Where did all that money go?

Sep 26 JDN 2459484

Since 9/11, the US has spent a staggering $14 trillion on the military, averaging $700 billion per year. Some of this was the routine spending necessary to maintain a large standing army (though it is fair to ask whether we really need our standing army to be quite this large).

But a recent study by the Costs of War Project suggests that a disturbing amount of this money has gone to defense contractors: Somewhere between one-third and one-half, or in other words between $5 and $7 trillion.

This is revenue, not profit; presumably these defense contractors also incurred various costs in materials, labor, and logistics. But even as raw revenue that is an enormous amount of money. Apple, one of the largest corporations in the world, takes in on average about $300 billion per year. Over 20 years, that would be $6 trillion—so, our government has basically spent as much on defense contractors as the entire world spent on Apple products.

Of that $5 to $7 trillion, one-fourth to one-third went to just five corporations. That’s over $2 trillion just to Lockheed Martin, Boeing, General Dynamics, Raytheon, and Northrop Grumman. We pay more each year to Lockheed Martin than we do to the State Department and USAID.

Looking at just profit, each of these corporations appears to make a gross profit margin of about 10%. So we’re looking at something like $200 billion over 20 years—$10 billion per year—just handed over to shareholders.

And what were we buying with this money? Mostly overengineered high-tech military equipment that does little or nothing to actually protect soldiers, win battles, or promote national security. (It certainly didn’t do much to stop the Taliban from retaking control as soon as we left Afghanistan!)

Eisenhower tried to warn us about the military-industrial complex, but we didn’t listen.

Even when the equipment they sell us actually does its job, it still raises some serious questions about whether these are things we ought to be privatizing. As I mentioned in a post on private prisons several years ago, there are really three types of privatization of government functions.

Type 1 is innocuous: There are certain products and services that privatized businesses already provide in the open market and the government also has use for. There’s no reason the government should hesitate to buy wrenches or toothbrushes or hire cleaners or roofers.

Type 3 is the worst: There have been attempts to privatize fundamental government services, such as prisons, police, and the military. This is inherently unjust and undemocratic and must never be allowed. The use of force must never be for profit.

But defense contractors lie in the middle area, type 2: contracting services to specific companies that involve government-specific features such as military weapons. It’s true, there’s not that much difference functionally between a civilian airliner and a bomber plane, so it makes at least some sense that Boeing would be best qualified to produce both. This is not an obviously nonsensical idea. But there are still some very important differences, and I am deeply uneasy with the very concept of private corporations manufacturing weapons.


It’s true, there are some weapons that private companies make for civilians, such as knives and handguns. I think it would be difficult to maintain a free society while banning all such production, and it is literally impossible to ban anything that could potentially be used as a weapon (Wrenches? Kitchen knives? Tree branches!?). But we strictly regulate such production for very good reasons—and we probably don’t go far enough, really.

Moreover, there’s a pretty clear difference in magnitude if not in kind between a corporation making knives or even handguns and a corporation making cruise missiles—let alone nuclear missiles. Even if there is a legitimate overlap in skills and technology between making military weapons and whatever other products a corporation might make for the private market, it might still ultimately be better to nationalize the production of military weapons.

And then there are corporations that essentially do nothing but make military weapons—and we’re back to Lockheed-Martin again. Boeing does in fact make most of the world’s civilian airliners, in addition to making some military aircraft and missiles. But Lockheed-Martin? They pretty much just make fighters and bombers. This isn’t a company with generalized aerospace manufacturing skills that we are calling upon to make fighters in a time of war. This is an entire private, for-profit corporation that exists for the sole purpose of making fighter planes.

I really can’t see much reason not to simply nationalize Lockheed-Martin. They should be a division of the US Air Force or something.

I guess, in theory, the possibility of competing between different military contractors could potentially keep costs down… but, uh, how’s that working out for you? The acquisition costs of the F-35 are expected to run over $400 billion—the cost of the whole program a whopping $1.5 trillion. That doesn’t exactly sound like we’ve been holding costs down through competition.

And there really is something deeply unseemly about the idea of making profits through war. There’s a reason we have that word “profiteering”. Yes, manufacturing weapons has costs, and you should of course pay your workers and material suppliers at fair rates. But do we really want corporations to be making billions of dollars in profits for making machines of death?

But if nationalizing defense contractors or making them into nonprofit institutions seems too radical, I think there’s one very basic law we ought to make: No corporation with government contracts may engage in any form of lobbying. That’s such an obvious conflict of interest, such a clear opening for regulatory capture, that there’s really no excuse for it. If there must be shareholders profiting from war, at the very least they should have absolutely no say in whether we go to war or not.

And yet, we do allow defense contractors to spend on lobbying—and spend they do, tens of millions of dollars every year. Does all this lobbying affect our military budget or our willingness to go to war?

They must think so.

Privatized prisons were always an atrocity

Aug 4 JDN 2458700

Let’s be clear: The camps that Trump built on the border absolutely are concentration camps. They aren’t extermination camps—yet?—but they are in fact “a place where large numbers of people (such as prisoners of war, political prisoners, refugees, or the members of an ethnic or religious minority) are detained or confined under armed guard.” Above all, it is indeed the case that “Persons are placed in such camps often on the basis of identification with a particular ethnic or political group rather than as individuals and without benefit either of indictment or fair trial.”

And I hope it goes without saying that this is an unconscionable atrocity that will remain a stain upon America for generations to come. Trump was clear from the beginning that this was his intention, and thus this blood is on the hands of anyone who voted for him. (The good news is that even they are now having second thoughts: Even a majority of Fox News viewers agrees that Trump has gone too far.)

Yet these camps are only a symptom of a much older disease: We should have seen this sort of cruelty and inhumanity coming when first we privatized prisons.

Krugman makes the point using economics: Without market competition or public view, how can the private sector be kept from abuse, corruption, and exploitation? And this is absolutely true—but it is not the strongest reason.

No, the reason privatized prisons are unjust is much more fundamental than that: Prisons are a direct incursion against liberty. The only institution that should ever have that authority is a democratically-elected government restrained by a constitution.

I don’t care if private prisons were cleaner and nicer and safer and more effective at rehabilitation (as you’ll see from those links, exactly the opposite is true across the board). No private institution has the right to imprison people. No one should be making profits from locking people up.

This is the argument we should have been making for the last 40 years. You can’t privatize prisons, because no one has a right to profit from locking people up. You can’t privatize the military, because no one has a right to profit from killing people. These are basic government functions precisely because they are direct incursions against fundamental rights; though such incursions are sometimes necessary, we allow only governments to make them, because democracy is the only means we have found to keep them from being used indiscriminately. (And even then, there are always abuses and we must remain eternally vigilant.)

Yes, obviously we must shut down these concentration camps as soon as possible. But we can’t stop there. This is a symptom of a much deeper disease: Our liberty is being sold for profit.

Why did we ever privatize prisons?

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.