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<DIV class=pageTitle>...Obama is a center-left variant of the bipartisan
foreign-policy consensus whose basic premises are shared by John McCain, Hillary
Clinton, Madeleine Albright, Newt Gingrich, and the <EM>Washington Post</EM>. He
has no intention of withdrawing American troops from where they are stationed
around the world...</DIV>
<DIV class=pageTitle> </DIV>
<DIV class=pageTitle> </DIV>
<DIV class=pageTitle><A
href="http://www.amconmag.com/blog/less-bang-for-the-buck/" rel=bookmark>Less
Bang for the Buck</A></DIV>
<DIV class=entry>
<H4><SPAN style="FONT-WEIGHT: normal">By Thomas E. Woods Jr.</SPAN></H4>
<P><A
onclick="javascript:pageTracker._trackPageview('/outbound/article/www.amazon.com');"
href="http://www.amazon.com/Rollback-Repealing-Government-Before-Collapse/dp/1596981415/ref=nosim/?tag=theamericonse-20"></A>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?</P>
<P>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,</P>
<BLOCKQUOTE>
<P>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.</P></BLOCKQUOTE>
<P>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.”</P>
<P>Yet these politicians and intellectuals were focusing on the direct effects
of discontinuing a particular spending stream without considering the
indirect<EM> </EM>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.</P>
<H4><STRONG>Not All Growth Is Good</STRONG></H4>
<P>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.</P>
<P>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.</P>
<P>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?”</P>
<P>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.</P>
<P>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.</P>
<P>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.</P>
<H4><STRONG>Military Corporatism</STRONG></H4>
<P><A
onclick="javascript:pageTracker._trackPageview('/outbound/article/www.amazon.com');"
href="http://www.amazon.com/Rollback-Repealing-Government-Before-Collapse/dp/1596981415/ref=nosim/?tag=theamericonse-20"></A>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.”</P>
<P>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.</P>
<P>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.</P>
<P>Beginning in the 1960s, the Department of Defense required the
military-oriented firms with which it did business to engage in “historical
costing,” a method by which past prices are employed in order to estimate future
costs. Superficially plausible, this approach builds into the procurement
process a bias in favor of ever-higher prices since it does not scrutinize these
past prices or the firm’s previously incurred costs, or make provision for the
possibility that work done in the future might be carried out at a lower cost
than related work done in the past.</P>
<P>This is not nit-picking: advancing technology has often made it possible to
carry out important tasks at ever-lower costs, yet rising costs are a built-in
assumption of the historical-cost method. Moreover, if some piece of military
equipment—a helicopter, plane, or tank, for example—winds up costing much more
than initial estimates indicated, that inflated price then becomes the baseline
for the cost estimates for new projects belonging to the same genus. The
Pentagon, in turn, uses the resulting cost hikes to justify higher budget
proposals submitted to Congress.</P>
<P>Cost-minimizing incentives that exist for civilian firms are often absent
with the military-industry firm. The largest contracts are negotiated with a
single supplier, and cost is not the major factor in the Pentagon’s reckoning.
More important is the Pentagon’s confidence that the firm can deliver the
product, interact with the military community, and adapt to ongoing and
sometimes frequent changes to the initial design.</P>
<P>Even if the resulting military hardware exceeds the negotiated price by three
or four times, the Pentagon will generally find a way to come up with the money.
Melman also found administrative overhead ratios in the defense industry to be
double those for civilian firms, where such a crushing burden simply could not
be absorbed. He concluded:</P>
<BLOCKQUOTE>
<P>From the personal accounts of ‘refugees’ from military-industry firms, from
former Pentagon staffers, from informants still engaged in military-industrial
work, from the Pentagon’s publications, and from data disclosed in
Congressional hearings, I have found consistent evidence pointing to the
inference that the primary, internal, economic dynamics of military industry
are cost- and subsidy-maximization.</P></BLOCKQUOTE>
<P>These incentives also supply little reason to exert the intellectual and
physical effort necessary not only to control costs but also to make complex
systems simpler and more user-friendly, as truly competitive firms and
industries must try to do when catering to the public. “In one major
enterprise,” Melman reported, “the product-development staffs engaged in
contests for designing the most complex, Rube Goldberg-types of devices. Why
bother putting brakes on such professional games as long as they can be labeled
‘research,’ charged to ‘cost growth’ and billed to the Pentagon?”</P>
<P>The efforts of Boeing Vertol, Rohr, and Grumman to enter the field of mass
transit are revealing. In each case, their products were simply too complex and
unreliable. Boeing Vertol’s trolley cars, introduced on Boston’s Green Line in
the 1970s, broke down regularly and were largely replaced by cars built by
Japan’s Kinki Sharyo. Rohr Industries’ subway cars, introduced in San
Francisco’s Bay Area Rapid Transit (BART) system and in the nation’s capital,
were enormously costly and for years suffered from chronic malfunctions. Grumman
buses in New York City were so unreliable that the city ended up suing the
company.</P>
<H4><STRONG>War Machine Tools</STRONG></H4>
<P>The American machine-tool industry can tell a sorry tale of its own. Once
highly competitive and committed to cost-containment and innovation, the
machine-tool industry suffered a sustained decline in the decades following
World War II. During the wartime period, from 1939 to 1947, machine-tool prices
increased by only 39 percent at a time when the average hourly earnings of
American industrial workers rose by 95 percent. Since machine tools increase an
economy’s productivity, making it possible to produce a greater quantity of
output with a smaller input, the industry’s conscientious cost-cutting had a
disproportionately positive effect on the American industrial system as a
whole.</P>
<P>But between 1971 and 1978, machine-tool prices rose 85 percent while U.S.
industrial workers’ average hourly earnings increased only 72 percent. The
corresponding figures in Japan were 51 percent and 177 percent,
respectively.</P>
<P>These problems can be accounted for in part by the American machine-tool
industry’s relationship with the Defense Department. Once the Pentagon became
the American machine-tool industry’s largest customer, the industry felt far
less pressure to hold prices down than it had in the past. That decreased
pressure undoubtedly contributed to the negligible investment by the
machine-tool industry in modern production techniques of a kind used routinely
in Europe. No longer under traditional market pressure to innovate and lower
costs, the machine-tool industry saw a considerable drop in productivity.</P>
<P>In the short run, the American machine-tool industry’s woes affected U.S.
productivity at large. Firms were now much more likely to maintain their
existing stock of machines rather than to purchase additional equipment or
upgrade what they already possessed. By 1968, nearly two-thirds of all
metalworking machinery in American factories was at least ten years old. The
aging stock of production equipment contributed to a decline in manufacturing
productivity growth after 1965.</P>
<P>Why Americans couldn’t have switched to lower-cost imported machine tools as
soon as prices began to rise involves the reluctance of machinery buyers to
change their suppliers. Not only do they prefer to deal with established firms
with good reputations, but they also want to avoid unnecessary and costly
downtime, so they patronize suppliers who can perform repairs and supply spare
parts on short notice. In the long run, American firms did indeed begin to shift
into imported machine tools, and by 1967 the United States for the first time
imported more machine tools than it exported.</P>
<P>The military-induced distortion of the American machine-tool industry, and
the industry’s correspondingly decreased global competitiveness, is not confined
to the perverse incentives created by the Pentagon’s cost-maximization approach
to procurement. Another factor is at work as well: the more an industry caters
to the Pentagon, the less it makes production decisions with the civilian
economy in mind. Thus in the late 1950s the Air Force teamed up with the
machine-tool industry to produce numerical-control machine-tool technology, a
technique for the programmable automation of machine tools that yields fast,
efficient, and accurate results. The resulting technology was so costly that
private metalworking firms could not even consider using it. The machine-tool
firms involved in this research thereby placed themselves in a situation in
which their only real customer was the aerospace industry.</P>
<P>Some 20 years later, only 2 percent of all American machine tools belonged to
the numerical-control line. It was Western European and Japanese firms, which
operated without these incentives, that finally managed to produce
numerical-control machine tools at affordable prices for smaller businesses.</P>
<P>The distortion of business decisions and strategy that contributed to the
decreasing competitiveness of the machine-tool industry is at work in thousands
of American firms in rough proportion to their reliance on Pentagon
contracts.</P>
<H4><STRONG>How Much Is Enough?</STRONG></H4>
<P>We sometimes hear it said that the military budget is too low. As of this
printing the Pentagon absorbs the equivalent of 3.3 percent of GDP; some say
this figure should be increased to at least 4 percent. That figure sounds
moderate and reasonable, especially since it has reached more than twice that
level at various times in the past. But the problem with determining the
adequacy of the military budget by measuring it as a share of GDP is that the
two figures have no logical connection to each other. One would think, instead,
that a reasonable metric for determining the military budget would involve some
calculation of what expenditures were necessary to defend the United States from
potential aggressors. Whatever that figure turns out to be, its ratio to GDP is
of no relevance at all.</P>
<P>A better way to measure the U.S. government’s military spending would be to
compare it to that of other countries. As of this writing, the U.S. government’s
military expenditures <EM>equals</EM> the sum of what all the other countries in
the world spend. Economist Robert Higgs wonders: “Why can’t the Department of
Defense today defend the country for a smaller annual amount than it needed to
defend the country during the Cold War, when we faced an enemy with large,
modern armed forces and thousands of accurate, nuclear-armed intercontinental
ballistic missiles?”</P>
<P>In fact, a great many military experts have begun to conclude that the
enormously expensive and complicated equipment and programs that the Pentagon
has been calling for would be of limited help even in fighting the Second
Generation Warfare with which the American military seems most comfortable, and
a positive detriment to waging the kind of Fourth Generation Warfare of which
the war on terror consists. William Lind, a key theorist of Fourth Generation
Warfare, says the U.S. Navy in the 21st century is “still structured to fight
the Imperial Japanese Navy.” As Lind puts it, the Navy’s aircraft-carrier battle
groups “have cruised on mindlessly for more than half a century, waiting for
those Japanese carriers to turn up. They are still cruising today, into, if not
beyond, irrelevance.”</P>
<P>The Department of Defense is the only federal agency not subject to audit.
The seriousness of problems with the Department’s books has been acknowledged
for decades. In the 1990s the Defense Department actually secured from Congress
a special exemption from the general audit requirement that exists for other
federal agencies. So it is not that the Department has failed an audit—meaning
accountants tracked its expenditures and found its money misspent. With the
Department of Defense, accountants cannot track the money in the first
place.</P>
<P>It is not uncommon for the Pentagon not to know whether contractors have been
paid twice, or not at all. It does not even know how many contractors it has.
Meanwhile, so-called fiscal conservatives, who know nothing of this, continue to
think the problem is excessively low military budgets. This, no doubt, is just
the way the establishment likes it: exploit the people’s patriotism in order to
keep the gravy train rolling.</P>
<P>To tabulate the full amount of government expenditure on defense, it is not
enough to glance at the budget for the Department of Defense. That number was
$518.3 billion in 2009 and excludes hundreds of billions of dollars in
additional defense-related expenditure. Higgs suggests that the real defense
budget is closer to $1 trillion.</P>
<P>Winslow Wheeler reaches a comparable figure. To the $518.3 billion, he adds
the military-related activities assigned to the Department of Energy ($17.1
billion), the security component of the State Department budget ($38.4 billion),
the Department of Veterans Affairs ($91.3 billion), non-Department of Defense
military retirement ($28.3 billion), miscellaneous defense activities
spread around various agencies ($5.7 billion), and the share of the interest
payments on the national debt attributable to military expenditure ($54.5
billion). When we add the roughly $155 billion for the wars in Iraq and
Afghanistan to Wheeler’s tabulation, we arrive at a grand total of $948.7
billion for 2009.</P>
<P>And we’re worried about trivialities like “earmarks,” which comprise such a
small portion of spending that they barely amount to a rounding error in the
federal budget?</P>
<P>Meanwhile, $250 billion is spent every year maintaining a global military
presence that includes 865 facilities in more than 40 countries, and 190,000
troops stationed in 46 countries and territories. It is not “liberal” to find
something wrong with this. Most liberals, in fact, find nothing wrong with it.
Who was the last Democratic presidential candidate to call for a reduced
military presence abroad?</P>
<P>President Obama is being portrayed in some circles as a radical who wants to
gut the U.S. military. This is misleading. Obama is a center-left variant of the
bipartisan foreign-policy consensus whose basic premises are shared by John
McCain, Hillary Clinton, Madeleine Albright, Newt Gingrich, and the
<EM>Washington Post</EM>. He has no intention of withdrawing American troops
from where they are stationed around the world, and in fact he is increasing
military spending to levels beyond those of Ronald Reagan. Between 2010 and 2013
Obama plans to spend $2.47 trillion on the Pentagon. Were he to be re-elected,
he intends to spend another $2.58 trillion. The combined total of $5.05 trillion
is a whopping $840 billion in inflation-adjusted dollars more than was spent by
the Gipper himself.</P>
<H4><STRONG><A href="http://amconmag.com/issue/2011/mar/01/"></A>Real
Conservatism</STRONG></H4>
<P>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.</P>
<P>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.”</P></DIV></FONT></DIV></BODY></HTML>