05/13/13 – Christopher Coyne – The Scott Horton Show

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My email address is scott at scotthorton.org Alright, well anyway, I'm Scott Horton.
Welcome back to the show.
This is my show, The Scott Horton Show.
And our first guest today is Chris Coyne.
He is a professor at George Mason University.
And he's the author of this new study.
And there's been quite a few like this lately.
Along these same sort of lines.
This one is Origins of the Permanent War Economy.
Welcome back Chris, how are you doing?
Hey Scott, I'm doing well.
Thank you for having me.
It's good to be here.
Well, you're very welcome.
I'm very happy to have you here.
Now the last one was about sort of the long term distortions of the war economy.
Since this all happened.
And that is the origin of the permanent war economy.
During the New Deal and World War II.
And so, I guess to break it down.
First of all, you say what we really have here is a collusion of four major sets of interests.
In the American war economy.
That's right.
So this paper with my co-author Tom Duncan is kind of a prequel to the previous one we had discussed.
And it's a largely historical paper about how we got into a situation where there was a permanent war economy.
By permanent war economy, we mean a situation where even in times of peace.
There is constant preparation for war.
And a significant part of our private economic resources are dedicated to government military activities.
And kind of the historical trajectory of this that we identify is, as you mentioned, four key groups.
Of course, there's the government.
And then within that, the three key interest groups that align with government are the military, labor unions, and private industry.
And the onset of the Great Depression.
And then World War II kind of created an opening where government basically made available massive rents or profits to these various entities.
And, of course, they took full advantage of it.
Okay.
Now, as part of the backdrop, and I think it's very important the way you explain this, too.
It's very important that it's in there.
That during the New Deal, and, of course, this is always the rationalization that you hear from Democrats now for just about anything that Roosevelt did.
And that was that people, the entire society, had basically given up on whatever the system had been before that under the name free market, laissez-faire, capitalism, and all of that.
And so there was a danger that America could go brown or red.
And so good thing that all we had was, you know, hero Roosevelt who split the difference and saved capitalism by destroying it and that kind of thing.
But it could have been so much worse, they say.
But anyway, the point I'm really trying to get to is that complete lack of faith.
People were so hungry for so long.
They were ready for some new answers, and they didn't even really have to be all that plausible.
Yeah, that's exactly right.
I mean, the problem, and this is a dilemma for proponents of even a minarchy or limited government, is can you actually constrain it?
And one of the key arguments against that is that in times of crisis when massive events happen, many citizens in an unquestioning manner just turn to government and say they must do something.
We need government to do this or else.
And it just creates a massive opening for an expansion of power, but all that comes along with it.
In this case, as I mentioned, just private interest just taking full advantage of the various profits that were made available by an expansion in government spending and power.
Right.
And then, you know, I'm sorry, I can't remember who it was.
It may have been you on the show one of the last couple of times that we talked.
But some brilliant economist pointed out on the show recently that when Karl Marx was really coming up with his version of economics at the time, that he was greatly inspired by German war production in the first place.
That he said, you know, here we got, we have examples right in front of our eyes of government able to organize these mass actions to create explosives.
So don't you tell me they can't make sure everybody's fed.
Yep, you're exactly right.
That was us that discussed this, and central planning socialism came out of, to a large extent, viewing the military war economy.
And again, as you pointed out, people saw that the government could build bombs and that bombs were effective in blowing things up.
And then people said, let's just extend this logic to shoes and everything else that we consume, and we'll just have it nationalized and centrally planned.
And if it works for missiles, it should work for everything else as well.
And of course, they're very different items, but also on top of that, one is highly destructive.
And what I mean by that is war doesn't generate wealth.
It destroys wealth by definition, whereas normal economic activity is what generates wealth creation and wealth enhancement.
All right, now who's this crank John Maynard Keynes?
Well, Keynes, of course, is a very famous economist known for his general theory, which was published in 1936.
And we reference him in the paper and discuss his ideas because during this time, what you have going on is this interesting kind of mix between Keynesian ideas and Marxism.
So the Marxists, of course, held that capitalism was unsustainable.
The Depression proved that the capitalist system couldn't work.
And Keynes was arguing even before his book was published, and we have a couple quotes in the paper in 1933, for instance, where he makes the argument that military spending is a form of stimulus.
He doesn't use that term necessarily as stimulus, but he talks about how military spending is a great way for government to create employment and to prop up the economy.
And what you got is this mix between Keynesianism – what I mean by that is the ability of government to kind of smooth the business cycle through military spending – and Marxism, which was, okay, capitalism has reached its natural end.
But really the only way for it to sustain is for the greedy capitalists to go abroad and engage in imperialist adventures and seek profits abroad because they've exploited everyone at home.
And so now the narrative basically became, okay, foreign imperialism is conducive with capitalism and is really what's required for capitalism to flourish.
And that's kind of the narrative that emerged at the time.
And in the paper, we make a very different argument that the only way this foreign imperialism, this permanent war economy emerged was because of government's monopoly over the military, but more importantly, the openings that allowed for the expansion of the power of that monopoly and also the abuse of it by private interests who took advantage of the depression and the war.
Well, now, okay, so to get into the industrial part of it, I thought it was interesting the way you talk about how big business, at least some of them anyway, obviously a lot of different individuals with different ideas and different interests involved.
But basically big business was afraid to start arming up for World War II because the dislocation they anticipated.
But what happens when we have to turn our swords back into plowshares and nobody wants any plowshares and you're going to screw our business up?
So they were kind of hesitant and the government had to – Roosevelt, president for life Roosevelt, had to make all these promises to them that don't worry, it's not going to be like that this time.
Yeah, that's exactly right.
So when it comes to private industry, the main proponents of going to war and continual armament was the munitions and aviation industry.
And the reason why is because they didn't have to transform any of their capital.
If you make a private plane or a plane for the military, in both cases, you can pretty much use the same equipment.
Same with munitions.
If you make guns for private use or for the military, you can pretty much use the same capital equipment.
But outside of those industries, as you mentioned, there was a lot of fear, and the fear was twofold.
Number one, after World War I, there was a lot – there was a public backlash against business because people made the argument that we had gone to war for private interest, which wasn't a crazy claim.
And there was a fear on the part of many businessmen that there would be public backlash against them, but also political backlash after the war ended.
And second is the point you make, which is businessmen said, okay, if we start re-specifying our equipment to produce military outputs for the government, what happens when we end?
We're going to get kind of stuck footing the bill of converting back to producing things for private parties.
And so what Roosevelt had to do is basically pay off these people in a way.
And they did that by offering them extremely lucrative contracts of guaranteeing them certain levels of profit of buying their factories or equipment and leasing it back to them.
So the kind of government was stuck holding the bill at the end after the war ended.
And what this did is kind of shift the nature of contracts from – to the extent there was any kind of market competition left, it shifted it to a political process whereby well-connected people in private business got big contracts from their friends in government.
And you saw the emergence of a lot of the relationships between private industry and government and the military that persist to this very day.
Yeah, and then the labor unions, this part of it made me think about – I don't know if this is exactly the public choice theory, whatever, whatever.
But it just – it really strikes me the way you talked about how kind of in the Midwest, the labor unions were more interested in not being drafted.
But on the coast, or I guess especially on the east coast where they had their shipyards and all that kind of thing, they were a little worried about getting drafted.
What they really wanted to do was build some ships.
And it just goes to show how it's kind of a crying shame, right?
There really is no such thing at all as the national interest.
And if – even when it comes to making weapons of mass death, hey, if I can get a job, that's kind of – that's just the way it is.
It's up to somebody else to decide if they want to try and stop me.
But if I can do it, I'm going to lobby for a war so that I can get a job building a ship or cashing a dividend check or financing the building of a ship.
And people can be with just little – slight economic incentives one way or the other can be induced into great evil, right?
Into changing the history of the world in horrible ways too.
Yeah, I mean you're exactly right.
The labor union section of the paper, when we focus on that aspect of the story, it's fascinating.
And I think it's in some sense the most fascinating because the Marxist explanation for the permanent war economy focuses on business and the relationship between business and government.
So it says, okay, the natural outcome of the capitalist system is that you're going to get this relationship, and it's the capitalist's fault.
And they're exploiting the laborers, and in that process, you get this permanent war economy, and kind of the average guy gets screwed.
Well, one of the things we found as we did this research is that the labor unions actually played a major role in developing and contributing to the origins of the permanent war economy.
And as you pointed out initially, there was kind of division within the labor unions.
And as you noted, the Midwest, they were more skeptical about it because they were worried about their members getting drafted.
And along the coastline, they were pro-armament because they wanted their members to be able to contribute to the war effort through building ships and whatnot.
And over time, of course, there was a convergence between that.
In other words, the groups that were against it eventually came on board.
And the way Roosevelt did that, of course, is to give concessions to those labor unions in terms of exceptions to the various wage controls that were going on and the price controls by putting people that were in charge of the AFL, the American Federation of Labor, in charge of several of his programs that granted them control and then made sure that union members got special privileges.
And the main takeaway here, as you pointed out, is that the labor unions are just like everyone else in that they're self-interested individuals.
They will take advantage of opportunities that are given to them to promote their own interests.
And the labor unions are not exempt from this.
The laborers were not exploited.
They benefited greatly from this process, and they continue to do so to this day.
In fact, the labor unions were against a lot of the New Deal programs.
For instance, the Civilian Conservation Corps, they were against it because they didn't want competition in labor.
And they were worried that the Conservation Corps was going to compete with them by providing unskilled labor at a cheaper wage.
So in no way were the labor unions supporting or agitating for some notion of the natural interest.
They used that kind of language.
They said, yeah, we're doing this for the good of the worker at the national level.
But as you point out, it was just another illustration of narrow self-interest.
Yeah.
Now, you know, I don't even think there should be a state at all, but I do sort of have this idea that in the U.S., we ought to have a system where if you're a businessman, well, and I guess there ought to be a way to apply the same sort of thinking to labor for that matter.
But there ought to be a way to just tax 100 percent any military expenditure to head this off somehow.
Right.
I mean, it's too late now, obviously.
But it just seems like if we had a system that really was a constitutional democratic self-correcting system and all of that, then we would have a thing where corporations building weapons for the government have to turn over all those profits to the Treasury for spending on something else anyway or whatever so that they don't have this incentive.
And after all, if we really need to have a war, then the executives at General Motors are going to do the patriotic thing and produce as many tanks need producing and they can make costs, just not cost plus.
Right.
Because if we really need those tanks and we really need those tanks and they'll be willing to do the right thing.
The only reason that they should have to make a profit in order to make weapons is if it's all just for profit and there's no true need to, say, for example, occupy Eurasia or something like that.
Yeah.
I mean, if you are if you are designing an ideal system, you'd want to come up with some kind of way to align those incentives to avoid exactly the type of thing you're talking about.
The abuse of military through for profit private individuals by taking advantage of government contracts.
I mean, the problem is there's really no way around it.
This is a fundamental problem with government monopoly on the military.
So you're kind of backed into a corner where you say, all right, one option is that the government can do it.
This is kind of like the public spirited view, right?
OK, greedy businessmen are the problem.
We've got to get the capitalists out of it.
How do we get the capitalists out of it?
Well, we let the government do it.
We let the government have complete control over the military production.
We nationalize the industry and there's no private individuals left.
It's all government controlled.
Well, in order to make this argument, you have to be very confident and make an argument, which I don't think is a very convincing one, that somehow they're going to act in the public spirit and not produce too much or go to war when it's unnecessary and that the incentives are aligned to only undertake necessary wars.
History shows that's not the case.
There's more cases of government abusing the power of military force than than using it for the public good, whatever that means.
Right.
And somebody's still got to produce the steel anyway.
Right.
So it always comes down to somewhere along the line.
You're going to have to pull from the private sector unless you nationalize the entire economy, which, of course, we know is just the recipe for disaster and stagnation and poverty.
You know, the second kind of line of argument or response is, OK, we got we need the private individuals because they produce stuff, steel, whatever, or they produce the final military products.
But we just need strong constitutional constraints and to constrain them from taking advantage of that power.
But again, then you run into the problem, as Bob Higgs has pointed out in a lot of his research about the role of crisis in the growth of government.
And look, private interests that are connected with government, even if they're constrained at first, are going to look for any way possible to widen the gap on those constraints and take advantage of their relationship to get profits.
So now you have to make an argument about the robustness of kind of constitutional constraints.
How confident are you that in the face of crises, in the face of self-interested individuals pursuing their narrow goals, that somehow you're going to constrain government from giving handouts to people that can benefit them and vice versa?
How are you going to constrain private individuals from doing that?
And I'm not very confident that you can ever do that in any meaningful kind of way.
And, you know, from that standpoint, I'm a pessimist.
I mean, I'm an optimist from the standpoint of I think if you think about these issues and look at the history, it kind of forces you to rethink the state's monopoly on the military and the current arrangements that we have, and maybe consider some alternatives to that.
Right.
Now, let's see.
The thing is, it's so absurd at this point, though, where like in Richard Cummings' article, Lockheed Stock and Two Smoking Barrels, he talks about the executive from Lockheed, I think it's Robert Jackson, who founded the Committee for NATO Expansion and the Committee for the Liberation of Iraq.
And this guy's just an airplane salesman, but he's always, you know, beating the humanitarian drum.
In fact, on Iraq, his committee's propaganda was not about the weapons of mass destruction.
It was focused on, you know, the Anfal campaign back when Saddam Hussein worked for Ronald Reagan and murdered 100,000 Kurds and how that was somehow cost us belly for war in 2003.
And yet, and, you know, in fact, in the article, I think they say he sure seems like a true believer, but boy, does he sure believe in things that are in his interest.
I guess no wonder he works for Lockheed, so he can deliver the products to the military that they really need to do the right thing, like invade Iraq.
Right.
I mean, yeah, I mean, a good rule of thumb in general, and this is not just on military stuff, but any time you hear either a private individual or a group of private individuals talking about the common good or the national good, you can be pretty sure there's some underlying motivation that's going to benefit them personally.
I mean, think about this.
You hear this from everything from the military, but even like teachers' unions and farmers and the agricultural kind of lobby, no matter what lobby you pick or kind of special interest group, they'll always put things in a very sweet, sugar-coated way, which is we care about the everyman.
We're doing this because we care about the country.
But as you point out, if that's truly the case, then really they shouldn't need to be paid for it.
They should do it out of the kindness of their heart.
But once you took away that monetary profit, I guarantee that they would not be nearly so other-regarding and caring about their fellow man in the nation.
Yeah.
All right, now, yeah, see, that's the thing too, right?
Because if someone wants to be a critic here, Chris, they're going to say, yeah, but what about the USSR?
That's why we didn't disarm after World War II is because they controlled a third of the world, and they were determined to control the rest too if we didn't stop them.
And so what's your response to that?
Well, I mean, look, the USSR argument is one for just historically was an argument for remaining in a state of permanent war preparation.
So that's, as you point out, that was the argument that was given to say, look, even though we're not at war, we have to remain armed and ready to go to war.
And the problem with this is if that's the logic of argument, you can always find a potential threat in the world, always.
Throughout history, there's always some threat to either you directly or to other parts of the world.
So the logic then is, okay, do we maintain a situation where we're permanently preparing for war, recognizing that it comes with not just good things if you consider more defense a good thing, which I think is a stretch by itself, but also lots of bad things.
In other words, you're going to unleash the floodgates of special interest in lobbying.
And here's the problem with that.
If you understand kind of the political economy of it, what you called public choice earlier, and you understand the kind of things that Tom and I talk about in our paper, you realize that the arguments for, well, we need national defense to protect us against threats assumes a couple things.
It assumes that politicians are acting in the national interest, that they can figure out what the right amount of national defense is at the right time, and that private providers are passive.
In other words, they're going to do what politicians want them to do to serve the public interest.
But if you appreciate the underlying incentives and the nuances of the political system, you quickly realize that that's not the case at all, that lots of stuff is produced under the guise of military and defense, which is completely worthless and pointless.
And so from that standpoint, it's unclear that producing more defense in a general sense makes us safer.
On top of it, you can make arguments like, well, you produce more military stuff.
Other people are going to engage in a tit-for-tat kind of strategy.
In other words, you get an arms race where you actually build up more and more military equipment around the world, which then leads to more and more conflict because we all know that people don't produce military hardware just to sit around.
They're going to use it eventually.
And so there's a lot of counterarguments.
I was just talking to someone the other day, and they were saying, well, the U.S. has to continue to build up its nuclear arsenal because China is a threat now.
Well, I mean you can continually make that argument, and then you're in a never-ending process of just continual armament without appreciating any of the costs associated with it.
So when I hear these kind of arguments of there's threat X, and therefore we need to continue to ramp up the military, I think we need to hold – that in itself is not an argument.
We need to hold people to a higher level of evidence and burden and say, okay, well, tell me how much defense we need and why do we need it?
And who's going to be held accountable and who's responsible when there's abuses of it?
And how are you going to prevent private interest from manipulating it?
And then when this threat goes away, first, can you define when that threat goes away?
And number two, how are we going to roll this back?
And if people can't answer those questions, it's unclear that we just want to unleash kind of the floodgates of military accumulation.
Right, and meanwhile, whose navy is in whose waters when it comes to the Chinese?
You know what I mean?
That's exactly right.
They've only got a couple of dozen nukes and we've got 3,000 ready to go.
So what's that about?
Yeah, I mean, our arsenal dominates the global arsenal multiple times over, so I don't know why we need more of those.
That's funny.
Well, you know, Gareth Porter is fairly unique among liberals – well, progressives.
I don't know exactly how to characterize him.
He's some kind of leftist, but he doesn't harp on about Lockheed and he doesn't harp on about oil or even Israel.
For him, it's all about the Pentagon and the generals and the admirals that run that thing.
They are the biggest rent seekers in the history of the world right there.
And they'll be damned if they're going to concede anything.
And all they want is more stars and more ribbons and more so-called achievements to check off on the list.
And so this goes for every lieutenant colonel at a base out in the middle of Kyrgyzstan somewhere and everybody with an office inside the Pentagon as well.
They're really the heaviest weight in this entire national security state system.
That's right, and there's a couple of key issues with that.
One is that's just the nature of bureaucracy, which is bureaucrats look for success in pleasing their superiors and checking off boxes, as you put it, of successes.
And people in the military are no different.
One of the problems we have in the United States and around the world, but especially in the United States, is military is kind of a religion, whereas if you criticize it, if you even hint that somehow it's not acting in the national interest, then you're un-American or you don't care about people in your country and fellow citizens, which of course we would argue, or at least I would argue that's exactly the opposite.
We care about abuses of military power precisely because we're concerned about our country and our fellow citizens and their liberties.
And the other issue with this then goes back to my earlier point, which is when you create permanent positions in the military that are rewarded for engaging in military activities, you provide incentive to engage in more military activities.
So now, supposedly, Afghanistan's winding down, even though we'll still be involved in Afghanistan for decades and decades to come.
But let's pretend we go along with the rhetoric and say, yeah, it's actually winding down.
All those people now are going to be looking for the next big thing, the next big threat, whether it's North Korea, Iran, Syria.
We can just keep going through country after country, and then they're going to agitate for intervention after intervention in order to check off the new boxes and make themselves more self-important and secure more funds.
So it's a never-ending process.
And there's really – it literally is the perpetual war for perpetual peace, and that's a very bad place to be when you've reached that point.
Yeah.
Well, and what's funny, too, is we're at the point where nobody even recognizes the conflict of interest.
They don't even know when they're supposed to be embarrassed, and so they say things like, yeah, we're going to invade Africa because after having to leave Iraq and Afghanistan, we're looking for things to do to stay globally engaged.
In other words, they don't want to have to get a job, so they're going to invade Africa.
Yeah.
I mean, it's on and on.
I mean, now the military and the military interventions are linked up with foreign aid now and development aid and humanitarian aid, so they just keep expanding the portfolio of activities all under the guise of national security and making the world safe.
But it's very easy to make the counterargument that the more you intervene, you actually create instability and the conditions for conflict, if not conflict itself.
All right.
That is Chris Coyne, Christopher Coyne.
That's C-O-Y-N-E.
He's a professor at George Mason University, and this one is called Origins of the Permanent War Economy.
And as he was saying, it's a prequel to what was the title of the other one?
The Overlooked Cost of the Permanent War Economy.
The Overlooked Cost.
There you go.
About the massive distortions and malinvestments in weapons of war and the world empire.
Really great stuff.
Thanks very much for your time.
Appreciate it.
All right.
Thanks, Scott.
We'll be right back.
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