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The Black Hole of Defense Spending

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Tags Corporate WelfareTaxes and SpendingCalculation and Knowledge

Ryan McMaken’s post about the F-35 Lightning II rightly points out that the only thing defense spending actually defends are the profits of defense contractors. Yet no matter how egregious the waste of taxpayer money, people still seem to think that if the Pentagon isn’t supplied with a steady stream of increasingly high-tech, expensive toys, any day now the communists will be parachuting into rural America, Red Dawn-style.

The F-35 case in particular reminds me of a classic Bob Higgs article, “Airplanes the Pentagon Didn’t Want, but Congress Did.” In it, Higgs examines several pork-fueled spending binges that show the F-35 debacle is nothing new. In fact, it’s only the latest in a long series of fiascos that not only wasted public resources, but often failed even to produce hardware the military wanted. (Although given that the goal of defense spending is to create increasingly effective means of destroying human life, failure is a feature, not a bug).

With characteristic wit, Higgs takes the role of ornithologist to classify the inhabitants of the defense aviary: “hawks,” “doves,” “cheap hawks,” and “pork-hawks.”

The last two are especially important. The cheap hawk, for example, “wants a strong defense, may or may not want more spending for the military, but definitely wants more bang for the buck. He worries about weapons that don’t work as they are supposed to and about spending for purposes that deliver less military punch than other programs that are sacrificed in the budget process.”

Cheap hawks in Congress acknowledge the waste of military spending, but they think the answer is to make it more efficient by micromanaging the defense budget. This in turn creates a fertile breeding ground for “pork-hawks”:

In Congress, the pork-hawk may appear to be a hawk, a dove, or a cheap hawk. You can’t tell by the plumage or the call. You have to check its nesting habits. You can generally identify it by its tendency to lie down very close to constituents and political action committees and by its constant twittering about reelection. If you observe its behavior in the defense field, you’ll find it pecking away at the tiniest details. The pork-hawk thrives on micromanaging the defense program, stipulating not only how much will be spent for certain broad defense purposes, but also how much will be spent for each of the several thousand line items in the annual defense budget and exactly how the Pentagon must manage that spending.

By doing so, pork-hawks funnel resources to their own constituencies in exchange for votes. As Higgs puts it, “Doves and hawks will coo and shriek, while the pork-hawks bring home the bacon at taxpayer expense.”

The bacon in question is enormous: in fact, as Higgs explains in a different article, defense contractors’ profits are significantly higher than those of similar firms in the market, and are a result of their subsidized use of public capital.

Understandably, when it comes to defense spending, people believe the central problem is political corruption and the pervasive influence of “iron triangles.” But while these factors are important, the underlying issue is that militaries and defense contractors suffer from a version of the socialist calculation problem.

As Mises famously observed, without private property to serve as the basis for a price system (for an “entrepreneurial division of labor”), socialist governments lack the ability to rationally allocate resources. Likewise, because they lack genuine markets, public organizations like militaries and their monopolist contractors fall into the same trap. An unregulated, unsubsidized price system would reveal the lack of value in defense spending, which is, “in effect, welfare… not for inner-city dwellers, homeless people, or other unfortunates, but welfare nonetheless.”

Although corruption and incompetence do help to determine how defense funds are spent, they are not the root cause of the kind of problems faced by the F-35 project; even if government and the military were run by the most incorruptible and well-intentioned human beings in the world, the calculation problem would still exist. The terrible incentives of public finance and the bureaucratic mismanagement of defense are just symptoms of this larger problem.

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