Defense Economics

"In his great Civil War history, 'Decision in the West,' Albert Castel describes the last Confederate hope of victory. If in 1864 the Confederate armies continue to extract a steep cost from the North, 'the majority of Northerners will decide that going on with the war is not worth the financial and human cost and so will replace Lincoln and the Republicans with a Democratic president and Congress committed to stopping hostilities and instituting peace negotiations.' ... The administrations of George W. Bush have virtually assured such a catastrophe throwing the country off balance, both politically and financially, while breaking the nation's sword in an inconclusive seven-year struggle against a ragtag enemy in two small bankrupt states. Their one accomplishment--no subsequent attacks on American soil thus far--has been offset by the stunningly incompetent prosecution of the war. ... This confusion has come at the price of transforming the military into a light and hollow semi-gendarmaire focused on irregular warfare and ill-equipped to deter the conventional and strategic forces of China and Russia while begging challenges from rivals or enemies no longer constrained by our former reserves of strength. For seven years we failed to devise effective policy or make intelligent arguments for policies that were worth pursuing. Thus we capriciously forfeited the domestic and international political equilibrium without which alliances break apart and wars are seldon won. The pity is that the war could have been successful and this equilibrium sustained had we struck immediately, preserving the link with September 11th; had we disciplined our objective to forcing upon regimes that nurture terrorism the choice of routing it out with their ruthless secret services or suffering the destruction of the means to power for which they live. ... The counterpart to Republican incompetence has been a Democratic opposition warped by sentiment. The deaths of thousands of Americans ... were not a criminal matter but an act of war made possible by governments and legions of enablers in the Arab world. ... But the costs of not reacting to China's military expansion, which could lead to its hegemony in the Pacific; or of ignoring a Russian resurgence, which could result in a new Cold War and Russian domination of Europe; or of suffering a nuclear detonation in New York, Washington or any other major American city, would be so great as to be, appraently, unimaginable to us now", my emphasis, Mark Helperin (MH) at the WSJ, 19 December 2008.

"Hosni Mubarak is no one's idea of a visionary, but in sensing the Middle East's political winds he has few equals. So when Egypt's president-for-life warned his ruling party last week that 'the Persians are trying to devour the Arab states,' it's worth paying attention. ... Egypt and Saudi Arabia ... calculate that the U.S. lacks the will to prevent a nuclear Iran. As for Barack Obama's promise of 'tough diplomacy,' we suspect the Arab states take him about as seriously as they would a tourist who thinks he knows how to bargain at an oriental bazaar. Little wonder, then, that the Arab states are taking a keen interest in acquiring nuclear capabilities of their own. ... Still, it's difficult to see what use oil giants like the Saudis or Algerians would have for nuclear power except as a hedge against an Iranian bomb. ... All this is a useful reminder that the threat of Iran's nuclear programs lies not only in whether or not it will acquire a bomb. It's also a question of how Iran's neghbors will react. The Israelis have said publicly that a nuclear Iran is an intolerable threat, a view many Arab states share privately. If neither Israel nor the U.S. act, they will be tempted to seek their security by acquiring their own nuclear deterrents", my emphasis, Editorial at the WSJ, 20 December 2008.

"One of the top priorities for the Obama administration must be to establish policy regarding China's military buildup. ... Chinese officials claim that the buildup is 'defensive' and insist that Beijing's intentions are 'peaceful.' ... Investments in updating our weapons systems and bolstering our alliances will pay dividends in keeping China at bay", Editoral at the Washington Times, 22 December 2008.

"The Department of Defense is preparing budget cuts in response to the decline in national income. The DOD budgeteers and their counterparts in the White House Office of Management and Budget apparently reason that a smaller GDP requires belt-tightening by everyone. That logic is exactly backwards. ... A temporary rise in DOD spending on suppplies, equipment and manpower should be a signifcant part of that increase in overall government outlays. ... An important challenge for those who are designing the overall stimulus package is to avoid wasteful spending. One way to achieve that is to do things during the period of the spending surge that must eventually be done anyway. It is better to do them now when there is excess capacity in the economy than to wait and do them later. ... Industry experts and DOD officials confirm that military suppliers have substantial unused capacity with which to produce additional supplies and equipment. Even those production lines that are currently at full capacity can be greatly expanded by going from a single shift to a two-shift production schedule. ... Military planners must also look ahead to the missions that each of the services may be called upon to do in the future. Additional funding would allow the Air Force to increase the production of fighter planes and transport aircraft without any delays. The Army could accelerate its combat modernization program. The Navy could build additonal ships to deal with its increased responsibilities in protecting coastal shipping and in countering terrorism. And all three services have significant infrastructure needs. Although some activities like shipbuilding cannot be completed in the two year stimulus period, the major part of the expenditures can be brought forward in time by acquiring components and materials quickly and holding them in inventory until they are needed in the ship building process. Such a departure for just-in-time inventory management would be wasteful under normal conditions, but make economic sense when there is temporary excess capacity", my emphasis Martin Feldstein (MF) at the WSJ, 24 December 2008.

"China's top military spokesman said it is seriously considering adding a first aircraft carrier to its navy fleet, a fresh indication of the country's growing military profile as it prepares for its first major naval deployment abroad. ... But officials also made clear that China's navy, which has been investing heavily in ships and aircraft, now has the capability to conduct complex operations far from its coastal waters--and that Beijing is continuing to expand its reach and capability, perhaps with a carrier. ... In some of the most direct public statements on current thinking behind Beijing's naval policy, defense spokesman Col. Huang Xueping said Tuesday that, 'China has vast oceans and it is the sovereign responsibility of China's armed forces to ensure the country's maritime security and uphold the sovereignity of its coastal waters as well as its maritime rights and interests.' ... Since Aug. 15, countries have dispatched warships and planes to participate in antipiracy patrols in the Gulf of Aden and Indian Ocean waters of Somalia. But international forces have been stretched too thin to effectively curb the increasingly daring and sophisticated pirates. ... U.S. government and independent analysts say it could be 2015 or 2020 before China could be ready to deploy an operational carrier", my emphasis, Shai Oster at the WSJ, 24 December 2008.

"Hamas is also sustained by the insight that Israel's considerable military capabilities are unlikely to be matched by political will. It believes that whatever attacks come will be tempered by a host of humanitarian and diplomatic considerations. ... It believes that the weight of international sympathy will be on its side. ... This is not a counsel of restraint, of which Israel has shown more than enough through years of provocation. It is merely to point out that no ingenious conceit can disguise the fact that war offers no outcome other than victory or defeat. This is one big thing that Hamas understands, and that Israel must as well", my emphasis, Bret Stephens at the WSJ, 30 December 2008.

"Writing in the [WSJ] on December 24, 2008, Martin Feldstein gives us an article entitled, 'Defense Spending Would Be Great Stimulus.' The title tells you everything you need to know: military Keynesianism is the medicine being prescribed by a leading figure of the politico-economic Establishment--a Harvard professor, former chairman of the Council of Economic Advisers, former president of the American Economic Association, president emeritus of the National Bureau of Economic Research, and member of the President's Foreign Intelligence Advisory Board. That a man so drenched in professional honors and attainments would be peddling such long-discredited claptrap speaks volumes about the state of mainstream economics. When you think it can't sink any lower, it does. ... Feldstein forsees the creation of some 300,000 jobs as a result on flinging money helter-skelter at military personnel increases, training, equipment, and procurement of major items such as fighter planes, transport aircraft, and combat ships. ... Keynesian economics rests on the presumption that government spending, whether for munitions or other goods, creates an addition to the economy's aggregate demand and thereby brings into employment labor and other resources that otherwise would remain idle. ... Such theorizing never faced squarely the underlying reason for the initial idleness of labor and other resources. ... Contrary to the claims of Keynesian economists, government deficit spending will not generate something for nothing; it certainly will have opportunity costs", Robert Higgs, 2 January 2009 at: http://lewrockewell.com/higgs/higgs101.html.

I agree with MH, the Bushites are destroying our military and leading the world to political instability; 1913 anyone? MH says our military is becoming a "semi-gendarmarie", my words! Bush on 12 September 2001 should have dusted off FDR's "Day of Infamy" speech, delivered it and asked for a declaration of war against Saudi Arabia. He should have ordered the Saudi ambassador to the White House and told him on television, "You will end support for all terrorist activities worldwide. You will stop funding madrassas in Pakistan. You will reform your laws now, permit churches, Hindu temples and such to be built in Saudi, recognize Israel and we will tell you what else we want when it strikes us. Here's a picture of Dresden in 1945. Do you want: Mecca, Medina, Riyadh, Jeddah, etc., to look like this? Go. You have 48 hours to start doing what we demanded. If you wish to destroy your oil wells, go ahead. We will then sit and watch at least 15 million of your 23 million citizens starve to death. We're not kidding. How long will the House of Saud last when starvation is widespread in the Kingdom?". Imagine the howls from Foggy Bottom. The American public would have loved it. Bush's public approval rating would have at least equalled Czar Putin's today. And if we had to burn a few Saudi cities to the ground to show we meant business, so be it. Why are Saudis more precious than: Germans and Japanese were in World War II and American GIs today? This didn't happen. Result: we are stuck in Afghanistan and Iraq, have a homeland security apparatus that harasses Americans, have China and Russia, each of which receives Islamic terrorism, think us crazy. What can we expect from Bush who thinks he has a Saudi prince for a friend? Would Russian domination of Europe be so bad? What's the alternative, Islamic domination?

The Middle East is a tough neighborhood. Only force is respected there. We, Russia and Israel should long ago have carved up Iran like a Thanksgiving ham. Libya's Mohammar Khaddafy also warned us of Iran's danger to the Arab states. Is Foggy Bottom listening, or does it think "tough diplomacy" exists?

Who cares what the Chinese say. Only capabilities count. Besides isn't Communist "peace", when all nations in the world are Communist?

Where is belt-tightening by Citigroup, Goldman and AIG? MF thinks the DOD is just one more federal make-work program. MF and I live in different worlds. Just-in-time inventory for the DOD? Is MF crazy? Suppose we got in a major war. Does MF think our enemies will afford us the luxury of building war materials after it starts? MF is a Harvard economics professor.

The world's naval forces are "stretched too thin" to deal with a few pirates. Amazing.

The US would do well to realize that "war offers no outcome other than victory or defeat". If that means killing even hundreds of thousands of enemy aliens, so be it. During WWII about 6.9 million Germans died; 3.6 million were civilians. So?

While agreeing with Higgs as to Keynesianism, I disagree with him as to the need for equipment procurement. Much of our hardware is antiquated. In terms Higgs can understand, I'd rather the US fight more capital intensive as opposed to labor intensive wars. Our F-15s use a 37-year old design. Our last B-52, the "H" was made in 1962. We use planes older than their pilots! Our M-1 tanks were first made 30 years ago. Our nuclear deterrent is stale. We never built our 600-ship navy, etc., etc., etc.. To refurbish our military and modernise it could exceed $700 billion just for hardware. We spent $300 billion to prop up Citigroup and $150 billion on AIG and abandon our "social contract", which requires we protect our citizens. Crazy. My first contact with military Keynesianaims was in 1967 when The Report from Iron Mountain was released, link: http://en.wikipedia.org/wiki/The_Report_From_Iron_Mountain. Real or hoax, you decide?