War’s Costs

by Don Boudreaux on November 4, 2006

in Politics

In today’s Washington Post, Princeton’s Uwe Reinhardt insinuates that the volunteer military allows affluent taxpayers to enjoy the benefits of war without suffering war’s costs.  After summarizing (part of) the economic case against conscription, Reinhardt says:

Small wonder, then, that even college students who ardently supported the invasion of Iraq and just as ardently favor “staying the course” in Iraq argue smugly that, instead of serving their country in uniform, they can serve it so much better in law school or by trading bonds for Goldman Sachs. I personally have heard this argument many times from hawkish undergraduates at Princeton University who would never dream of fighting in uniform for the nation they profess to love.

Reinhardt’s observation called to mind one of Adam Smith’s observations on war:

In great empires the people who live in the capital, and in the provinces remote from the scene of action, feel, many of them, scarce any inconveniency from the war; but enjoy, at their ease, the amusement of reading in the newspapers the exploits of their own fleets and armies. To them this amusement compensates the small difference between the taxes which they pay on account of the war, and those which they had been accustomed to pay in time of peace. They are commonly dissatisfied with the return of peace, which puts an end to their amusement, and to a thousand visionary hopes of conquest and national glory from a longer continuance of the war.

[This quotation is from Book V, Chapter 3, of An Inquiry Into the Nature and Causes of the Wealth of Nations.]

Here’s a letter that I sent today to the Washington Post in response:

Dear Editor:

Uwe Reinhardt seems to suggest that, because soldiers in the voluntary military come mostly from working-class backgrounds, wealthier Americans escape the costs of war (“Kerry Trips Over an Economic Truth,” November 4). Not so.  Soldiers today must be paid market wages for their services. These wages are paid by taxpayers, who are overwhelmingly in middle- and upper-income groups.  A taxpayer with no children in the military no more escapes the costs of war than does a taxpayer with no children on the police force escape the costs of local policing.

Now if it’s argued that taxpayers don’t feel these costs sufficiently sharply to cause them to question the merits of a war – an argument for which I have much sympathy – then the problem is not the voluntary army.  The problem is dangerously dysfunctional government.

Sincerely,
Donald J. Boudreaux

Suppose that Smith and Reinhardt are correct — namely, that even if the full costs of war are ultimately paid by taxpayers when the military doesn’t resort to forced servitude, the “felt” costs are much higher on those persons who are actually in the military, as well as on their families.  Citizens back home, even though paying taxes — paying these taxes either currently or in the form of a growing public-debt burden — don’t “feel” sufficiently the costs of the war.

One implication of this fact (if it is indeed a fact) has been pointed out by Rep. Charles Rangel, NYT columnist Bob Herbert, and others: government will too likely wage war unnecessarily.

But carry the analysis further.  If taxpayers don’t “feel” the costs of the war — and/or if they get baseless thrills from reading about the exploits of their troops and fleets abroad — surely the same sort of problem infects other government activities beyond war.  Do taxpayers “feel” the costs of farm subsidies, even as many enjoy the amusement of imagining the exploits of their bureaucrats saving family farms all across the land?  Do taxpayers feel the costs of the “war on drugs” as they thrill to the exploits of police officers and soldiers destroying dope dealers across the globe?  Do taxpayers feel the costs of the Small Business Administration?  The Food and Drug Administration?  The Federal Communications Commission?  The Department of Energy?

If taxpayers don’t sufficiently feel the costs of what their government is doing, then not only wars, but very many other — all? — government programs are likely unnecessary or, at least, excessive.

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{ 18 comments }

Randy November 4, 2006 at 12:34 pm

Don,

Good point.

GeorgeNYC November 4, 2006 at 1:38 pm

I am sympathetic to your attempts to utlize economic theory to explain these types of situations. Unfotunately, Reinhart's argument was not completely posed in economic terms and your criticism merely seizes on his terminology ignoring the potential for a true economic evaluation of his "feelings."

Part of the problem is that your own argument seizes upon the "choice" of the participants in the "market" and assumes that it is a properly functioning market operating at equilibrium. However, I am not going to leap off into the expected liberal diatribe here. While I may "feel" that way I think that Reinhat's observations can be explained in purely conomic terms.

You are missing the "risk" factor involved in participating in the military. I think you would certainy agree that in a properly functioning market, the price paid to a soldier would reflect his "risk" of death. Implicitly, there is a value placed by that person to "risk" his life which must be a function of his own "valuation" of his life.

Initially, this can easily explain why lower income indivuduals are attracted to the military. Obviously part of my market compensation in any occupation inludes a risk of death. For example, as a lawyer, my risk of death is quite low (despite the strong feeling of some) so the "premium" for that risk of death is also low.

Of course, minor variations in my occupation could increase my "risk" For example I bet that criminal lawyers may face a slightly higher risk. I expect we could calculate the "premium" I needed to make to take on a slightly "riskier" occupation. Of course, inverting that calculation we can also figure out the "value" I place on my life. For example if I said that in order to convice me to take job with a 1% greater increase in fatalities I would need to make an addition $10,000 a year, well I think that I am then "valuing" my life at something like $1,000,000. (Probably not exact because the "risk" premium may go up as the "chances" increase. That is to go from 1% to 10% may not require $100,000 because I may not want to "risk" that much of my human capital.

Either way, I have an intrinsic human "capital" that I am willing to risk given that I have an earning potential. Ovbviously those with lower earning potentials place a lower value on their lives and thus are willing to take on a lower risk premium.

I guess in purely "economic" terms this is equilibrium. Of course, that completely throw out the window any sense that all of us have equal "value." But we are not trying to impose our politics merely trying to explain why the"market" works the way that it does.

However, changing somewhat this analysis, in essence forced conscription is just another form of taxation. The government is forcing me to risk my life without paying me a "marrket" premium. Clearly, for the goverment to entice me to join the army, they would need to pay me a far greater wage than a low income person to make up for the "risk" to my human captial. Without a doubt, it would be worth it to me to pay almost up to that "risk" premium f I could avoid service.

Viewing it from this perspective coscription does "cost" more to the middle and upper class because their risk premium is higher. Therefore the government is "confiscating" that premium. Without a doubt, the volunteer system is more "efficient" once you accept the premise that certain lives are simply less productive and worth less overall.

In this respect the fact that the middle and upper classes "feel" more with conscription may be no more than a simple observation that they are in effect being taxed more by conscription.

However, that is not entirely complete. I think there is some validity to Reinhart's statements when one considers not merely the market equilibrium but also the imact of imperfect knowledge. Without a doubt, if there are imperfections in the market that do not allow for the proper tranmission of information, the market mechnism does not work pefectly. The "equilibrium" price is does not adequately reflect the cost. That is, if you thought your chances of dying in the military were 1% but in fact they were 2%, you would negotiate a wage that would be inconsistent with your true "risk."

Now I know tht you are going to jump all over this and talk about hw a "market" can take into account risk variables in the pricing. I agree, but the "market" for military service is not like the New York Stock Exchange where everyone is required by law and backed by legal sanctions to disclose information (granted imperfectly but there is a requirement). The market for miltary service is controlled entirely by the government (with the exception of the new "private" security contractors.

Taking this into account Reinhart has a point in that given the way the market works, the effect of "inaccurate" information will certainly be most "felt" by the lower classes who have entered military service without full knowledge. Of course, with conscription, the higher "costs" will now be borne by a broader wwath of the population. If one takes his somments to men the "feeling" that the country is risking more than it was told, then he has a point that these errors will be "felt" by the taxpayers who are having their children "taxed" from them.

My point to you is that given the information asymetries and the political process could it be that the more efficient "market" may actually be conscription? That is, as war is a political process not purely economic, taxing the population through conscription may more quickly lead to a more rational allocation of resources? After all, the "losses" appear more widely and therefore quickly allow the political process to work. Whereas in a volunteer situation, when mistakes are made, the "market" may forever lag behind the true costs as those costs are limited to a "minority" who may not fully be able or willing to affect the political process.

Your conclusion then may not be accurate. If a war is going badly, the market mechanisms with a volunteer army do not necessarily work to quickly transmit those costs to the rich.

Brad Hutchings November 4, 2006 at 4:59 pm

This pro-draft stuff is really just posturing anyway. If you accept the view that the world is a dangerous place and that the United States, even in peacetime, needs to have a force structure that has certain minimum capabilities and readiness, you're either going to have a professional military or you're going to have a lot of money spent training short-termers, who will lack the specialization to fight as effectively. The only legitimate military excuse for a draft is when you have a shortage of bodies. Let's hope we never get to that point again. As of now, you will find nobody in the officer ranks of the military that thinks that mandatory service would provide better soldiers or reduce costs.

Meanwhile, let's say we had a draft… Look at the can of worms that will be opened up this time around. Should it include women? Should it have student deferments? What kinds of medical deferments or excuses would be permitted? Do we "penalize" young people for not becoming fat-asses at an early age? Will young people, knowing they are subject to whims of a draft board when they reach 18, work as hard at school? Add 100 questions from the illegal immigrant hater perspective.

It's not even a worthwhile thing to discuss. If you're against the Iraq War, then start outlining the things that were bad about it. Start helping form a broader sense about what was right and what was wrong. I would guess that the eventual common wisdom will be that regime change was a within our means and worth doing, while nation building was the root of our problems, and having Iran, Saudi Arabia, and Syria fight it out for control of people who don't want them there either might have been more palatable. But ignoring the comparative success in Afghanistan (enabled by a volunteer, prepared military) and laying Iraq on the absence of a draft is just plain stupid.

Anshu Sharma November 4, 2006 at 5:55 pm

***Humans are flawed at evaluating long odds!***

*Examples: Lottery, Airline accidents and Military service*

Someone once remarked "Lottery is a tax on the mathematically challenged" and it certainly appears to be true. Similarly, people are way more concerned about death from lightening strikes and airline accidents than reality. But our evolutionary background taught us little on evaluating and perceiving differences between 1 in a million and 1 in a billion odds. Our ability to 'feel' or make sense of odds diminishes further when you add time dimension. So it is not surprising that many people sign up for a job that could potentially harm them or get them killed in the far off future if and when there is a war.

What is the premium for a similar job in the army vs. civilian sector? Is their a formula for calculating this risk premium? From market data, it appears to be in 5-20K per annum range.

Don is correct that volunteer army is not the problem but we need a mechanism that helps decision makers understand (or feel) and evaluate the cost element of a war.

In the airline industry, business leaders are forced to quantify their risks and losses due to money they have to pay to people that die in accidents plus litigation costs. This is markedly different than the army scenario where even though hiring takes place through 'free market', there is no corrective mechanisms in place to take increased risks into account when an intellectually challenged President decides to go to war on flimsy premises and without planning the post-war scenario. How is this different from an airline CEO deciding to fly an airplane without building a landing strip? In a free market the airline would be sued and CEO fired. What about the President?

So, the free market argument is not completely accurate in this scenario.

Ragerz November 4, 2006 at 6:45 pm

If people do not "feel" the costs of government, could it be that they do not "feel" the benefits either? Especially to the extent that government spending benefits everyone, including those who have insufficient income to pay income tax. (Side note: when considering tax burdens, one must consider regressive taxes, like sales tax and taxes that are passed on to lower income consumers.)

So, to the extent that the people do not "feel" the benefits of government spending and that those who do "feel" those benefits do not vote, we can predict there is too little spending.

Anyway, this whole idea of making decisions by "feeling" is rather ridiculous. Are we humans to be ruled by nothing better than our inclinations? Are we no better than Pavlov's dog?? What about principles, morality, and doing the right thing. Even when doing the right thing doesn't maximize our utility.

Please, have a little more creativity Don. Maybe acknowledge that not all facts unambigiously support your ideology. Think harder, instead of instinctually.

There is a term for situations where all the facts that you see support your ideology: Confirmation Bias. Maybe you should start thinking about how the facts DON'T support your ideological inclinations. THEN, if you still stick with your original position, maybe you will have some true credibility. Both with yourself and with others.

Forbes November 4, 2006 at 7:23 pm

Reinhardt offers up that old chestnut, the "chickenhawk" accusation. He makes, not only fact-challenged assertions about the military and military service, but also offers facile rhetorical questions in order to allege hypocrisy by those critical of Sen. Kerry's "muffed" joke. Who knew there were two Democratic Party hacks at Princeton.

Whatever the cost of the war in Iraq, or the GWOT, to suggest that the affluent aren't shouldering the burden is plainly idiotic. Who does Reinhardt imagines pays taxes? The poor? Embarassing.

Ann November 4, 2006 at 8:21 pm

Reinhardt also argues that the troops today are there primarily as cannon fodder. As GeorgeNYC argues, if the primary role of members of the military is to risk getting shot, then the necessary premium to get people to take that risk voluntarily will be higher for people with more alternative opportunities, and thus poorer people can more cheaply be bribed into being cannon fodder.

But what Reinhardt, GeorgeNYC and others are missing is that there are many opportunities in the military, including a way to pay for college or to be paid to receive other training. Yes, those opportunities are more valuable for those with fewer choices, so we would expect to see more low and middle income people signing up, because the opportunities mean more to them.

Why should we patronize them and assume that they're too stupid to know the risks? We can't all take the Kerry road to wealth and marry a rich woman who previously married a rich man. Some people have to work hard and take chances to build a better life. And some are willing to take chances to serve their country.

True_Liberal November 4, 2006 at 9:24 pm

Some contributors to this blog are unable to make risk assessments within the US military. During the previous administration, this report was released: "An inspector general report published this summer shows that 6,790 service members died accidentally in the nine years from 1988 through 1996."
That's about 750 per year. Compared that to Iraqi Freedom: 2900 deaths in 38 months, almost exactly the same annual wartime rate as Clinton's peacetime rate.
Source: http://www.defenselink.mil/news/Sep1998/n09291998_9809295.html

Randy November 4, 2006 at 9:50 pm

GeorgeNYC,

I could almost agree with you if I felt that a new draft wouldn't just force the very same people into uniform with far lower compensation. If we imagine a draft where the entire population is at risk, men and women, young and old, educated and uneducated, then your argument might make some sense. But as the historical evidence is that a draft will select only young men primarily from the lower and working classes, then the draft is simply a method by which the vast majority of the population will bear even less of the cost than they are bearing today.

Trey Tomeny November 5, 2006 at 5:43 am

Don, are the newspapers publishing any of these letters you write? What a great thing it would be if you enjoyed a wider audience for your incredibly inspired common sense viewpoints.

JohnDewey November 5, 2006 at 6:04 am

"they can serve it so much better in law school or by trading bonds for Goldman Sachs."

The opening salvo of the Current Global War on Terror was the attack on the World Trade Center. I'm fairly certain that lawyers and bond traders were among the first victims of this war.

JohnDewey November 5, 2006 at 6:16 am

I can't find the exact rankings early this morning, but I remember that the riskiest occupations – based on mortality rates – include:

fishermen
timber cutters
pilots
sheet metal fabricators
roofers

Should we also hold a draft for fishermen and loggers? to ensure that Prof. Reinhardt's students consider those risks before consuming tuna or purchasing wood frame houses?

Randy November 5, 2006 at 10:24 am

It occurs to me that most of the talk favoring a draft is coming from the more "elite" elements of our society. Wealthy Democrats, college campuses, and Hollywood. My guess is that the primary driver for this is conscious or unconscious guilt. In my neighborhood, nearly every family already has at least one person serving. So my advice to those with a guilty conscience is this; stop babbling and do something about it. Sign up or shut up.

Morris Coats November 5, 2006 at 12:36 pm

Don,

Could it be that those who argued against the draft in the 1970s, many good economists, such as Bob Tollison and Roger Miller, were wrong in just not being thorough enough in their analysis? While they correctly noted that the draft was a more costly way to raise an army, they somewhat failed to note the public choice results of the change to an all-volunteer force. In Bob's case, this means not making a point that he was making over and over again about the nature of public interest legislation. That point is that when benefits of some proposal are concentrated while the costs are spread out rather thinly and evenly, the legislation will see little opposition and is more likely to be passed. The opposite is, of course true as well, that when the costs are concentrated but the benefits are spread out thinly and evenly, the opposition will be tough and it will be difficult to carry. In a way, this is part of the problem that Anshu Sharma noted in his Nov. 4th post. When benefits are widespread, but low to most, people do not "feel" or perceive those benefits and do not favor them, so special interest legislation prevails over public interest or public goods legislation.

When we went from the draft, which unfairly concentrated the costs of war onto those who were being drafted, to a so-called volunteer force or more correctly, a professional force, or a mercenary force, we change it from one where the costs are less concentrated on the soldiers and are spread across all taxpayers, thus decreasing opposition to military involvement.

Still, to the extent that military involvement is defensive (and so, one of the few real public goods) and not mere imperialism, then at least the benefits to military activity are spread out as well, and here voters will be mostly unmotivated either for or against the military activity. In which case, national defense, a public good, will not suffer from this special interest bias against public goods.

So here I am having come full circle. Tollison, Miller and other economists in the 70s who fought against the draft made no errors of omission in doing so. Moving from a draft to a professional force removed the public choice bias against proposals that have costs that are concentrated on a few.

One other point should be made against Reinhardt's characterization of our troops in Iraq mentioned by one of the other commenters. If Reinhardt thinks that troops now are cannon fodder, under a draft it would be worse. When troops are easy to replace by going back to the draft board and telling them to send more, current troops are not as well treated and are more likely to be thought of expendable. In the 25 or so years since the draft was ended, I cannot think of a single "they were expendable" case, as we had with Iwo Jima or D-Day. When we rely upon paid troops and must pay "compensating differentials" to attract troops, minimizing the human risk of war suddenly becomes more important.

Morris Coats

eddie November 5, 2006 at 1:28 pm

"this can easily explain why lower income indivuduals are attracted to the military."

Then that's a wasted explanation, since lower income individuals are only attracted to the military in the minds of outraged liberals. See http://www.coyoteblog.com/coyote_blog/2006/10/are_army_recrui.html . See also http://www.heritage.org/Research/NationalSecurity/cda05-08.cfm which concludes: "Put simply, the current makeup of the all-vol­untary military looks like America. Where they are different, the data show that the average sol­dier is slightly better educated and comes from a slightly wealthier, more rural area."

xteve November 5, 2006 at 7:10 pm

The more people you have who'll pay the costs of the war, the more people you'll have who'll feel they have "invested" something in the war. "If we give up now, Johnny will have died in vain!" It's the old sunk-cost fallacy. Not to mention the immorality of impressing people into service, or the hypocracy of those who advocate drafting pro-war people, when they themselves aren't volunteering to go door-to-door to round them all up.

True_Liberal November 5, 2006 at 10:30 pm

There is one unalloyed advantage to having US military personnel rotated through overseas assignments: They get a taste of their forefathers' circumstance before they elected to emigrate to the US.

Without this exposure, too many Americans take their liberty and opportunity for granted.

josh November 6, 2006 at 9:15 am

How about a voluntarily funded millitary.

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