Free-Market Regulation

[Anikdote]

Of course there was, for pre-digital era examples I could refer to the jeep and aeronautic developments, or radar/sonar technologies. It's difficult to deny the military's impact on our economy.

Nobody is denying that. What is being denied is that it is the primary or even a major driver of the economy.

Being that federal spending is a significant component of most GDP equations, and being that we spend a significant portion of our budget on defense, I think it'd be hard to justify an argument based on the military not being a significant factor in the US economy.

When we look at the impact of military spending we shouldn't limit our scope to just the material items developed directly from the DoD budget, but also it's active role in securing foreign interests and it's contracts with numerous private firms, the contracts in addition to the productivity of those firms must also be considered.

With the exception of war, the military has always been a minor player in the American economy. Silicon Valley has had many, many times more impact on the US than the American armed forces.

From ~1980 forward, I absolutely agree. But as I've said, the military's contribution to our economy is simply not measurable in terms of patents or widgets.

 

[Limey]

I have no idea.

Which demonstrates how you've constructed comment without appreciating basic economics. We can compare education expenditures with the military burden. It would of course be ludicrous to ignore the importance of that human capital investment. It would be similarly be silly to ignore the importance of the US's military sector (with a burden quite different to the standard developed nation)

But the military is not the main driver of technological progress in America.

You're just repeating your error. Its not possibile to understand R&D or technical progress without reference to the military sector.

I didn't say that there were no beneficial spin-offs to military technology spending.

You did deliberately ignore the role of the military sector for post-WW2 innovation

Nor did I say that military spending is not counter-cyclical.

You can't. It therefore supports the macroeconomic role of the military sector. My original comment I believe!

What I'm saying is that the total amount of spending on R&D procurement by the military is dwarfed by spending in the private sector. Ergo, it is not the military that drives neither the economy nor technological progress in the United States. Not even close.

The education figure was asked deliberately. Its is an integral aspect of the economy. Its also been on a par with the military sector. You've simply not appreciated the importance of military economics

 

[namaan]

Since this military expenditure issue has become the hot topic, I started wondering too. So, I looked it up and while the peace time budget may have been 2% of GDP, the current seems to be 4% of GDP. Oh, and do forgive me for relying on Wikipedia, like I said I'm not a student of economics (I didn't even get the chance to take general micro/macro economics 101 courses), so cut me some slack will ya. More to the point, you're welcome to correct me if you feel Wikipedia happens to be wrong. That being said, here's an excerpt from Wikipedia:

The 2009 U.S. military budget is almost as much as the rest of the world's defense spending combined and is over nine times larger than the military budget of China (compared at the nominal US dollar / Renminbi rate, not the PPP rate). The United States and its close allies are responsible for about two-thirds of the world's military spending (of which, in turn, the U.S. is responsible for the majority).

@(apparently I can't post links yet, well it isn't hard to find)

I don't really have a position going into this, but I do have a thought question for Toro (I'm prepared to look dumb if need be). So, even if the US military budget were 2% of GDP, while that may seem small, is it not a fallacy to compare it with the rest of the economy as a whole? The 2%-4% of GDP, a massive sum of cash, is all for one single sector. And there are many, many far smaller sectors than the organization that is the US Military and Defense. So, maybe I misunderstand your argument, but it seems to me that you seem to be saying that the 2% is inherently small or something. But, again, I see it as a fallacy and frankly meaningless to arbitrarily compare 2% to the other 98% of the economy.

The point being, I think a more accurate assessment of the US defense budget requires us to compare the 2%-4% to another economic sector, not arbitrarily to the rest of the economy (especially when considering the bold text in the above quote).

 

[namaan]

damn...Anikdote...are u supposed to be my antithesis or something? The anti-doppelganger? Lol

 

[Anikdote]

damn...Anikdote...are u supposed to be my antithesis or something? The anti-doppelganger? Lol

I'm you in bizaro world.

 

[namaan]

LOL...my head is bigger than yours, you lose bizaro man -_-

 

[Limey]

Oh, and do forgive me for relying on Wikipedia

Probably the best source for data is SIPRI

The point being, I think a more accurate assessment of the US defense budget requires us to compare the 2%-4% to another economic sector, not arbitrarily to the rest of the economy (especially when considering the bold text in the above quote).

Its the nature of the expenditure, be it R&D orientated or simple demand management, that ensures its an integral sector for US economic evolution

 

[Toro]

Which demonstrates how you've constructed comment without appreciating basic economics. We can compare education expenditures with the military burden. It would of course be ludicrous to ignore the importance of that human capital investment. It would be similarly be silly to ignore the importance of the US's military sector (with a burden quite different to the standard developed nation)

Oh, I understand basic economics my friend. Don't have to worry about that.

Nobody is ignoring human capital investment, but it is irrelevant compared to military spending when comparing. You are trying to find a causality that does not exist, as if military spending somehow is a substitute for education. Sorry, there is no economic rationale for this.

But since we are comparing military spending to education spending...

Or about $900 billion. And that excludes private spending on education, which runs into the hundreds of billions.

This is substantially higher than the $515 billion spent by the US government on military, of which $80 billion is on R&D.

http://en.wikipedia.org/wiki/Military_budget_of_the_United_States

Let's look at the R&D budgets of some companies.

Microsoft, $9 billion. MSFT: Income Statement for Microsoft Corporation - Yahoo! Finance
Pfizer, $8 billion. PFE: Income Statement for PFIZER INC - Yahoo! Finance
Merck, $5 billion. MRK: Income Statement for MERCK CO INC - Yahoo! Finance
IBM $6 billion. IBM: Income Statement for INTL BUSINESS MACH - Yahoo! Finance
Intel $6 billion. INTC: Income Statement for Intel Corporation - Yahoo! Finance

Those five companies alone spend $32 billion in R&D, or 40% of what the military spends.

You're just repeating your error. Its not possibile to understand R&D or technical progress without reference to the military sector.

It is you who is repeating the error. Companies that are not defense departments nor defense companies have created ~99% of all the patents in this country, and we are supposed to believe that 1% drives the other 99%. C'mon, be serious.

You did deliberately ignore the role of the military sector for post-WW2 innovation

No, I did not. For a brief period, the military was nearly half of US GDP, then was as high as 12% in the 1950s as the war effort wore down. But to believe that the foundation for today's economy is based on four years of military spending and the years thereafter is to belie the fact that much innovation also occurred before WWII when there was little military spending. Yes, there were innovations during and after WWII but you are dramatically exaggerating the role of the military in the continuum of American progress.

The education figure was asked deliberately. Its is an integral aspect of the economy. Its also been on a par with the military sector. You've simply not appreciated the importance of military economics

See above.

Military R&D is $80 billion. Five American companies R&D $32 billion. Education spending is $900 billion plus much more in the private sector.

 

[Toro]

Being that federal spending is a significant component of most GDP equations, and being that we spend a significant portion of our budget on defense, I think it'd be hard to justify an argument based on the military not being a significant factor in the US economy. .

Military spending is about 4% of the economy. Of that, about half is wages, maintenance, etc.

Wal-Mart is 2.8% of the economy as a comparison.

 

[Limey]

Oh, I understand basic economics my friend. Don't have to worry about that.

You've attempted to underestimate the significance of the military sector, despite its size being similar to human capital investment measures. We certainly wouldn't do the same with human capital.

To suggest the military sector plays no significant role you have to adopt very specific schools of thought. A neoclassical analysis, for example, would be typically naive and suggest that its purely about the delivery of a public good (despite the military not having the characteristics required for a public good). A liberal approach, in comparison, leads you down the garden path of the military-industrial complex. Whilst there is some merit in referring to the influence costs on government imposed by arms production, its certainly a rather limited view of understanding defence economics. I'm rather busy today so haven't got the time to provide a quick review of the literature for you. However, here's an example of work chosen at random: Econometric Example

You are trying to find a causality that does not exist, as if military spending somehow is a substitute for education.

Nope. I'm demonstrating the error in your argument. The size of the military burden is certainly sufficient to have a substantive influence on the dynamics of US growth.

Or about $900 billion. And that excludes private spending on education, which runs into the hundreds of billions.

I referred to education spending. I did not refer to every form of human capital investment. The size of public education expenditure is a key variable in any country's economic outcome.

Let's look at the R&D budgets of some companies.

Raw data comparisons of R&D budgets aren't going to help you. First, we don't know their nature. A mature product, for example, will generate interest in minimising costs (ensuring little output in terms of technical progress). We need to refer to military R&D directly. To suggest no effect, you have to focus on crowding out effects where scientists & engineers are skewed towards less productive areas. These effects certainly exist, perhaps accounting for the relatively consistent evidence of negative growth effects in the case of Britain and her smaller arms sector. However, that evidence isn't so forthcoming in the US. For example, its easy to demonstrate positive growth effects through both time series and panel analysis of a production function (with military R&D included with human capital variables).

There is the issue of the, forgive the lingo, information revolution. Whilst this revolution was partially created by military spin-off technologies, it has changes the relationships between civilian and military R&D. Rather than spin-offs, we can increasingly refer to spin-ins. The speed of civilian advancement in this period shifts the purpose of military investments: i.e. finiding military uses to civilian technologies. However, this describes how the US has entered uncertain waters. It will see its benefits from the military sector continue to decline, ensuring a need to switch public sector interventionism to other areas. Space might be the possibility.

It is you who is repeating the error. Companies that are not defense departments nor defense companies have created ~99% of all the patents in this country, and we are supposed to believe that 1% drives the other 99%.

You're continuing to make erroneous comparisons. Spin-off technologies obviously refer to civilian technologies. We therefore have no reason to assume that they will be restricted to 'defence companies'

 

[editec]

Capitalism demands that some authority establish the CAPITAL to be used,

Therefore market capitalism demadns an AUTHORITY that FORCES us to accept that:

"This note (or metal coin for that matter) is legal tender for all debts public or private."

Note that without some overarching authority to impose that law, there can be no market, free or otherwise?

A Free market is a myth that people who don't really understand what capitalism really means, believe in.

The question is NOT a choice between unbridled capitalism or oppressive socialism, folks.

It is a question, at best, of how much regulation do we impose on the people?

No regulations = No markets. (free or otherwise)

Now some of you seem to think that BLACK MARKETS are free marekts.

Nonsense...they can't exist EXCEPT in a regulated market, either.

And since, typically, black markets still use the species of SOME regulated mareket, they are no more free that the above-board, markets.

Contrary to what the children here think, this question of capitalism v collectivism does not have a binary answer.

 

[Anikdote]

Being that federal spending is a significant component of most GDP equations, and being that we spend a significant portion of our budget on defense, I think it'd be hard to justify an argument based on the military not being a significant factor in the US economy. .

Military spending is about 4% of the economy. Of that, about half is wages, maintenance, etc.

Wal-Mart is 2.8% of the economy as a comparison.

4% of ~$14.4 trillion dollars is ~$5.6 trillion dollars, which regardless of how we slice it is significant particularly when we consider that the monies for it are collected via taxation potentially preventing those resources from being used more efficiently elsewhere.

The comparison to Walmart though does support my argument, the military accounts for nearly double the amount of the largest private retailer, that's satisfactory as a comparison to the private sector. The private sector at large would not be apples to apples, if we wanted to make a comparison to the private sector we'd want to compare the entire public sector, not just the military.

 

[namaan]

@Toro I don't mean to nag, you're not obligated to reply to my post, but I just realized that the way I wrote it, you might have missed that I referenced you. Anyway, here's an excerpt from an above post of mine:

I don't really have a position going into this, but I do have a thought question for Toro (I'm prepared to look dumb if need be). So, even if the US military budget were 2% of GDP, while that may seem small, is it not a fallacy to compare it with the rest of the economy as a whole? The 2%-4% of GDP, a massive sum of cash, is all for one single sector. And there are many, many far smaller sectors than the organization that is the US Military and Defense. So, maybe I misunderstand your argument, but it seems to me that you seem to be saying that the 2% is inherently small or something. But, again, I see it as a fallacy and frankly meaningless to arbitrarily compare 2% to the other 98% of the economy.

The point being, I think a more accurate assessment of the US defense budget requires us to compare the 2%-4% to another economic sector, not arbitrarily to the rest of the economy (especially when considering the bold text in the above quote).

 

[Toro]

You've attempted to underestimate the significance of the military sector, despite its size being similar to human capital investment measures. We certainly wouldn't do the same with human capital.

To suggest the military sector plays no significant role you have to adopt very specific schools of thought.

I did not say that the military plays no significant role. Or if that is what I conveyed, that is not what I meant to convey. What I am saying is that the military is not the primary nor the main driver of technological innovation nor economic growth in the United States.

The military spends $80 billion on R&D. That is a lot of money, no matter which way you cut it. However, I checked on Bloomberg today to see what the 3000 largest publicly traded companies spent on R&D, and that total was $210 billion. Then if you include privately-held companies, that number is somewhere around $225-$250 billion. So what happens in the corporate market is far more important than what happens in the military market.

I will address what I expect your retort to be below.

Nope. I'm demonstrating the error in your argument. The size of the military burden is certainly sufficient to have a substantive influence on the dynamics of US growth.

If your argument is that military spending, net, is wasteful, and that the money would better be spent on education in terms of economic productivity, I would not disagree. If your argument is that the military is the primary driver of technological breakthroughs, I would disagree.

I referred to education spending. I did not refer to every form of human capital investment. The size of public education expenditure is a key variable in any country's economic outcome.

Right. $900 billion is spent by the government on education in the United States, compared to $515 billion on the military plus another $160 or so billion off balance sheet for the wars in Iraq and Afghanistan. $80 billion is spent by the military on R&D. Another $10 billion is spent by aeronautical and defense companies. The World Bank estimates that the US spends ~2% of its GDP on private education, or just south of $300 billion. Thus, total education spend in America is about $1.2 trillion, roughly double that of the military.

Raw data comparisons of R&D budgets aren't going to help you. First, we don't know their nature. A mature product, for example, will generate interest in minimising costs (ensuring little output in terms of technical progress). We need to refer to military R&D directly.

Data comparisons is a fair approximation on the effect of research spend in America. Why? You can make the exact same argument about military spending. There are all sorts of mature military technologies as well. There is nothing to suggest that the military is engaged primarily in ground-breaking Buzz Lightyear technologies whereas the private sector R&D is basically plodding Hatch-Waxman add-ons.

Private spending is about 3x that of military spending. To suggest that private R&D spending has less of an effect on the economy than military R&D spending assumes that the efficacy of government spending is 3x that of private market spending. That seems a tad absurd, given that the military once routinely spent $700 for toilet seats and $100 for hammers.

To suggest no effect, you have to focus on crowding out effects where scientists & engineers are skewed towards less productive areas. These effects certainly exist, perhaps accounting for the relatively consistent evidence of negative growth effects in the case of Britain and her smaller arms sector. However, that evidence isn't so forthcoming in the US.

I did not say there was no effect.

A few years ago, I sat down with some Ph.D.s in physics who worked in the Reagan administration on the Star Wars program. You talk about crowding out - I asked why they went to work for the administration and they said it was because their budget was virtually limitless. Anything they wanted, they could have. However, despite the enormous amounts of money spent on Star Wars, there was precious little to show for it. Now, if your argument is that government spending is wasteful and could have been better spent elsewhere, then that is a great example. However, in terms of the efficacy of government spending vis-a-vis private spending, not so much. Having spent a considerable amount of time in both the public and private sectors myself, I have a hard time believing that government spending is 3x more efficacious than private spending.

You're continuing to make erroneous comparisons. Spin-off technologies obviously refer to civilian technologies. We therefore have no reason to assume that they will be restricted to 'defence companies'

Right, but it is unreasonable to assume that ~1% of the patent creation would have a multiplier effect of 30x-40x in the private sector, such that 30%-40% of the patents filed in America can be traced directly or indirectly back to military spending. It isn't the case.

 

[Limey]

What I am saying is that the military is not the primary nor the main driver of technological innovation nor economic growth in the United States.

Primary driver? We should be able to agree that there is no such beast. The important aspect is that we cannot understand the US economy without referring to the impact of the country's military burden.

The military spends $80 billion on R&D. That is a lot of money, no matter which way you cut it.

We're recognising that the role of the military sector is multi-faceted. We can't just rely on Keynesianism. We also have to refer to technical progress. Those effects have been substantial, demonstrating the US's reliance on interventionism. It becomes an additional source of the 'visible hand', making the standard stories about the US somehow being closer to 'laissez faire' in the economic spectrum particularly suspect. Even a white elephant such as the 'already outdated' Eurofighter has numerous spin-off technologies created by European military co-operation.

If your argument is that military spending, net, is wasteful, and that the money would better be spent on education in terms of economic productivity, I would not disagree.

That would have some common ground with the typical Keynesian argument, where it is assumed civilian expenditures are more effective at impacting on the macroeconomy. However, I'd refer to the US's low skilled equilibrium. Transferring expenditure to the skills base isn't a straight forward proposition. The US's abundancy of low wage labour isn't a supply-side phenomenon. Its demand-led.

If your argument is that the military is the primary driver of technological breakthroughs, I would disagree.

It certainly has played an important role in the information revolution, ensuring that subsequent innovations continue to be linked with military spin-off technologies.

Thus, total education spend in America is about $1.2 trillion, roughly double that of the military.

You'd have to "minus" the certification role of education, given that provides no significant effect on the economy (providing instead a means to stunt social mobility and protect inter-generational income divides)

Data comparisons is a fair approximation on the effect of research spend in America.

Without direct reference to the type of R&D expenditure, we only have statistics abuse. We'd at least require an econometric approach where the impact of R&D expenditures are directly tested.

Private spending is about 3x that of military spending.

The counter-cyclical nature of military spending makes its importance shine like a beacon.

A few years ago, I sat down with some Ph.D.s in physics who worked in the Reagan administration on the Star Wars program.

Finding evidence of R&D failures isn't difficult. For example, we've seen substantial falls in the productivity of investments in the pharmaceutical world. The advantage of government funding is that the consequences of risk adversity are avoided. High risk strategies can be adopted, with a possibility of dramatic results. That possibility may be tiny, but it can lead to technology shifts that dramatically change in the evolution of the economy.

Right, but it is unreasonable to assume that ~1% of the patent creation would have a multiplier effect of 30x-40x in the private sector

Given the spin-off technologies created, you cannot make that assumption. As I mentioned before, you really should be focusing on how there isn't a linear relationship. Whilst there will be periods of high spin-off technologies, the regularity of those shocks is drying up. Its the concept of spin-in that will ultimately be the final nail in the US's arms production coffin. The economies of scale problems involved will become an anchor on US economic performance

 

[namaan]

i feel like the ignored loser crying in the corner of the room T.T

man, does my logic suck that bad?

 

[2Parties]

We also have to refer to technical progress. Those effects have been substantial, demonstrating the US's reliance on interventionism.

Given the spin-off technologies created, you cannot make that assumption. As I mentioned before, you really should be focusing on how there isn't a linear relationship.

 

[namaan]

Ok, as I continue crying (jk noted above), let me try to 'reattach' the whole military discussion arc to the theme of this thread. I tracked down the (I looked in vain for this word for far too long) post that I believe began this whole discussion:

Actually, "pure" capitalism, if there was such a thing, would work in spite of human "failings" ...

Ther e isn't. People confuse the economic spectrum (from command to laissez faire) with political economy. Capitalism is prone to crisis. This is encouraged by human failings that generate market concentration problems. Government regulations then becomes a vital aspect of the reproduction of profit. The US, for example, has been largely reliant on her military sector to maintain stability: from the generation of innovation (describing basic market failure in technological progress) to demand managment.

As far as I understand, since this was back when we were still talking about free-market regulations (no pun intended), Limey's argument here is that free-markets do require some form of regulation to counteract the human failings in a capitalism that is prone to crisis. As per my OP, I agree of course. The issue for many however, seems to stem from his attempt to characterize the specific type of regulation that has been employed by the US government; in particular the Keynesian form that it took following WWII which in his opinion was predominantly influenced by the military sector.

So if I have it right, then in general terms, you believe that every government should (or is required to) regulate the capitalist free market system. And you go on to describe how one of these governments (ours), used a composite program of Keynesian economics with a military backbone. Sorry if I'm just restating the obvious, but it does help me to digest the discussion a bit more (and I hope that it helps others as well, assuming that I understood correctly). [EDIT: Btw, I realize that even if the US government actually used the military as a backbone for free market regulation, it does not necessarily mean that they did so intentionally.]

As for Toro's argument, I believe your overall argument can be summed up by:

I did not say that the military plays no significant role. Or if that is what I conveyed, that is not what I meant to convey. What I am saying is that the military is not the primary nor the main driver of technological innovation nor economic growth in the United States.

I don't know enough to argue with you two on this (though it's still rather ambiguous to me whether you @Toro ignored my earlier thought question or missed it). But it does seem that the more recent arguments between you two about whether or not the military is a large driver of technological innovation or economic growth is somewhat off point. From what I've read about the culture of militarism (domestic and abroad), the idea of the never-ending modern wars, expanding use of mercenaries in the war zone, hidden supporting economies of the military establishments (especially in foreign lands), etc. it seems that economic growth and technological innovation is a relatively small foot print of the influence of the military establishment.

I don't intend to take sides or anything (though I guess that can't be helped), but expanding military influence (economic, technological or otherwise), can thus be considered to be a form of government regulation of free markets (based on Limey's argument above). If one wishes to argue against this, I would be interested to hear it, since it would entail (assuming that you agree with my OP position that free markets should be regulated) that you think that the US government employs a form of regulation of the free markets that surpasses in influence even the US military establishment. You might perhaps imply that this other sphere of influence is more diffuse across the economy than a centralized military, and thus not readily observed?

Given to general analysis, I frankly don't see the big deal with the military having a large sphere of influence over any society. I mean, it really shouldn't come as a surprise. The people that represent a given nation are put in place in part to defend that nation. What leader would be praised for maintaining a weak position of defense?

P.S. I'm not suggesting here that the military establishment has a primary and direct sphere of influence over free markets here and abroad. Rather I believe it to have a mixed bag of direct and indirect major influence over free markets.

 

[Limey]

As far as I understand, since this was back when we were still talking about free-market regulations (no pun intended), Limey's argument here is that free-markets do require some form of regulation to counteract the human failings in a capitalism that is prone to crisis.

We can broadly categorise western capitalism into 3 categories: social democratic, liberal democratic and Anglo-Saxon. The major difference refers to the methods used to maintain capitalism and to minimise problems such as stagflation. The first two focus more on controlling poverty levels, particularly when faced with labour militancy. The Anglo Saxon variety, however, replaces social expenditure mechanisms with the military sector. They're ironically closer to neo-Marxist thought, where the military sector becomes a key form of "waste" that is used to stabilise the economy

 

[namaan]

Actually, I reread my above post, and it seems way too much like I'm arguing that the military drives our economy, even after all the precautionary qualifications I dumped all over the post. In no way am I arguing this, nor am I fond of any theories that may suggest this. That's mostly because these types of theories seem to simplify the issue too much. Especially where I say:

I don't intend to take sides or anything (though I guess that can't be helped), but expanding military influence (economic, technological or otherwise), can thus be considered to be a form of government regulation of free markets (based on Limey's argument above). If one wishes to argue against this, I would be interested to hear it, since it would entail (assuming that you agree with my OP position that free markets should be regulated) that you think that the US government employs a form of regulation of the free markets that surpasses in influence even the US military establishment. You might perhaps imply that this other sphere of influence is more diffuse across the economy than a centralized military, and thus not readily observed?

The bold portion, I quickly realized, can be hugely misinterpreted. The point being, that even if there is no sphere of influence that surpasses the US military establishment, there are many different spheres of influence. Whether you're talking about the Fed, the private sector (which is a huge chunk in itself), the public sector (which would include the military of course); all these have varying levels of influence over free markets, be it direct or indirect. I'm only talking about relative influence in the above post, not absolute influence. Just because something is the largest in a group, says next to nothing about its relation to other pieces of that group; there could be many, many pieces with one being slightly larger than the rest.

But anyway, since we're comparing, I guess this argument also hinges on what scale you define a sphere of influence. It obviously makes no sense to compare the military to the entire private sector; being on two different scales after all. But however you do it, I still say:

I frankly don't see the big deal with the military having a large sphere of influence over any society. I mean, it really shouldn't come as a surprise. The people that represent a given nation are put in place in part to defend that nation. What leader would be praised for maintaining a weak position of defense?

Let me add: As the president, you may or may not be forgiven for not properly educating the nations children, or for lagging behind in any particular socioeconomic dimension, but you won't get that chance if another nation militarily overruns yours. Hence why, again, I don't see why a large military influence in society should come as a surprise to anyone, even if it isn't readily observable.