military-industrial complex

The extreme efficiency of environmental regulation—and the extreme inefficiency of war

pnrj current events, ethics, public policy , , , , , , , , , , , , , , ,

Apr 8 JDN 2458217

Insofar as there has been any coherent policy strategy for the Trump administration, it has largely involved three things:

  1. Increase investment in military, incarceration, and immigration enforcement
  2. Redistribute wealth from the poor and middle class to the rich
  3. Remove regulations that affect business, particularly environmental regulations

The human cost of such a policy strategy is difficult to overstate. Literally millions of people will die around the world if such policies continue. This is almost the exact opposite of what our government should be doing.

This is because military is one of the most wasteful and destructive forms of government investment, while environmental regulation is one of the most efficient and beneficial. The magnitude of these differences is staggering.

First of all, it is not clear that the majority of US military spending provides any marginal benefit. It could quite literally be zero. The US spends more on military than the next ten countries combined.

I think it’s quite reasonable to say that the additional defense benefit becomes negligible once you exceed the sum of spending from all plausible enemies. China, Russia, and Saudi Arabia together add up to about $350 billion per year. Current US spending is $610 billion per year. (And this calculation, by the way, requires them all to band together, while simultaneously all our NATO allies completely abandon us.) That means we could probably cut $260 billion per year without losing anything.

What about the remaining $350 billion? I could be extremely generous here, and assume that nuclear weapons, alliances, economic ties, and diplomacy all have absolutely no effect, so that without our military spending we would be invaded and immediately lose, and that if we did lose a war with China or Russia it would be utterly catastrophic and result in the deaths of 10% of the US population. Since in this hypothetical scenario we are only preventing the war by the barest margin, each year of spending only adds 1 year to the lives of the war’s potential victims. That means we are paying some $350 billion per year to add 1 year to the lives of 32 million people. That is a cost of about $11,000 per QALY. If it really is saving us from being invaded, that doesn’t sound all that unreasonable. And indeed, I don’t favor eliminating all military spending.

Of course, the marginal benefit of additional spending is still negligible—and UN peacekeeping is about twice as cost-effective as US military action, even if we had to foot the entire bill ourselves.

Alternatively, I could consider only the actual, documented results of our recent military action, which has resulted in over 280,000 deaths in Iraq and 110,000 in Afghanistan, all for little or no apparent gain. Life expectancy in these countries is about 70 in Iraq and 60 in Afghanistan. Quality of life there is pretty awful, but people are also greatly harmed by war without actually dying in it, so I think a fair conversion factor is about 60 QALY per death. That’s a loss of 23.4 MQALY. The cost of the Iraq War was about $1.1 trillion, while the cost of the Afghanistan War was about a further $1.1 trillion. This means that we paid $94,000 per lost QALY. If this is right, we paid enormous amounts to destroy lives and accomplished nothing at all.

Somewhere in between, we could assume that cutting the military budget greatly would result in the US being harmed in a manner similar to World War 2, which killed about 500,000 Americans. Paying $350 billion per year to gain 500,000 QALY per year is a price of $700,000 per QALY. I think this is about right; we are getting some benefit, but we are spending an enormous amount to get it.

Now let’s compare that to the cost-effectiveness of environmental regulation.

Since 1990, the total cost of implementing the regulations in the Clean Air Act was about $65 billion. That’s over 28 years, so less than $2.5 billion per year. Compare that to the $610 billion per year we spend on the military.

Yet the Clean Air Act saves over 160,000 lives every single year. And these aren’t lives extended one more year as they were in the hypothetical scenario where we are just barely preventing a catastrophic war; most of these people are old, but go on to live another 20 years or more. That means we are gaining 3.2 MQALY for a price of $2.5 billion. This is a price of only $800 per QALY.

From 1970 to 1990, the Clean Air Act cost more to implement: about $520 billion (so, you know, less than one year of military spending). But its estimated benefit was to save over 180,000 lives per year, and its estimated economic benefit was $22 trillion.

Look at those figures again, please. Even under very pessimistic assumptions where we would be on the verge of war if not for our enormous spending, we’re spending at least $11,000 and probably more like $700,000 on the military for each QALY gained. But environmental regulation only costs us about $800 per QALY. That’s a factor of at least 14 and more likely 1000. Environmental regulation is probably about one thousand times as cost-effective as military spending.

And I haven’t even included the fact that there is a direct substitution here: Climate change is predicted to trigger thousands if not millions of deaths due to military conflict. Even if national security were literally the only thing we cared about, it would probably still be more cost-effective to invest in carbon emission reduction rather than building yet another aircraft carrier. And if, like me, you think that a child who dies from asthma is just as important as one who gets bombed by China, then the cost-benefit analysis is absolutely overwhelming; every $60,000 spent on war instead of environmental protection is a statistical murder.

This is not even particularly controversial among economists. There is disagreement about specific environmental regulations, but the general benefits of fighting climate change and keeping air and water clean are universally acknowledged. There is disagreement about exactly how much military spending is necessary, but you’d be hard-pressed to find an economist who doesn’t think we could cut our military substantially with little or no risk to security.

Why did we ever privatize prisons?

pnrj public policy , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

JDN 2457103 EDT 10:24.

Since the Reagan administration (it’s always Reagan), the United States has undergone a spree of privatization of public services, in which services that are ordinarily performed by government agencies are instead contracted out to private companies. Enormous damage to our society has been done by this sort of privatization, from healthcare to parking meters.

This process can vary in magnitude.

The weakest form, which is relatively benign, is for the government to buy specific services like food service or equipment manufacturing from companies that already provide them to consumers. There’s no particular reason for the government to make their own toothpaste or wrenches rather than buy them from corporations like Proctor & Gamble and Sears. Toothpaste is toothpaste and wrenches are wrenches.

The moderate form is for the government to contract services to specific companies that may involve government-specific features like security clearances or powerful military weapons. This is already raising a lot of problems: When Northrop-Grumman makes our stealth bombers, and Boeing builds our nuclear ICBMs, these are publicly-traded, for-profit corporations manufacturing some of the deadliest weapons ever created—weapons that could literally destroy human civilization in a matter of minutes. Markets don’t work well in the presence of externalities, and weapons by definition are almost nothing but externalities; their entire function is to cause harm—typically, death—to people without their consent. While this violence may sometimes be justified, it must never be taken lightly; and we are right to be uncomfortable with the military-industrial complex whose shareholders profit from death and destruction. (Eisenhower tried to warn us!) Still, there are some good arguments to be made for this sort of privatization, since many of these corporations already have high-tech factories and skilled engineers that they can easily repurpose, and competitive bids between different corporations can keep the price down. (Of course, with no-bid contracts that no longer applies; and it certainly hasn’t stopped us from spending nearly as much on the military as the rest of the world combined.)

What I’d really like to focus on today is the strongest form of privatization, in which basic government services are contracted out to private companies. This is what happens when you attempt to privatize soldiers, SWAT teams, and prisons—all of which the United States has done since Reagan.

I say “attempt” to privatize because in a very real sense the privatization of these services is incoherent—they are functions so basic to government that simply to do them makes you, de facto, part of the government. (Or, if done without government orders, it would be organized crime.) All you’ve really done by “privatizing” these services is reduced their transparency and accountability, as well as siphoning off a portion of the taxpayer money in the form of profits for shareholders.

The benefits of privatization, when they exist, are due to competition and consumer freedom. The foundation of a capitalist economy is the ability to say “I’ll take my business elsewhere.” (This is why the notion that a bank can sell your loan to someone else is the opposite of a free market; forcing you to write a check to someone you never made a contract with is antithetical to everything the free market stands for.) Actually the closest thing to a successful example of privatized government services is the United States Postal Service, which collects absolutely no tax income. They do borrow from the government and receive subsidies for some of their services—but so does General Motors. Frankly I think the Postal Service has a better claim to privatization than GM, which you may recall only exists today because of a massive government bailout with a net cost to the US government of $11 billion. All the Postal Service does differently is act as a tightly-regulated monopoly that provides high-quality service to everyone at low prices and pays good wages and pensions, all without siphoning profits to shareholders. (They really screwed up my mail forwarding lately, but they are still one of the best postal systems in the world.) It is in many ways the best of both worlds, the efficiency of capitalism with the humanity of socialism.

The Corrections Corporation of America, on the other hand, is the exact opposite, the worst of both worlds, the inefficiency of socialism with the inhumanity of capitalism. It is not simply corrupt but frankly inherently corrupt—there is simply no way you can have a for-profit prison system that isn’t corrupt. Maybe it can be made less corrupt or more corrupt, but the mere fact that shareholders are earning profits from incarcerating prisoners is fundamentally antithetical to a free and just society.

I really can’t stress this enough: Privatizing soldiers and prisons makes no sense at all. It doesn’t even make sense in a world of infinite identical psychopaths; nothing in neoclassical economic theory in any way supports these privatizations. Neoclassical theory is based upon the presumption of a stable government that enforces property rights, a government that provides as much service as necessary exactly at cost and is not attempting to maximize any notion of its own “profit”.

That’s ridiculous, of course—much like the neoclassical rational agent—and more recent work has been done in public choice theory about the various interest groups that act against each other in government, including lobbyists for private corporations—but public choice theory is above all a theory of government failure. It is a theory of why governments don’t work as well as we would like them to—the main question is how we can suppress the influence of special interest groups to advance the public good. Privatization of prisons means creating special interest groups where none existed, making the government less directed at the public good.

Privatizing government services is often described as “reducing the size of government”, usually interpreted in the most narrow sense to mean the tax burden. But Big Government doesn’t mean you pay 22% of GDP instead of 18% of GDP; Big Government means you can be arrested and imprisoned without trial. Even using the Heritage Foundation’s metrics, the correlation between tax burden and overall freedom is positive. Tyrannical societies don’t bother with taxes; they own the oil refineries directly (Venezuela), or print money whenever they want (Zimbabwe), or build the whole society around doing what they want (North Korea).

The incarceration rate is a much better measure of a society’s freedom than the tax rate will ever be—and the US isn’t doing so well in that regard; indeed we have by some measures the highest incarceration rate in the world. Fortunately we do considerably better when it comes to things like free speech and freedom of religion—indeed we are still above average in overall freedom. Though we do imprison more of our people than China, I’m not suggesting that China has a freer society. But why do we imprison so many people?

Well, it seems to have something to do with privatization of prisons. Indeed, there is a strong correlation between the privatization of US prisons and the enormous explosion of incarceration in the United States. In fact privatized prisons don’t even reduce the tax burden, because privatization does not decrease demand and “privatized” prisons must still be funded by taxes. Prisons do not have customers who choose between different competing companies and shop for the highest quality and lowest price—prisoners go to the prison they are assigned to and they can’t leave (which is really the whole point). Even competition at the purchase end doesn’t make much sense, since the government can’t easily transfer all the prisoners to a new company. Maybe they could transfer ownership of the prison to a different company, but even then the transition costs would be substantial, and besides, there are only a handful of prison corporations that corner most of the (so-called) market.

There is simply no economic basis for privatization of prisons. Nothing in either neoclassical theory or more modern cognitive science in any way supports the idea. So the real question is: Why did we ever privatize prisons?

Basically there is only one reason: Ideology. The post-Reagan privatization spree was not actually based on economics—it was based on economic ideology. Either because they actually believed it, or by the Upton Sinclair Principle, a large number of economists adopted a radical far-right ideology that government basically should not exist—that the more we give more power to corporations and less power to elected officials the better off we will be.

They defended this ideology on vaguely neoclassical grounds, mumbling something about markets being more efficient; but this isn’t even like cutting off the wings of the airplane because we’re assuming frictionless vacuum—it’s like cutting off the engines of the airplane because we simply hate engines and are looking for any excuse to get rid of them. There is absolutely nothing in neoclassical economic theory that says it would be efficient or really beneficial in any way to privatize prisons. It was all about taking power away from the elected government and handing it over to for-profit corporations.

This is a bit of consciousness-raising I’m trying to do: Any time you hear someone say that something should be apolitical, I want you to substitute the word undemocratic. When they say that judges shouldn’t be elected so that they can be apolitical—they mean undemocratic. When they say that the Federal Reserve should be independent of politics—they mean independent of voting. They want to take decision power away from the public at large and concentrate it more in the hands of an elite. People who say this sort of thing literally do not believe in democracy.

To be fair, there may actually be good reasons to not believe in democracy, or at least to believe that democracy should be constrained by a constitution and a system of representation. Certain rights are inalienable, regardless of what the voting public may say, which is why we need a constitution that protects those rights above all else. (In theory… there’s always the PATRIOT ACT, speaking of imprisoning people without trial.) Moreover, most people are simply not interested enough—or informed enough—to vote on every single important decision the government makes. It makes sense for us to place this daily decision-making power in the hands of an elite—but it must be an elite we choose.

And yes, people often vote irrationally. One of the central problems in the United States today is that almost half the population consistently votes against rational government and their own self-interest on the basis of a misguided obsession with banning abortion, combined with a totally nonsensical folk theory of economics in which poor people are poor because they are lazy, the government inherently destroys whatever wealth it touches, and private-sector “job creators” simply hand out jobs to other people because they have extra money lying around. Then of course there’s—let’s face it—deep-seated bigotry toward women, racial minorities, and LGBT people. (The extreme hatred toward Obama and suspicion that he isn’t really born in the US really can’t be explained any other way.) In such circumstances it may be tempting to say that we should give up on democracy and let expert technocrats take charge; but in the absence of democratic safeguards, technocracy is little more than another name for oligarchy. Maybe it’s enough that the President appoints the Federal Reserve chair and the Supreme Court? I’m not so sure. Ben Bernanke definitely handled the Second Depression better than Congress did, I’ll admit; but I’m not sure Alan Greenspan would have in his place, and given his babbling lately about returning to Bretton Woods I’m pretty sure Paul Volcker wouldn’t have. (If you don’t see what’s wrong with going back to Bretton Woods, which was basically a variant of the gold standard, you should read what Krugman has to say about the gold standard.) So basically we got lucky and our monetary quasi-tyrant was relatively benevolent and wise. (Or maybe Bernanke was better because Obama appointed him, while Reagan appointed Greenspan. Carter appointed Volcker, oddly enough; but Reagan reappointed him. It’s always Reagan.) And if you could indeed ensure that tyrants would always be benevolent and wise, tyranny would be a great system—but you can’t.

Democracy doesn’t always lead to the best outcomes, but that’s really not what it’s for. Rather, democracy is for preventing the worst outcomes—no large-scale famine has ever occurred under a mature democracy, nor has any full-scale genocide. Democracies do sometimes forcibly “relocate” populations (particularly indigenous populations, as the US did under Andrew Jackson), and we should not sugar-coat that; people are forced out of their homes and many die. It could even be considered something close to genocide. But no direct and explicit mass murder of millions has ever occurred under a democratic government—no, the Nazis were not democratically elected—and that by itself is a fully sufficient argument for democracy. It could be true that democracies are economically inefficient (they are economically efficient), unbearably corrupt (they are less corrupt), and full of ignorant idiotic hicks (they have higher average educational attainment), and democracy would still be better simply because it prevents famine and genocide. As Churchill said, “Democracy is the worst system, except for all the others.”

Indeed, I think the central reason why American democracy isn’t working well right now is that it’s not very democratic; a two-party system with a plurality “first-past-the-post” vote is literally the worst possible voting system that can still technically be considered democracy. Any worse than that and you only have one party. If we had a range voting system (which is mathematically optimal) and say a dozen parties (they have about a dozen parties in France), people would be able to express their opinions more clearly and in more detail, with less incentive for strategic voting. We probably wouldn’t have such awful turnout at that point, and after realizing that they actually had such a strong voice, maybe people would even start educating themselves about politics in order to make better decisions.

Privatizing prisons and soldiers takes us in exactly the opposite direction: It makes our government deeply less democratic, fundamentally less accountable to voters. It hands off the power of life and death to institutions whose sole purpose for existence is their own monetary gain. We should never have done it—and we must undo it as soon as we possibly can.