stifling the private sector doesn’t seem to be doing that at all. Contrast this overall decline with the level of growth in China’s defense budget, for instance, and you will see the concern. Look at this Reuters article to see the level of spending by China

    http://www.reuters.com/article/2014/03/05/us-china-parliament-defence-idUSBREA2403L20140305

    . The Chinese defense budget has experienced several years of double digit growth. While China’s military spending as a percent of GDP (138B/9.2T) is about 1.5%, which is still three times smaller than the US., the Chinese have a huge superiority in manpower; thus, this difference is not as large as one might first suspect. Add in double digit increases for China and a share in the U.S. that has dropped from 5.5% to 4.5% of GDP (while GDP has increased), and it is not too far-fetched to imagine China (second largest military spender) eclipsing the U.S. in levels (total spending) and percent of GDP.

    • Tom says:

      At least in response to your comment of using GDP comparisons, I’ll refer you to a note by Robert Higgs in The Independent Review, Vol 13, No 1, Summer 2008: 147-149. I think the link below will work here. His basic argument is that matching defense spending to GDP is irrelevant, as what really matters is defense spending relative to actual threats.

      http://www.independent.org/pdf/tir/tir_13_01_8_etc.pdf

      To the point that GDP is still growing even as my argument suggests private growth is stifled: Yes. The argument is that we are creating different types of products. And the argument is that we are not growing as fast as we otherwise would be at the margin. It is a marginal speed of growth argument, so GDP (made up numbers) is growing at 3% when it could be growing at 4% with more private resource allocation.

      As for the relation to China: That does go into threat assessment and is a valid point. Even still, part of the argument is not just that the institutional arrangement leads to a suboptimal level of spending, but it also leads to a suboptimal mix of defense spending. If the threat is China, then spending should be geared towards protection from China which still means that the US spending should be geared towards external threats rather than internal unemployment rates.

      • Jeff says:

        I think it is worth noting that Higgs is the editor of the Independent Review, as well as the author of the note. This is his opinion, to be sure, but he is just one person, after all, and it is commonly accepted in economics to provide a relevant scale. For instance, Chinese GDP in 2012 is 8.227T, second only to the U.S. ($16T). However, there are 1.4B people in China versus 320M in the US. So, Chinese GDP per person is $6K and US GDP per person is $50K; clearly, the standard of living is probably higher in the US than China. It isn’t a perfect measure of standard of living, but it is better than just using GDP by itself. Both GDP per capita and military spending as a % of GDP suffer some theoretical criticisms, but they remain a valid measure for adding perspective to the argument. If you prefer military spending per capita (person), as Ramey (2011) does in the Quarterly Journal of Economics, you will see that military spending per capita fluctuates between 2,500 per person (1970) to a low of 1,550 per person (1979, 2000) back to 2,250 per person (2009). These are all below the high set during the Korean war ($3,200 per person) and the height of the Cold War ($2,500 per person). The last thing I will add is that, if the argument is that we are spending too much and the relevant comparison is defense spending to risk, then I would like to see that comparison to support the criticism that we are spending too much. Of course, this is impossible, or at the minimum, extremely difficult and subject to the criticism of arbitrary identification of the level of risk. This is why we have commonly accepted measures such as “as a percent of GDP” and “per capita”.

  3. Bobby Davison says:

    I feel that the data of this presentation was very skewed. For example when giving data on various categories of defense spending, I did not feel 2001 was a good year to use. While terrorist attacks did become much more well known after 9/11, the first 75% of the year there was no to very little worry about terrorist attacks. This was not a good year to present the growth of defense spending. I also did feel that he attacked this issue with an agenda because he felt citizens money was being wasted. Look at the simple fact that we have not been attacked in the U.S. since 9/11 and this is probably in part to how much we spend on defense spending deterring our enemies from attacking us. While there is obvious waste in military spending, is it really a problem when so many people have a problem with the U.S. and western culture in general? It also showed us things that we already knew. While if his research can change congresses and politicians ability to have lobby power on military spending it could really change the country but that is really never going to happen. If this spending is going to keep an entire country employed congress is going to back it up always.

  4. Clauff says:

    Mr. Duncan’s message walks a very thin line. Do we need to cut spending? Yes. Is there too much spent on defense? Probably. But until there is a way to measure how much spending is too much then I would rather be on the safe side than the sorry one. Furthermore I believe that in order to solve the problem of spending efficiently, we need to look deeper into the rabbit hole and look where the main problem is coming from: Washington. With Duncan’s example of tanks being built when they don’t need to be it is easy to see that politicians in Washington are pushing bills that only help constituents and not the economy as a whole. This is an easy topic to debate because there is a double edged sword. Ultimately it will come down to the US’s ability to adapt to the changing world environment.

  5. ellisrk10 says:

    What I got out from Mr. Duncan lecture was that we need to (United States) better analysis how much money we are spending for the military and how much the military actually needs. One of his points was that if the government gives the Army a set budget then the Army will spend every cent of that budget then though the Army might not need it. He argues that the military will spend everything they get. Mr. Duncan is suggesting a way to measure how much benefit we get from the military spending and to see if there is a diminishing margin. This way the Unites States can maximize their productiveness of a fairly smaller budget. His main points of the lecture are not supported by every much data, however, his idea is very possible but hard to measure.
    I understand that the government may be overspending on the military but I would rather have overspending then underspending. Also until the government can find a way to measure how to budget the military budget efficiently, I don’t believe they should be making budget cuts in the time of war.

  6. Poochdaddy says:

    I can understand where Mr. Duncan is coming from. However, I do not agree with his idea of overspending on military budget. I believe that continuing to place a significant amount of the US budget into defense spending has allowed the US to assert itself in other countries where national interests are involved. It also has kept a wide gap between any other superpowers like China and Russia. Because we have an all volunteer force that is relatively small but with high-grade weaponry, we are still able to maintain an equivalent, if not stronger force relative to our foes. Also, placing a significant amount of money into the F-35, ships, tanks and so forth is a strong investment. People may be significantly cheaper to train, but the weapons will remain in use for at least the next 30 years for aircraft and 60 years for ships. By maintaining a strong military and continue spending, it will deter countries like China and Russia from globally acting aggressively knowing US capabilities. I do realize there is the Crimea issue, however, most of those people are Russian and wish to be so. If spending were to be reduced, this would allow other countries to catch up with us and level the playing field. Also, by shutting down factories for fighter jets and tanks and such, the cost to restart these will not only be significant but will also take a significant amount of time.

    • Alex Wong says:

      You state that you do not agree with Mr. Duncan’s idea of overspending his budget. Your argument seems to be framed upon overspending. Which is a contradiction to your argument. You state that the F-35 and other important technologies are important investment to the security of the United States. That requires overspending. in terms of national security spending, there are three “buckets” that we can throw the defense budget in. Fast money, or procurement, slow money which are expensive procurement items such as the F35. The last bucket is the very slow money which is for R&D. This bucket leads us to the development for the more expensive items like the F-35. My point is, overspending is okay for the Economy. If the United States is to remain competitive with other foreign powers, like China or Russia, its imperative that we have more money in the R&D side of defense spending. After all, where do you think China and Russia is putting in their money? So, to get back to my point, I believe that you’re point is trying to say that overspending is good as well. With overspending on a defense strategy it will double as a deterrent strategy and as a way for us to maintain a defense hegemony.

  7. Robert Demson says:

    During Dr. Duncan’s speech, he often alluded to a socially optimal amount of annual defense expenditure to provide substantial security for the U.S. populace and maximize private sector growth. While a plausible argument, I believe that this calculation is infinitely more easily said than done. The reason being that information asymmetry is so immense over the defense capabilities of various nations. By this notion, it is next to impossible to discern a socially optimal amount of spending to allocate to defense since American intelligence entities cannot judge what capabilities the U.S. should implement for their own military.
    Additionally, an argument against Dr. Duncan’s case can be embodied by the notion “we don’t know what we don’t know.” In essence, during the periods in which the United States wasn’t attacked by foreign countries or independent organizations, we cannot determine whether or not the U.S. would have been attacked if defense spending was lower at that period. Also, we can’t determine the success rate of our military in recent operations if we didn’t possess the specific weapons systems we have procured due to the current levels of defense spending.

  8. Nicholas W. says:

    I think the gentleman, Professor Duncan, brought up several theories that have a legitimate pursuit, but as COL Basu pointed out he fails to provide evidence. His failure to present any credible evidence gave his argument to cut on defense spending on the presumptions that the waste stabbing the heart of the U.S. economy. Another issue I had was when he was talking about the two ways of knowing how much should be spent on defense. One he brought about a price-demand trigger which he seems to favor since it is the primary way business is done. Price is determined on how much people are willing to buy of whatever they demand. He suggested maybe using this to determine how much military support we should give to other countries by charging those countries we are providing support. The ethical issues of this if a Bosnia-Herzegovina is in a state of war without an acting government, are we going to charge them for our assistance? How does that look when the U.S. fails to save a nation from destruction because they are not paying for our protection? Trying to say defense spending needs some sort of price-demand trigger is ridiculous. So if 500 innocent lives are killed, does that mean we should spend $1000 dollars on defense? I don’t know another “trigger” to determine how much defense spending is needed except for death, chaos, and destruction. The other way Prof. Duncan brought up was the price is estimated by experts and what not. This is the better bet since they can estimate, assuming fairly well, and then providing that plus extra to take extra preventative measures. This is more sensible the best way to end a war is to prevent one from starting.

  9. Patterson says:

    I believe Professor Duncan’s research was interesting, however, I think it lacked data and visual aids to help prove his theories. Defense spending is crucial to the U.S. and I believe we may be spending too much, but Professor Duncan never fully demonstrated or proposed how to determine how much to spend on National Defense. I also believe that he hasn’t considered the spending to act as a deterrent to other countries around the world from engaging with us. Considering the data he did present to us starting at year 2001, I feel was very skewed because spending would obviously increase after 2001. I do agree with him that instead of producing equipment that the army no longer wants, that we could allocate these funds to contribute to research and design of improved equipment that is wanted. I myself do not know a lot about national defense spending so hearing his research was interesting and I believe their is a cause for concern for this sector of government spending.

  10. Cullen says:

    Professor Duncan’s thesis and goal for future research is logical from an economist’s standpoint, but I don’t think he’s perceived further implications in regards to national security. An insurance company may impose a cost for terrorism insurance based on the probability for a terrorist attack, but the goal of national security is not to limit attacks to certain probability. The government’s greater goal is to eliminate the security threats domestically and abroad where there is U.S. interest. Though we may in fact be spending too much percent of GDP on national security and defense, can we live in a world where there is slight possibility of the threat of terror. For instance, when you get on board an aircraft or a roller coaster, there is a probability and percentage of error that can cause an accident.You assume these risks by deciding to fly or going on the coaster. If the government allows for a certain probability of attack because it is considered unfavorable to pay the extra bucks to secure our safety, then essentially the government is giving the go ahead for the likelihood for a certain number of attacks.We as tax payers aren’t assuming these risks, but those we put in political positions to decide them for us. The American public demands a certain level of security, and until there is an empirical formula for power projections and deterrence, then we must face the fact that we can’t assess what the dead weight loss of national security and defense spending.

  11. Bronson Cocke says:

    Looking back at the basis of Professor Duncan’s argument, I feel that he has good arguing points with respect to the basis of inefficient spending. I also feel that his argument is proven to be weak due to the lack of empirical data missing from his presentation. Even though I tended to agree with some of his points, particularly the fact that the U.S. could be more efficient in its defense spending, I feel that his lack of research supported data hurts his argument. I believe the weakness of his argument was exposed clearly by COL Smith, who utilized one of Professor Duncan’s own statements about how the U.S. defense spending has increased our military strength to the point that other countries do not even attempt to rival us. Deterring other nations from even trying to rival our military is in essence a very effective type of defense. Not to take away from Professor Duncan’s argument though, I do agree that defense spending could be reduced to an optimal level where overproduction was minimized, whereas the U.S. was still able to maintain the level of security that we possess today. Without solid data supporting what the optimal levels of defense spending should be, that also take into account the constantly changing variables of today’s world, Professor Duncan’s argument will always be subject to being judged as a rationally sound opinion without solid empirical support.

    • Logan Staib says:

      I agree with many of the other responses. This is a very difficult subject to discuss, because it is very complex. I think many of us can agree that the U.S. spends a large amount of money on defense spending. It is obvious that the U.S. could be more efficient in its spending, but to a certain point we are too involved in many situations that it would be very difficult to make drastic cuts to our overall spending. Where should we make these cuts? That remains the question. This is difficult to answer due to this due to this being mostly a private sector. I think Professor Duncan makes it obvious that we are overspending, but he does not provide enough numerical evidence as to where and why. If the data could be brought to light, then he may have a solid argument to cut back spending. There is also the idea that if we cut back spending, then we open the door for other countries to try to outdo us. Our overspending has certainly put many other countries out of the picture of becoming big players in advancing their military.

  12. Jake G. says:

    As many of the other comments have stated, I agree that while we need to reduce our inefficient defense spending, it is much easier said than done and will be almost impossible to enact if any perceived reduction in sense of security or increased risk is a result of these cuts. Having a sense of safety and security is one of the pillars that allows our nation to thrive, and excluding some instances has succeed in recent history. But at the same time, I feel that when we have 48% of the overall defense spending in the world, there are programs that may be obsolete or outdated that can be cut from the budget and put to more fruitful or tangible uses such as maintaining our infrastructure. Additionally, I agree with Clauff in that the problem stems from Washington, which unfortunately is almost impossible to fix and until we do so inefficient spending will inevitably continue. Wishfully thinking, perhaps in the near future a prerequisite for public service and decision-making roles at such a high-level can be Macro and Micro economic classes so that those deciding budgets can understand the difference between marginal and total benefits/costs and hopefully reduce this inefficiency.

  13. Jacoby says:

    I was not there for the Professor Duncan speech, but we did go over some interesting points in class. One point we covered was the question of if we should cut the defense budget. One reason as to why we should continue to spend money on the defense budget is because military research and development has created great technologies such as gps and the internet. If we cut defense spending we could lose the ability to create such great innovations and this may cause us to fall behind other countries in terms of innovation. The research and development through the defense spending should be a primary reason as to why the government should continue to spend money on the defense budget.

    • Meredith says:

      Jacoby, it is without a doubt that much of our current technologies and innovations have come from research and development spending on defense. I have to point out one of Professor Duncan’s main points: a portion of the money allocated to defense R+D could just as easily be re-allocated to other areas such as general technological R+D to create innovations. Cutting defense R+D doesn’t mean we would lose the “ability” to create such great innovations. Because the U.S. spends so much more money on defense than any other country, it is reasonable to assume that there is at least some portion that could be more efficiently utilized elsewhere. The part where Professor Duncan’s argument is vague, however is that we have no idea how much to most efficiently re-allocate. He admits this; the point is that he is just trying to get people to find a way to measure how much we might be over-spending on defense.

  14. Siewers says:

    I agree with one aspect of overspending on military spending and that coincides with the saying “it is better to be safe than sorry.” In order for the U.S. to assert itself as a superpower and deter other countries from attacking us, we must invest in weapons and other military supplies. We must invest in a surplus of resources to minimize our chances of being attacked. If the U.S. were attacked there would be much higher costs for us in the end. On the flip side, the domestic economy suffers at the expense of these defensive measures. We need to find the right balance of spending on military supplies in order to prevent an economic downturn.

  15. Jerry says:

    Mr. Duncan mentioned noble points during his presentation. I understand the government could save money on military spending or spend wisely. This does not just include the military, but all branches like the FBI, CIA, DEA, etc. But there is a reason the United States has been dominated for years. I believe over spending is beneficial than under spending and possible becoming liable for attacks. The question that has come to mind is could the United States cut its defense budget if they were not considered the “baby sitters” of the world.”

  16. Sam Elliott says:

    Having spoken with professor Duncan after his talk I have concluded that a combination of both his and COL Smith’s arguments make up my personal conclusion. It’s my opinion that people don’t always know what is best for them or their country. Or they solely want what is best for them and don’t care about their country. That is why I have a problem with entrusting the American public to help decided our optimal defense budget. While I may not have the brain for it, I believe there is a way quantitative way to determine how much and where we should spend. Professor Duncan and I agreed on my previous statement and also agreed that a quantitative approach would start with assessing the risk imposed to the U.S. both foreign and domestic. As we acknowledged in the discussion, there large buildings are insured for terrorist attacks. These insurers, just like any other insurance company, have a way to quantify the risk of that specific building experiencing an attack. Why not assess other risks as well? After assessing these risks I can’t say specifically where I would look to better determine budgeting. Perhaps history, current events, and of course things like weapons development and input from our military leaders, but again I feel there is a way to quantify all of this. One thing I felt Professor Duncan failed to realize that COL Smith alluded to is that as we lower our defense budgeting we don’t simply slowly lose protection and increase the risk of an attack. In my opinion, there is a level so low that we simply fall off a defense “cliff” so to speak. Like COL Smith said, anything drastically lower and we could end up with communism. However if we spend too much we may incur some opportunity costs yet we still have television, beds, grocery stores, cars etc. In other words, life still operates at a standard comfortable to us. To summarize: we can quantify everything to best determine our budget, yes we can spend more towards other developments if we lower our budget but eventually we will reach a defense “cliff” and be invaded, if we spend too much we still have modern luxuries despite incurring a higher opportunity cost.

  17. Will says:

    During his presentation Mr. Duncan mentioned the F35 program which is going to end up costing over one trillion tax payer dollars. This is a classic example of how the “war economy” is taking over the normal economy. Thinking about how much one trillion dollars could do for our economy if it was spent on improving our infrastructure and abilities to do business with other nations. It is disgusting to think about quite frankly and in terms of national security there is no argument that can justify that sort of spending for a sub-par plane that congress wanted to do everything well but instead does nothing well and everything mediocre. Just look at the Bradley program, it is the same fiasco but with a 5th generation fighter the costs are absurdly higher. I will be happy to sit around without 5th gen fighters flying around and wait to be bombed by somebody who can somehow get to VA undetected and manage to drop ordinance. I will put my life on that and anybody who thinks we will not be a superpower without that sort of ridiculous spending is just perpetuating the jingoistic policies that will run our country into the ground.

    • Jeff Smith says:

      I want to clear up some confusion about the cost and roles of the J-35, otherwise known as the Joint Strike Fighter. This information can be found here http://www.gao.gov/assets/660/652948.pdf .
      The JSF will serve three services, the Air Force, the Marines, and the Navy. In total, the JSF incorporates low-observable technology and it is designed to replace the following : the F-16, the A-10, the F-18C/D model, the AV-8B (Harrier), and the F-18E/F. We also have the following international partners: U.K, Italy, the Netherlands, Turkey, Canada, Australia, Denmark, and Norway. Additionally, Israel and Japan are signed on as foreign military sales customers.
      When Professor Duncan gave the $1T cost figure, this was again misleading, in my opinion. From page 5 of the GAO audit of the F-35 program, published May 2013, the program acquisition cost for 2,457 aircraft (14 development aircraft and 2,443 production aircraft across the three services (these are U.S.-only planes)) is $395.7B. That is a lot of money, indeed, but not nearly the $1T discussed in the presentation. The $1T represents sustainment costs, which are the costs to operate the aircraft over 30 years (and they are estimates, that have some issues given they are projecting costs through 2050 – they could be higher or lower). This is expensive; it is 60% higher than legacy aircraft. It is also 30 years newer. With advance avionics, advanced software, and advanced engine components, costs will increase (think of it as the difference between maintaining a 1985 Chevy Camaro versus a 2014 Chevy camaro).

      I can’t tell you if we should spend this money, but I can tell you they are working to bring down the $1T operating and sustainment (O/S) costs. In my opinion, what we can’t afford is to allow China to overtake us in technology. The U.S. military strategy has always been to supplant numbers with technological superiority, as well as superior training. If we lose technological superiority and can no longer fund training, there will definitely be a power shift in your lifetimes.

  18. Daniel Kitchen says:

    Professor Duncan introduced interesting yet questionable arguments that are in some ways debatable. As many others have stated his argument lacked evidence and in some ways was skewed due to the fact he gathered information starting in 2001. He is completely right in the sense that our inefficient military spending needs to be reduced but I did not think his evidence was strong enough on how to improve the spending decisions. There are so many variables that need to be taken into account when trying to figure out the right amount to spend to maintain our countries safety. I feel as if there is no way of determining an exact number because of these ever changing variables. The safety of our country takes priority over everything so as mentioned in previous posts, it is better to be over prepared than underprepared. Also the United States is relied upon by many other countries in case of needed defense so this variable can cause a huge change in the budgeting of our defense and military in general. There are so many countries we cannot trust so it is necessary to prepare for the worst as opposed to under spending and being caught unprepared. His points on producing equipment that is obsolete were spot on and although he had some quality statistics on the amounts being spent on military equipment, I thought he failed to show how that money could be allocated to innovate that equipment. Regardless of my argument and his argument I think a question that should be asked after a talk like this would be; shouldn’t we have our military budgets somewhat high to reduce the potential threats to the United States?

  19. Buckley says:

    I found Professor Duncan’s lecture really interesting. I was particularly interested when he mentioned research and development in the war economy versus the non-war economy. In regards to the question about if a focus on a war economy leads to the incorrect allocation of resources and thereby leads to future impediment of economic growth, it is necessary to determine if the opportunity cost of producing in the war economy versus the private/industrial/”non-war” economy. Is the United States receiving less return on investment through the “war economy”? Does the war economy stifle entrepreneurs who are not part of the war economy? In Eisenhower’s farewell address, which warned of the impending Military Industrial Complex, he said, “Today, the solitary inventor, tinkering in his shop, has been over shadowed by task forces of scientists in laboratories and testing fields. In the same fashion, the free university, historically the fountainhead of free ideas and scientific discovery has experienced a revolution in the conduct of research. Partly because of the huge costs involved, a government contract becomes virtually a substitute for intellectual curiosity. For every old blackboard there are now hundreds of new electronic computers.” In this excerpt, Eisenhower refers specifically to military contracts and their influence on research and development. The question remains, do these contracts impede research or does it further our society due to the creation of new technologies? In 2009, “The Economist” had an article titled the “Military-Consumer Complex”. (http://www.economist.com/node/15065709) The article was about the U.S.’s military’s use of “off the shelf” electronics (i.e. Xbox video game controllers). The military has been taking advantage of the faster, cheaper, more efficient private market which produces consumer desired electronics and then altering them to their needs. In the case of small electronics, the non-war economy is more efficient. However, the article even agrees that it would be impossible to obtain advanced military technology and weapons “off the shelf”. Therefore, while it is difficult to determine the adequate balance of focus on the war economy versus the non-war economy, a balance does exist. Are we truly losing out in research and development in the private, non-war economy? It may be possible that the research and development in the non-war economy is essentially different from the research in the war economy due to the non-war’s economy’s focus on developing technologies for civilian consumers. If only focusing on research and development, there seems to be a need for a balance in focus between the war and non-war economy due to the fact that the type of research and development is innately different. The larger debate, which Professor Duncan discusses, is determining what the correct balance should be.

  20. John Dalton says:

    I agree that the US defense budget is too big and I think US politicians have many areas they could reduce spending on. One in particular that I learned about recently has to do with the US efforts in the Middle East to improve infrastructure. Millions have been spent on building schools and hospitals for which there are not enough trained professionals to utilize. Congress budgeted over $400 million dollars for building tanks that the US Army didn’t want. This in mind I still believe the US should maintain its position as the top millitary power. We need to discontinue spending on the things that make the US look good on paper and start spending on what helps the military accomplish its objectives.
    In order to align the military economy with the consumer economy, we should start with ensuring that what the military spends on is efficiently improving the state of our military. If it were my job to make this happen I would start by giving senior military officials more say over what where the budgeted money goes and how much of it goes there.

  21. Doug Burton says:

    I enjoyed listening to Professor Duncan’s thesis. I agree with a few of his points, but for the most part, I disagree. Most of his points he made are a lot easier said than done. Reducing the national defense budget seems theoretically attainable when looking at the big numbers and in some ways could be reduced. But a country of our power shouldn’t reduce military spending. Other than the overproduction of tanks for the Army, I didn’t hear of any other valid arguments that were proposed as to why we should reduce spending. When you realize the dominance we assert in respect to other nations militaries, why would we want to risk losing our power? We spend so much money on our national defense because we are at the top of the food chain. We are relied on heavily by many other countries to assist them in a time of need. With so many threats today, we need to spend money to protect ourselves. Professor Duncan’s statistics were all gathered from 2001 and on. Of course the budget would grow exponentially because of 9/11. But you cannot base the numbers off of the years following the biggest terrorist attack this country has ever seen.

    • Brick Embree says:

      Interesting point, Gloveless. Of course, our nation should never intend to concede power to other sources, as it may increase the risk to our national interest. Yet, you seem to link spending and risk together equally. As Prof. Richter would likely argue, I believe that the higher the defense budget, the lower the marginal return will be in terms of risk. With this in mind, I would question the past two decades of military expenditures, as well as invasions and interventions. Such wars have undoubtedly increased the costs of maintaining our military, but have they actually reduced risk while doing so? I think not. Look at the US military’s occupation of Iraq and Afghanistan, and consider the “peace and safety” that these extremely expensive and prolonged occupations have provided us– a negligible amount. One could argue “there has not been another terrorist attack on the US since 9/11!” but still, the collateral damage and perceived imperialistic tendencies of the US in the region have done little more than encourage impoverished youths to side with Islamic fundamentalists. Instead, we should be spending a good portion of the defense budget on less militarized functions of the government and use our “soft power” to coerce the greater middle east to side with our capitalist ideology. After all, it could be argued that this way of economic thinking and action is the “dominant strategy” in terms of evolutionary game theory.

  22. Hagan MA says:

    I agree certain parts of Professor Duncan’s article warrants attention such as the need for reduced spending, and a change in policy on how politicians decide on expenditures. It is the details and data that he misses out on that bring fault to his arguments such as the almost complete lack of data present besides the mentioning of a few. The argument seemed to deny a lot of the benefits that military spending does give the U.S. public such as having a place where large projects needing substantial budgets and manpower are needed that most private companies could not meet. The military as a non-profit seeking entity is also more willing to take on risky and long-term projects that private companies would see of little worth. The military does not always get a winner in this case, but it gets enough to make it worthwhile. I personally believe that the previous arguments indicate not so much as a need for a almost complete decrease in the military budget that leaves us at a level very close to the next highest military budget to GDP ratio, but as a need to shift where the spending is put mainly into R&D. R&D because it can help the private sector just as much as the public sector. Private companies can use what the military has already researched to start off on new projects of their own using the military R&D as a bases.

  23. BenK says:

    My impression of Professor. Duncan’s lecture was that while he made points in regard to the United States’s over spending, he rarely made such a point with empirical evidence with the only exception being his example of the M1A2Sep2 Abrams tank. Prof. Duncan claimed that there is overspending on the part of the United States’s military budget. However, what Prof. Duncan failed to mention was the possible costs of the United States NOT spending as much as it does on defense spending. Prof. Duncan focused mainly on the security of the United States. However, When is comes to the security of the United States, we cannot ignore what could happen if we no longer spent as much as we do on defense spending. While there is money that could be saved by cutting defense spending, Prof. Duncan did not talk about the costs of the lack of American power abroad. These costs however cannot be accurately measured, but could exceed the costs to American Power more than the savings we could acquire from cutting defense. .

  24. Kyle Reesman says:

    The talk to me seemed to lack any game theory into why we would as a nation be willing to spend so much on our military assets. For politicians it is all about the game of being re elected and the only way to remove the incentive for maintaining the huge factories would be general term limits for Congressional Representatives. The second thing is it sends a visible message to all of our enemies that we are ready for any type of war at anytime. The fact we still have a lot of tanks available even though we are switching to an infantry/small war focus implies we are setting these assets aside so we can rapidly redevelop our forces to a classic maneuver warfare style military. The implications are simple we have the means to meet any threat head on.

  25. Joe Dutter says:

    I enjoyed the questions and responses by Lt. Col. Smith and Professor Duncan. And while Professor Duncan did make the point very clearly that the US spends massive amounts of money on defense I would have to agree with Lt. Col. Smith that there must be reasons that the amount is so high. The point of Professor Duncan made where we keep pumping out unnecessary tanks to store in Arizona seems to make sense as we have commanders of our armed forces deeming the extra tanks as not necessary. However (point taken from COL Basu) it makes sense to have a vast amount of tanks if we are looking at these tanks as a long term investment. We might not be trying to win over the “hearts and minds” of the Middle East with our infantry in the future. Instead we might be fighting a war where we need tanks, and a lot of them. While we all agree that the situation in Ukraine is awful and we hope that it does not explode and demand the action of the US, we seem to be ready for whatever happens and our tank reserve in Arizona will serve very well as a reason for other countries to go along with our demands of peace and stability throughout the world.

  26. Chris says:

    I found some elements of this presentation insightful while others contained significant oversights. Most problematic in my estimation was the lack of plausible solutions to the problem of inefficient defense spending. Are there inefficiencies? Certainly. But simply suggesting that someone should come up with a way of introducing a market-like mechanism for determining prices is inadequate. Is there perhaps a model worth conforming to in some other nation? I cannot say for sure, but I am skeptical about the existence of a more viable alternative for the United States. President Eisenhower famously mentioned the specter of military-industrial complex in his 1961 farewell address to the nation. The notion of this problem isn’t novel. The iron triangle relationship is well documented. The presentation mentioned large figures associated with military spending, but failed to place them in the proper context. Defense spending in the United States as a percentage of GDP in 2012 was 4.2% (http://data.worldbank.org/indicator/MS.MIL.XPND.GD.ZS). There are far more troublesome elements of our economy in need of redress before we turn our attention to “fixing” our present defense spending system.

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