Thursday, August 25, 2005

Preserving defense-related jobs?

Though I'm "hawkish" on national defense (one reason I'm best described as a neo-libertarian or conservative libertarian), I shake my head at the political shenanigans entailed in defense spending. It's nothing new that members of Congress are fighting (including each other) to keep bases open in their respective states. Bases mean jobs, and touting a record of "creating and saving jobs" can be critical in a re-election campaign -- never mind that the jobs have a cost.
Panel Overrules Feds on New England Bases

Bucking the Pentagon, a federal commission voted Wednesday to spare a submarine base in Connecticut and a shipyard straddling the Maine-New Hampshire border, preserving a major military presence in New England and 12,000 defense-related jobs.

On the first of at least two days of meetings, the base-closing panel agreed with proposals to shutter hundreds of small and large facilities in all corners of the country, including major bases such as Fort Monmouth in New Jersey, a naval air station in Georgia and an Army garrison in Michigan.

The recommendations will be sent to President Bush, who can accept them or reject them in their entirety. Congress also will have a chance to veto the plan but has not taken that step in four previous rounds of closures.

If ultimately approved, the changes would occur over the next six years.
Senators and Congressmen typically vow to their constituents that they'll not permit the local base to close, because, so their logic goes, it will destroy jobs. Powerful rhetoric may go something like this: "You sent me to Washington to fight for New York, and I won't let anyone take these nationally important jobs away from our hard-working, deserving people!" Putting aside the issue of these military installations' strategic necessary, nothing could be more untrue than their economic necessity.

Frédéric Bastiat addressed this over 150 years ago in What Is Seen and What Is Not Seen:
A hundred thousand men, costing the taxpayers a hundred million francs, live as well and provide as good a living for their suppliers as a hundred million francs will allow: that is what is seen.

But a hundred million francs, coming from the pockets of the taxpayers, ceases to provide a living for these taxpayers and their suppliers, to the extent of a hundred million francs: that is what is not seen. Calculate, figure, and tell me where there is any profit for the mass of the people.

I will, for my part, tell you where the loss is, and to simplify things, instead of speaking of a hundred thousand men and a hundred million francs, let us talk about one man and a thousand francs.

Here we are in the village of A. The recruiters make the rounds and muster one man. The tax collectors make their rounds also and raise a thousand francs. The man and the sum are transported to Metz, the one destined to keep the other alive for a year without doing anything. If you look only at Metz, yes, you are right a hundred times; the procedure is very advantageous. But if you turn your eyes to the village of A, you will judge otherwise, for, unless you are blind, you will see that this village has lost a laborer and the thousand francs that would remunerate his labor, and the business which, through the spending of these thousand francs, he would spread about him.

At first glance it seems as if the loss is compensated. What took place at the village now takes place at Metz, and that is all there is to it. But here is where the loss is. In the village a man dug and labored: he was a worker; at Metz he goes through "Right dress!" and "Left dress!": he is a soldier. The money involved and its circulation are the same in both cases: but in one there were three hundred days of productive labor; in the other there are three hundreds days of unproductive labor, on the supposition, of course, that a part of the army is not indispensable to public security.

Now comes demobilization. You point out to me a surplus of a hundred thousand workers, intensified competition and the pressure that it exerts on wage rates. That is what you see.

But here is what you do not see. You do not see that to send home a hundred thousand soldiers is not to do away with a hundred million francs, but to return that money to the taxpayers. You do not see that to throw a hundred thousand workers on the market in this way is to throw in at the same time the hundred million francs destined to pay for their labor; that, as a consequence, the same measure that increases the supply of workers also increases the demand; from which it follows that your lowering of wages is illusory. You do not see that before, as well as after, the demobilization there are a hundred million francs corresponding to the hundred thousand men; that the whole difference consists in this: that before, the country gives the hundred million francs to the hundred thousand men for doing nothing; afterwards, it gives them the money for working. Finally, you do not see that when a taxpayer gives his money, whether to a soldier in exchange for nothing or to a worker in exchange for something, all the more remote consequences of the circulation of this money are the same in both cases: only, in the second case the taxpayer receives something; in the first he receives nothing. Result: a dead loss for the nation.

The sophism that I am attacking here cannot withstand the test of extended application, which is the touchstone of all theoretical principles. If, all things considered, there is a national profit in increasing the size of the army, why not call the whole male population of the country to the colors?
Bastiat said toward the end of his essay, discussing the topic of France using tax monies for its interests in Algeria: "From the fact that public expenditures reallocate jobs without increasing them there results against such expenditures a second and grave objection. To reallocate jobs is to displace workers and to disturb the natural laws that govern the distribution of population over the earth."

With Bastiat's guidance, it seems self-evident that, first, government spending does not increase the economy, and that, second, it indeed skews the natural, optimal allocation of resources. Instead of all economic actors permitted the freedom to conduct transactions as they see fit, a relatively small section of society (legislators and bureaucrats) usurp part of the decision-making. Again we turn to Friedrich Hayek, who explained in "The Use of Knowledge in Society" that total knowledge is distributed throughout society: not only scientific knowledge, but the continually changing knowledge of time and place. Government officials are only a tiny portion of society and cannot possibly have total knowledge. So how can they make optimal economic decisions for others?

Well, they try to anyway. In Bastiat's time, a man was taxed 100 sous for part of soldiers' upkeep. The state's reasoning was that the soldiers are of greater necessity than other expenditures. Perhaps they are; perhaps they are not. But if the state was wrong, or if the state is employing soldiers merely to give them work, then it has stolen money from the man: Bastiat's point is that private enterprise at least gives a man something, whereas employing soldiers for their own sake gives a man nothing. Rather than paying taxes to support an unnecessary army, the man could have purchased new shoes, put it toward repainting his house, or hired someone to dig a ditch. Today, people are taxed, preventing them from buying a new car, DVD players, going to restaurants, etc. The final effect remains unchanged: the state arrogantly ignores that people themselves know what are more important uses of their money.

Suppose a man becomes cognizant of, or anticipates, a physical danger which he cannot counter himself, and that this danger is a more pressing matter than worn footwear and the appearance of his house. He can hire the soldier himself, using his own knowledge of time and place to make the most economically optimal decision for the use of his own resources. As Bastiat's protagonist James Goodfellow sighed, "Good Lord! With a hundred sous I could have put them to work myself." (I won't get into this tonight, but I'll admit I'm pessimistic on modern American citizens defending their own country. Thus I do believe there's a "free rider problem" when it comes to national defense, and that taxes are necessary to raise armies and provide for a navy -- powers that the Constitution gives to Congress anyway. After all, our Continental Army was raised through the Continental Congress.)

Now consider: should a man not be able to hire soldiers or police himself, apart from the state, whether alone or in conjunction with his neighbors? After all, our God-given rights to life, liberty and property imply the right to defend them -- including hiring those to do that for us. Allegations about racist, brutal and unfair police would disappear if neighborhood residents took it upon themselves to hire trusted, capable individuals to serve as constables. Parents complain bitterly about the deplorable New York City school system, so shouldn't they be able to take the taxes they pay for schools and hire private teachers?

Ah, then we get into another ugly truth of politics, another motivation for some politicians to argue against closing their states' military installations: others are paying. So in a sense, the expenditures are an economic boost and do increase employment...if you consider that the benefits are only for them, ignoring that they necessitate economic damage to others. What politician who wants to be re-elected will dare admit that his pet project is only a transfer of spending, that it comes at somebody's expense? And how many voters will send someone to office who promises a fair tax system whereby each person pays taxes equal to the government services he consumes?

Bastiat wrote elsewhere, "The state is the great fictitious entity by which everyone seeks to live at the expense of everyone else." The Tax Foundation reported that in 2003, 31 states and the District of Columbia received more money from the federal government than their residents paid in federal taxes. "Gimme" states have no qualms at all about spending money that mostly comes from other states, and in turn "giver" states must scramble and fight hard for their share of the federal pie, trying to get their money's worth.

In the end, it's a vicious game where the taxpayer is always the loser.

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Anonymous Anonymous said...

31 states and the District of Columbia received more money from the federal government than their residents paid in federal taxes.

Our country is truly in a sad state of affairs.

Bastiat makes some valid points, but at the same time it is obvious that a military presence is necessary. This is one government service I don't mind paying taxes for.

I guess the real question can you calculate the optimal level of soliders needed to sustain an efficient and powerful military that can ensure its citizens' defense...????


Thursday, August 25, 2005 11:17:00 AM  
Blogger TKC said...

Sadly, the system Bastiat describes looks to be pretty well entrenched. We (generically) seem to qualify how good our politicians are by how much pork they can bring home. The county I live in is practically in glee from the pork from the transportation bill.
As long was we keep re-electing politicians based on how much of the public treasury they can get their paws on we will continue to have this problem.

Very few around my neck of the woods seed to care in the slightest about what is not seen.

I suppose I'll have to go read some more Bastiat now.

Thursday, August 25, 2005 3:56:00 PM  
Blogger Perry Eidelbus said...

It's difficult to gauge threats on a national level, of course. In this case, however, we're talking about military establishments that now have insufficient military value for the money spent. Yet the politicians want to keep them open to preserve jobs, and they keep feeding the voters this illusion about government spending. Everyone wants something for nothing, and even those who know free lunches are nonexistent will scramble for government dollars so they won't be left behind.

Thursday, August 25, 2005 9:13:00 PM  
Blogger Mike said...

BRAC just voted to keep Ellsworth open...this is abso-frickin'-lutely ABSURD!

They'll probably vote to keep Cannon open at least partially, and will probably vote down most of the USAF's proposed shifting of airframes from the ANG to the Active Force.

I was having a discussion with a friend, and posed the question: who knows better the most efficient way to defend the country? The Pentagon, or local politicians? Apparently BRAC feels that it's the local politicians.

Update: They did vote to keep Cannon open, partially. And a judge just ruled that the Pentagon has no authority to take away a state's ANG aircraft.

I am so steamed right isn't even funny.

Friday, August 26, 2005 3:24:00 PM  

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