Along with Chares Knight of the Project on Defense Alternatives, I have just published commentary on the National Interest’s website about President’s Obama’s proposed $450 billion nine‐year cap on war spending. We argue that a war cap — better yet a war tax — is a good idea, but this particular proposal is nearly useless.
For one, it is unlikely to become law. The White House has shown little interest in pushing for it. Meanwhile, Republicans are already bashing the president for possibly shortchanging troops amid a war. And even if it does become law, the cap is unlikely to matter. By the time the cap has any effect, economic recovery may have slackened Congress’s appetite for austerity. With the president’s support, Congress may undo the cap or evade it by claiming an emergency, especially if any new war has begun. The bottom line is that there is no effective fiscal restraint here.
As is often the case, the promise of savings tomorrow serves mainly to distract us from their absence today. If the White House wanted thrift rather than its appearance, it would push an annual war spending cap.
The argument in favor of a war cap or tax follows from the arguments the late Bill Niskanen made against the (starve the beast) claim that cutting government revenue will cut government spending:
It is most implausible that reducing the current tax burden of federal spending would reduce the amount of federal services that voters demand. Orthodox price theory…is unambiguous in concluding that reducing the price of a good or service increases the amount demanded. Reducing the current tax burden of federal spending has much the same effect as a price control, increasing the amount demanded relative to that supplied from current revenues.
Just as people don’t value what they don’t pay for, democracies won’t correctly value policies with hidden or deferred costs. That prevents the competing interests from being weighed carefully, screwing up debate and policy outcomes.
Policies producing diffuse costs and concentrated benefits exacerbate this problem. As I have occasionally written (once with Bill), U.S. defense policies, including wars, fall into that policy category. Americans face few personal consequences when their government makes war. Few of us fight, and danger from fiascos is remote. Much rhetoric to the contrary notwithstanding, the survival of our freedoms or way of life is no longer at stake in our wars. Our volunteer professional military bears great risk in war of course, but professional norms prevent it from publicly complaining much. War’s cost for most of us is slightly higher taxes, subsidized by debt. We can support war casually.
A war cap or war tax would somewhat mitigate this problem. A tax encourages taxpayers to consider the value they are getting for that money. A cap heightens competition for resources within the government and thus among Congressmen and interest groups, which ought to sharpen debate. That won’t prevent dumb wars, but it ought to help.