02/06/15 – Thomas Duncan – The Scott Horton Show

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All right, you guys, welcome back to the show.
I'm Scott Horton.
It's my show, The Scott Horton Show.
Our first guest today is Thomas K. Duncan.
He's an assistant professor of economics at Radford University, and he's the co-author of this new study with our friend Chris Coyne from George Mason.
It's called The Revolving Door and the Entrenchment of the Permanent War Economy.
Welcome to the show.
How's it going?
I'm doing great.
Thanks for having me on the show.
I appreciate you joining us today, and I appreciate you taking a very kind of in-depth academic look at this subject, The Revolving Door, or my favorite phrase, as you guys use it in here as well, the Iron Triangle.
Makes it sound very difficult to break when you put it that way.
But let's start with the way that you start the paper.
You actually found a quote from I don't know who that's just a great way to say it, I think, about how the military-industrial complex is not a conspiracy.
It's not a conspiracy theory, but it's not a conspiracy either.
It's just a coalition of interest groups.
The same as if we're talking about the AARP or the NRA, well, they have their backers too.
It's not just old people and gun owners, but there are other people who have a confluence of interest with those prominent lobby groups, whatever one's position on them.
And so what you're telling me is when it comes to military arms acquisitions, etc., etc., that it's just the same thing.
This is the way business is done in Washington, D.C.
Yeah, I mean, that's right.
That's a quote by Walter Adams, which he was a fantastic writer on this too.
But yeah, there's nothing particularly different about business in the military, except there's a lot more money involved, and the structure is going to be a little different.
But when you talk about it in terms of politics, you go into politics, you have your interests, and Congress responds to those interests.
The same if you have any other lobby group.
There just happens to be a whole lot of money in the defense industry for that.
The thing is about it is people, I think, reject it because it sounds so cynical.
If you're pushing for more benefits for old people or something, well, unless you're a real budget hawk, no harm, no foul, right?
But if people are saying, lobbying or have kind of conflicts of interest in profiting off of wars and threats of wars, then that sounds on its face like an immoral kind of thing to do that normal people wouldn't do.
And so it sounds like you're making a pretty severe accusation of corruption against people for doing something like that.
In fact, I'll give you an example where, and I've been at this for years and years, but the first time I interviewed someone about the hydrogen bomb industrial complex and how much money Honeywell and the rest of them spend lobbying for more H-bombs, when ideally, I think an average American would think that the conflict of interest there is so horrible that it would obviously be not their place to recommend more or less H-bombs, but just to do their patriotic duty and make some if we need some as to be determined by someone else.
But how could it really be where you have lobbyists saying, Senator, Senator, we really need this H-bomb money and that questions like that, H-bombs, submarines, wars, and even policies, that those things could come from sort of the narrow interest of a lobbyist representing a corporation or something like that.
It sounds on the face of it like a conspiracy theory, like something that's too cynical for regular people to take part in, no?
Well, it can sound like that, but Chris and I in this paper, and we stress it, we actually state it very plainly.
There's nothing illegal about what's going on.
It really is just business as normal.
It does have some negative consequences, like the title of the paper is The Entrenchment of the Permanent War Economy, which is what happens when you don't have a true market for defense.
Who gets to determine how many of those bombs get made or how many tanks get made?
Well, it's some guy that's doing the procurement contracts, and how does he determine what he wants to make?
Well, because we don't have a real market system, I can't go to the store and buy tanks, and so someone has to make that decision, and so how does that decision get made?
Well, what we tend to rely on, at least in the defense sector, is expert advice.
So you go to the expert and you say, what's the value of this product?
Should we make this product?
And is it going to be worth the cost?
How many lives are going to be saved?
Well, what kind of person is going to be able to give you some feedback on that?
Well, the military, right?
And so who do you go to for expert advice?
You go to the military and then you say, hey, would you like this really nice tank that might save your lives?
Well, it gets really difficult for the military to say no to things like that, and that sort of starts the system, which is, I'm going to ask people that have military contacts or have been in the military or have worked with the military, do you want these military goods?
And then you start a relationship.
Those people move into Congress or they move into being lobbyists or they move into the defense firms, right?
And then basically what you're doing over time is solidifying this relationship so that everyone has some military background and has some military interest, and the more that you do that, the more the interests sort of start to coincide with one another and you get a very military mind, military orient to the people that are making decisions about what kind of spending and what things should be purchased by the military.
And it sort of reinforces itself over time in the system.
And it's not illegal, but it does have some reinforcing tendencies that means we get more militaristic in our defense sector.
Yeah.
And see, that's the real trick.
Not only is it not illegal, the people involved in it don't even know or think that it's wrong.
This is just how the system is.
And exactly.
I got a great insight into this mindset years ago by reading a Tom Clancy novel where the whole discussion is, oh, you know who you've got to get to be the deputy secretary of defense?
This brilliant genius from General Electric.
And of course, he, the guy from General Electric does have all of these qualifications, right?
That's why he's Mr. Badass over at General Electric.
But there's no concept of, you know, any kind of conflict in what his policies are going to be and what his policies will have to do with General Electric in the future.
It's simply how business is done.
There's no second thought about it.
These are the best and brightest people in America.
Of course, that's the guy we want to be the deputy secretary of defense.
The same way our next interview or two interviews from now is about Ashton Carter.
This is why Goldman Sachs wants Ashton Carter because he spent so much time in the Pentagon.
He must know a lot about what's going on in the world and what they need to do with their investments.
So it all just makes perfect sense, doesn't it?
Exactly.
And, you know, because, you know, you go back to that not having a market, right?
I can't prove these people wrong, and so there's no reason for them to change their minds.
And so as long as they say, look, this is valuable, and here are some figures that show you this is valuable, we tend to, on the face value, just accept that, yep, there's value to that.
And so then, you know, yeah, they're not – they don't think they're doing anything wrong, but it is reinforcing and it is, you know, it's the confluence of opinion, right?
I mean, I was listening earlier and you talked about, you know, the people sitting around about the Saudi, right?
Well, they all nod around the table.
Well, the guy who doesn't nod around the table doesn't sit at the table anymore.
And so the people who get to stay are the people that conform to the mindset of, look, we need to spend more.
We need to care about these specific things that I also care about.
And then you get more and more spending diverted into military resources, right?
Yep.
Absolutely.
And so, you know, I agree time and time again with the policies and on procurement just as well as with, you know, what is to be done, say, in Ukraine or in Libya, something like that.
But if you look at the F-35, for example, where any independent expert, including some of the people who designed it, will tell you that it's the biggest turkey in the whole wide world, costs as much as an aircraft carrier, and it's worthless.
Basically, the whole fleet of them are outmatched by all the planes that they're replacing.
And yet they just persist.
They spent, you know, they say a trillion and a half, so it must be three by now, right?
It's quite a bit.
But I mean, if you think about that system, you know, the guy who's doing the lobbying for the F-35 is never going to walk into the Pentagon and say, yeah, I'm selling you something that's not worth the value.
What's he going to say?
He's going to say this is very valuable.
Here's how many lives it's going to save, and here's, you know, how it's going to work.
And this is why you should fund it.
And the guy that doesn't do that doesn't get to be the lobbyist anymore, and he doesn't get to have the job at the defense firm at the end of his term as a lobbyist, and he doesn't get to go back into the Pentagon later, right?
Like, if you don't conform to the system, you get left behind from the system.
More with Professor Tom Duncan on the revolving door and the entrenchment of the permanent war economy in just a sec.
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All right, y'all, welcome back to the show.
I'm Scott Horton.
It's my show, The Scott Horton Show.
I'm talking with Thomas K. Duncan.
He teaches economics at Radford University.
He's the co-author of, oh, it looks like a couple of papers here with our friend Chris Coyne, The Overlooked Costs of the Permanent War Economy.
And this one is The Revolving Door and the Entrenchment of the Permanent War Economy.
So oh, I know what, I wanted to get with, you sound like Ludwig von Mises when you're talking about how, well, geez, they don't have a market process for figuring out how much things should cost.
It sounds just like Mises describing the Soviet Union under Vladimir Lenin.
This is never going to work, because the salesman and the customer are the same guy.
So nobody knows how much stuff's supposed to cost, and so the best they can do is guess, and they constantly get it wrong.
And I just saw the other day, the odometer flipped over to $18 trillion worth of national debt now.
And I think I'm putting two and two together here that one has to do with the other.
They don't know how much stuff should cost, and it's not their money, too.
So instead of, even if you're dealing with a zillion-dollar corporation like IBM or something and you start wasting a bunch of money as a manager, at some point, someone's going to put you in check.
But if you work for the Pentagon, nah, just go ahead and we'll buy a whole desert full of tanks we don't need.
No problem.
No one will ever stop us until the dollar breaks.
And that's exactly right.
And then, you know, Mises is someone that we've relied on to give the market argument, because he does it so clearly, which is, yeah, if you don't have prices, profit, and loss, you can't determine the value.
And what is it that the revolving door is set up to do?
It's set up to try to find a way to determine value when you don't have a market, which then just relies on expert advice.
And that expert advice isn't, you know, it's not interest-free, right?
The people that are giving the advice and the people that are doing the value calculations are people that work in the system.
And you don't want to be in a system that doesn't have high value for you.
So what do you do?
You say there's really high value.
And then once you've done that, we spend more and more money on these programs, right?
Like on the F-35 program.
What is the value of that jet on the market?
Well, we don't really know.
We just know what they've told us the value is.
And really, they haven't even gotten that right as the costs keep changing and keep rising on that program.
And there is no sanction, really, because they're not suffering any losses.
They just ask for more money and they get more money.
In fact, again, back to Carter, the living example, soon-to-be-confirmed new Secretary of Defense here.
I was reading his profile this morning and he's actually known as being kind of a hawk on the F-35.
And when he took over as Deputy Secretary of Defense, he told Lockheed why, I'm docking you some pay and I'm going to lengthen the time schedule of testing and all this stuff.
So nothing about a fight to scrap the ridiculous program and just make more F-18s.
They're perfectly good, right?
But instead, this kind of tinkering around the edges gets him this reputation as a guy who doesn't take no guff.
He's a real expert and willing to stand up to the big dogs like Lockheed, it says, the news is.
At some level, he is standing up to them, but what would have happened to him had he stepped out and said, we're going to be canceling the F-35 program?
The question is, would he now be considered for Secretary of Defense?
I don't really know the answer to that.
I have my suspicions that that may not be the case, because there's a lot of money involved in that and politics, money talks, and that's just how politics is done, right?
That's par for the course.
There's money talks and you don't cancel the biggest contract for Lockheed Martin without some kind of consequences on you politically.
All right, now, so can you describe to us a little bit more about kind of which corporations, which personalities, which political positions and what kind of history can you describe about how this works?
Kind of paint a picture for us.
Well, I mean, this works on all the defense industries, Northrop Grumman, Lockheed Martin.
If you look at the boards of these places, the people that are higher ups on the boards and on their executive committees, they all have military contacts.
They all came out of their four-star retired generals and et cetera, right?
They recruit these people because they have knowledge of the programs, of the weapons programs, of the needs for the military, right?
What does the military say it needs?
Well, generals have access to that information and they retain their contacts through the Pentagon and through the Congressional Procurement System.
And so really, if you look at across the board of any of these groups, they all have someone that has defense.
And that makes perfect sense, right?
Because you want to work in a defense industry, you should hire some people that have connections to defense.
And so again, it's just sort of the natural course of the system.
But what happens is, I don't have any price sanctioning as we talked about.
And so, I know I'm General so-and-so that works for Northrop and I have friends that work at the Pentagon and I have friends that work in Congress.
Well, I'm going to use those connections to get a good lucrative contract for Northrop, right?
And I mean, so not to single them out, right?
This is par for the course for every industry.
And so it's a system-wide problem.
It's not a firm problem.
It's the system.
The whole defense sector operates in this manner.
And so what we call for is more oversight.
And so how do you get more oversight on this problem?
Well, if what you're trying to do is say, is this project more valuable?
You have to bring in an expert that can tell you whether or not this is more valuable.
And all you've done is move the problem up to the next level of the system.
So it's a systemic problem that needs to be addressed, which may require more drastic changes into the way that we do procurement and make defense decisions.
Now it seems like one real problematic thing in all this, something that seems to me overtly cynical is when you see the oil companies, but especially the military industrial complex firms donating millions of dollars to the, what, dozens now of different little mini council on foreign relations is pushing their own aggressive foreign policy either there and everywhere else.
You look at the project for a new American century of the Republicans or the center for a new American security of the Democrats.
It's all just Lockheed fronts.
And all they can ever do is think of things that need doing.
Hey, maybe, maybe global policing isn't working out for us or, or anything like that.
And it's just as simple as can be.
You just look and it's right on their website.
Here's who all gave us money and it's the guys who are making the bombs.
Absolutely.
And, and, and so you can say that there's some untoward action about that, but what you can also say is, Oh, I mean, just imagine if a whole group of people that work in banking finance get together in a room, what are they going to do?
They're going to sit around or they're going to think about problems with the banking system and, and where do we need to throw money at?
And where do we need to do that?
Right?
It's the natural course of, of having these, these opinions start to, to sort of coincide with one another.
Because if you're not in the military mindset, you don't stay long in the military industrial complex.
And so the more you get these people around, the more they look around the world and they say, look, here are problems that we can solve.
And then they talk with one another and of course, right?
Of course we can solve this.
You know, there were very smart people and they are very smart people.
And so we're very smart people.
And so we know that we have the military and if we have a little bit more military, we can do more things with it.
And everyone agrees with that, right?
You get the nodding heads around the table and the guy that disagrees doesn't stay.
And so, you know, it's a natural course that we're going to look for more threats and more things to do.
And it just happens that while we're doing that, we also get paid really well.
And so you get sort of all of the interests going into, let's find additional threats and let's handle additional threats and let's make money doing it.
Right.
All right.
Now, so just how distorted is the American permanent warfare economy that we've had ever since World War Two?
I mean, is there a way to illustrate just how big the snapback would be if all of a sudden all these people had to get real jobs?
So that gets pretty complicated.
I know that Chris was on on your show recently or, you know, earlier a few years ago talking about the overlooks costs paper that he and I wrote together.
And so basically what you're looking at is the counterfactual, which is what would all of those resources otherwise have done?
And there's not a great answer to that as saying, oh, you know, we'd have a whole lot more car factories or whatever.
We might.
And so I don't know exactly what that would look like.
But we do know that we've been spending pretty excessively in defense since the end of World War Two.
We've got decades of high spending, Cold War spending, now terrorism spending, anti-terrorism spending.
Right.
All the wars that we did in Afghanistan and Iraq.
Right.
We have all of that spending that could have been used towards more productive things.
And what would those look like?
I don't know.
But you have to start imagining that there might be a pretty significant difference from where we would have otherwise been.
All right.
Well said.
Thank you very much for your time.
I sure appreciate it.
Thanks for having me on the show.
All right.
So that's Thomas K. Duncan.
He's at Radford University teaching economics there.
He's got a couple of papers co-written with our friend Chris Coyne.
This one is The Revolving Door and the Entrenchment of the Permanent War Economy.
We'll be right back.
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