March/April 2013

How Will a Culture of Permanent War Impact America’s Future?

Although America’s all-volunteer military absorbs much of the burden of war, military conflicts impact our entire society. The wars in Iraq and Afghanistan, which are projected to cost over $3 trillion, have also led to changes in domestic politics that have curtailed civil liberties, expanded intrusive government practices, and bypassed congressional war powers. At a Cato Student Forum in November, Doug Bandow, senior fellow at the Cato Institute, explored why the biggest increases in the size and scope of government power have historically been during times of war. Thomas Duncan, an economist at George Mason University, explored the political economy of the military-industrial complex.

DOUG BANDOW: Some of us are old enough to remember a time when we weren’t actually involved in shooting wars, but if you look over the past 10 or 20 years, we have constantly been at war in many places throughout the world. We live in a very different world — and it’s one where there are extraordinary consequences that we have to consider.

In many ways, our current foreign policy can be called an imperial one. But what does America get out of empire? To some degree, it depends on your perspective. If you are part of the Washington establishment, war can be quite advantageous. As a secretary of state, for instance, it’s much more fun to be in charge of the United States — where you wander around the world telling everyone what to do. The foreign minister of, say, Greece doesn’t enjoy the same advantages.

But what about the general public? There was a statesman who once captured the issue quite well. In response to a question about war, he responded: “Why of course the people don’t want war. Why would some poor slob on a farm want to risk his life in a war when the best that he can get out of it is to come back to his farm in one piece? Naturally, the common people don’t want war; neither in Russia nor in England nor in America, nor for that matter in Germany. That is understood. But, after all, it is the leaders of the country who determine the policy and it is always a simple matter to drag the people along, whether it is a democracy or a fascist dictatorship or a Parliament or a Communist dictatorship.”

“Voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is tell them they are being attacked and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same way in any country.” That was Hermann Goring while he was awaiting hanging at Nuremberg. He in fact got it quite right. Common people have very little reason to want war. They pay the cost. They die in it. They don’t see all the grandiose visions and dreams that come out of it.

Of course, those who promote war argue that we receive quite a few benefits. We get security, promote global stability, and become the preeminent power. We create more trade through a stable international order. We have the humanitarian influence to promote democracy and freedom. But it’s also important to step back and recognize the disadvantages, which are often lost in the discussion.

The first is monetary cost: a country’s military spending is the price of its foreign policy. If you don’t have carrier groups and armored divisions and Marines, you can’t intervene in other countries. It’s these conventional forces that are quite expensive, which is why the United States accounts for roughly half of all military spending on Earth. Very little of that money goes to genuine defense. Most of it is offense. The projection of power is what’s expensive. In fact, the wars that we’ve gotten into should therefore be viewed as unfunded liabilities.

We’ve spent about $860 billion in Iraq so far, a price tag that has slowed down since the withdrawal of troops from that country. But, over the long term, we will still spend about $2 or $3 trillion on the Iraq war because of all of the injured soldiers we’ll be caring for throughout the course of their lives. It’s important to remember that the decisions we make right now will have fiscal ramifications for decades down the line.

Of course, there are other costs as well. Consider the Patriot Act. We live in a time when the president of the United States can declare that he has the power to have an American citizen arrested in America, where that citizen is then locked away in a brig without access to courts or attorneys. It’s an extraordinary claim in a democratic republic. That president can also sit down with his closest advisors and peruse slides of American citizens and decide who to kill.

He has become a Roman emperor of sorts: thumbs up or thumbs down. Randolph Bourne said that war is the health of the state, and we certainly see it in cases like this. War also tends not to be very humanitarian. And it is not just Americans who die. The starting point for estimates of dead Iraqi civilians is around 200,000. Now, we didn’t directly kill each and every one of those men, women, and children — but we did decide to loosen the dogs of war, and those people died in the aftermath. That is a consequence of action that we must take into account.

Finally, war doesn’t even serve our security interests. This is the most obvious justification for war: we often tend to go to war under the pretense and rhetoric of protecting the country. But what you find is that military action rarely stops where it begins. We instead get drawn in further and further.

The assumption is always that conflict will be easy, but the costs are almost always far, far higher than imagined. Alliances also tend to act as tripwires for conflict. So when should we risk the lives, spend the wealth, threaten the liberties, and put the security of Americans at risk? It needs to be when something is critically at stake for the country’s citizens. We should be careful to risk the lives of military personnel only when their own community has something at risk. They’re not pawns in a global chess game that we can sacrifice to some grand design.

THOMAS DUNCAN: In 2010 the United States government spent more on national defense than it did at the height of the Cold War in 1986, when the U.S. was competing in an arms race against the then–Soviet Union. Yet, instead of facing the threat of a large, consolidated enemy, the United States is now focused on two foreign wars against smaller, decentralized enemies in Afghanistan and Iraq, as well as the seemingly endless War on Terror. Of course, it is not just the public sector that has increased spending on defense.

Private sector spending for homeland security has increased over the last decade as well. The business of ending terrorism is a thriving one, and President Dwight D. Eisenhower’s military-industrial complex thrives along with it. “In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex,” President Eisenhower said in 1961. “The potential for the disastrous rise of misplaced power exists and will persist.”

But what is the true cost of this thriving complex, where the government and the private sectors intersect? I would like to argue that the costs of that intersection have been understated. The conventional estimates don’t take into account the full forgone opportunities of the resources drawn into the war economy. In fact, the opportunity costs are far more extensive than those counted simply in defense spending budgets. Once the United States entered into a state of permanent war, resources were continuously drawn from the nonmilitary sector to support and advance military-related activities in what has become a permanent war economy.

This has set in motion a process whereby the private market is distorted as certain individuals respond and adjust their behaviors to take advantage of new profit opportunities. As this continues, the private economy becomes increasingly intertwined with the state. The result is a bloated corporate state and a less dynamic private economy, the vibrancy of which is at the heart of increased standards of living. In undermining the market, the permanent war economy ultimately stifles the process of wealth creation.

This notion of opportunity cost has not gone totally unrecognized in the economics literature on national defense. Economists as early as Adam Smith recognized that war is a costly endeavor — and an empire that grows too large will find itself difficult to protect. In writing on the costs of protecting and enforcing British imperialism he notes, “The interest of this [military] debt alone is not only greater than the whole extraordinary profit, which, it ever could be pretended, was made by the monopoly of the colony trade, but than the whole value of that trade.” The efforts to protect and intimidate the satellites of the British Empire, in other words, were bankrupting the empire itself.

Here are some indicators of the magnitude of the permanent war economy. The United States, of course, routinely spends more on defense than any other nation in the world. We have spent 38 percent more between 2001 and 2010 than between 1991 and 2000. We have also spent 12.5 percent more in that same decade than between 1981 and 1990, when the Soviet Union was considered a serious military and nuclear threat. In the decade since 2001, the official Department of Defense budget has grown at an average rate of more than 12 percent every year compared with nondefense discretionary spending which has grown at a rate of 8 percent per year. To provide some context, in the decade prior to 1986, during the arms race, the average annual rate of growth of discretionary defense spending was 6 percent.

Of course, resources drawn into the war economy are more than just the dollars spent as constant war preparation also shapes the constitution of the labor force. Consider, for instance, that according to the Bureau of Labor Statistics, in 2008, the Defense and Homeland Security departments made up nearly 49 percent of civilian employment in the federal government. Each of these men and women represents a valuable economic resource in terms of the alternative opportunities he or she could find in the private, nonmilitary workforce

This analysis has a number of worrisome implications. The first is the persistence of these misallocated resources. Because the military-industrial complex lacks a mechanism for meaningful feedback, there is no true method of correction once these massive distortions are set in motion. In fact, the permanent war economy is not simply resistant to correction. It is selfextending. Throughout time, one profit opportunity creates several new opportunities.

The discovery of a more technologically advanced radar system, for example, will create a further demand by the Departments of Defense and Homeland Security. The decisionmakers in those agencies will then look for marginal gains in the effectiveness of the radar without knowing whether those gains are economically worthwhile. If that demand does not reflect an actual demand for defense, then each additional unit will be a further impediment to economic efficiency.

The third implication is that those very same institutions that were set up to ensure national security actually threaten to erode it. After all, is the situation that the United States finds itself in today much different from the one the British faced in Adam Smith’s day? The peace and prosperity that the military is supposed to defend is in danger, with that prosperity drawing back into the recesses of the war economy rather than being directed toward satisfying the wants of the people.

As Ludwig von Mises once argued, “the government has no more ability than individuals to create something out of nothing. What the government spends more, the public spends less.” The permanent war economy cannot remain on the outskirts of the nonmilitary economy in a neutral way. In fact, the United States may be quickly approaching a crisis state. If it reaches that state, the United States, and the world as a whole, will be all the poorer for it.