Blog the 3rd: In which Alice falls through the Looking Glass and Discovers the Military (Act II & III)

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Act II

What’s the deal?

Well first – the principal-agent problem. Like most social services, defense spending is funded through taxes. Americans don’t drive to the Superstore each year, collectively decide that $600 billion seems like a legit amount to pay for ‘the military’, check out at the cash register, collect their Air Miles, and bring ‘the military’ home in a plastic bag. In reality, citizens give up their agency in the decision making process and accept the price tag de facto, collectively incurring a cost to which most remain oblivious. It makes sense to let Congress take the reins, elected officials are paid to be well informed and take care of the “big stuff” while we focus on issues of immediate, individual importance. People trust that governments spend their money in their best interests – so if $600 billion is going to the military, $600 billion is needed.

But, as any personal-shopper will tell you, it’s always easier to spend other people’s money. And if you’re not the one directly incurring the costs – who cares about the price signals? Imagine having a superpower, which would let you eat whatever you wanted while someone else gained the weight. You’d probably have a good time until the (newly fat) victim of your binges found you and demanded you control yourself. But what if your would-be weight-gain was diffused across one hundred victims? One thousand? No one would notice their extra grams and you could gorge yourself on cupcakes unencumbered. Now that’s really having your cake and eating it too.

The principal-agent problem isn’t the only bug making Congress go camo-crazy at Drones-R-Us. The abstract nature of defense spending adds a compounding effect. Military expenditures fund goods we do not typically use or even see on a daily basis, which inhibits our ability to realize we are overinvesting. If we woke up one morning to streets littered waist-deep in assault rifles, we may rethink our priorities, but that’s not how the world works. With largely invisible effects, an inflated defense budget fuels the reserve power we can hypothetically engage in case of war. Day-to-day, the utility derived from having a state-of-the-art military comes from the perception of safety it provides. Arguably, this perception of safety is what is actually being purchased when we ramp up spending after perceived threats become more menacing. All in all, the perception of safety battles the perception of danger in the colourful world of our imaginations. The only thing that’s not imaginary is the money being spent. It’s like a real-life, twisted version of The Sims.


Now that we’ve touched on particulars that may lead to an oversupply of military goods, let’s circle back to two previous points. Namely, a military tasked solely with state protection is an end in and of itself. And, if superiorly developed, said military actually prevents enemy attacks merely by virtue of existing.

In other words, your big and strong army need only be bigger and stronger than your enemy’s – which means literal size is irrelevant. It stands to reason that if you magically vanished 99% of arms across the globe, utility derived from military protection would be preserved as long as existing arms ratios remained unchanged. Global power dynamics would be untouched; the biggest and strongest would still be the biggest and strongest. Further, while citizen utility derived from the military would not be altered, social welfare would actually rise given the decreased potential for destruction. A real-life execution of this scenario would further entail reallocating resources away from the defense budget to other sectors of the economy, which would also raise welfare.

Fear of falling behind the competition, the disconnect between people incurring the costs and those spending the money, and the abstract nature of military protection, combine to form an irresistible incentive to spend on defense. But is this incentive an illusion?

A phenomenon whereby destruction of property fails to decrease welfare is unprecedented. In fact, I cannot think of a single other example where this holds true. If you destroyed 99% of food – we would starve, shelter – we would perish from exposure, chairs – we would have nowhere to sit. In every instance, losing a good leads to a drop in quality of life. Except when it comes to the one good on which we spend the most. Does this mean that we are trapped in economies that fundamentally misallocate resources? Have the time, capital, human and non-human assets dedicated to expanding military capabilities been wasted? You decide.

At the end of the day the only question that really matters is – what would you rather do with $600 billion?



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