Economizing Defense: Economics of the Military-Industrial Complex

Abstract

The military-industrial complex has long been an economic and political factor in the U.S. economy. The amount of resources fed into this war machine is staggering. Since World War II, the U.S. has continuously spent vast sums on the military, creating what has been termed a permanent war economy. Even in times of peace, the armed forces are kept in a state of readiness under the auspices of foreign threats or the need to protect the industrial base. This continued preparedness begs two central questions: 1) what is the proper size and scope of the military and 2) what is the institutional arrangement under which we can be assured of achieving that proper size and scope? This dissertation addresses these questions, extending the literature on defense optimality and the institutional arrangements of national defense in the U.S. The first essay considers the concept of national defense as a public good, which is the common reasoning for state provision of defense, and suggests that the optimal level of defense can be provided by the market. The second essay explores the institutional arrangement that has arisen in the United States, namely the military-industrial complex and its permanent war economy, and the costs that result from the top-down approach to defense contracting. The third essay examines the way that institutional arrangement originated from the central planning of the New Deal and World War II and argues that today's permanent war economy is a function of the vested interests that arose via state management of those crises.