Foreign Policy, Ep. 6: How The Free Market System Can End The Military Industrial Complex

Christopher Coyne,

Release Date
July 30, 2016


Gov't Debt & Spending

The Pentagon fails to keep track of its financial resources and expenditures in any meaningful way.
For military contractor’s, profit and loss are determined not by the market, but by a firm’s ability to navigate politics. This leads to wasteful spending and delayed results, such as a F-35 Jet that’s still inferior to the F-16 which was invented in 1970. Professor Chris Coyne explains more in this video.

Economizing Defense: Economics of the Military-Industrial Complex (Academic article): Peter Boettke and Peter Leeson write on the potential for a market in national defense. 
The Origins of the Permanent War Economy (Academic article): Chris Coyne and Thomas Duncan look into the origins and causes of the modern day military-industrial complex. 
Libertarian Philosophy: Does a Stronger Military Make Us Safer? (Learn Liberty video): Bryan Caplan debates Jan Ting on the threat imposed by the mere existence of an armed forces. 

>> The F-35 was supposed to be the next big thing in fighter jets. Combining advanced stealth with speed and agility for Army, Navy, and Marine Corps use. But after more than a decade of development and limited production, it still doesn’t work as intended. It regularly loses simulated dog fights with the F-16.
Which has been in service since the 1970s. And yet, despite the failures of the F-35 aircraft, billions of dollars of taxpayer money continue to be poured into its development. The extent of this waste and abuse is shocking to many. But unfortunately, this consequences are entirely predictable result of the Military-Industrial Complex, the close relationship between private firms in the defense industry and military leaders, government legislatures, and bureaucrats.
Let’s examine why? The political arrangement of the Military-Industrial Complex is very different from the way the competitive markets work. And this has important consequences. In competitive markets, profit and loss provide continual feedback as to whether companies are using their resources effectively or not. And firms face real competition.
The result is that resources tend to be used where they create the most value. But for military contractors, profit and loss are determined not by the market, but by a firm’s ability to navigate politics. Decisions about where resources will go are made by bureaucrats, not through through market competition.
What this means is that there is no way to ensure that resources used in the defense industry are being used where they are valued most highly. After all, it’s taxpayer money. So there is little accountability for wasteful spending. So what’s the solution? How can we begin to hold government accountable for wasteful projects that are leeching taxpayer money?
Some say a way to reform is to expand oversight agencies, or create more laws. Well, since 1997, the government accountability office has been legally required to audit the financial statements of federal agencies. Despite this requirement, it has been unable to audit the Department of Defense, because the DOD has been unable to provide accurate and credible financial documents.
This fundamental lack of basic accounting processes and controls, means that the Pentagon is unable to keep track of it’s financial resources and expenditures in any kind of meaningful way. But this wouldn’t change the underlying problems anyway. The sheer size and complexity of the Military Industrial Complex coupled with its subcertainty lofty farm policy goals, means thorough oversight and accountability are virtually impossible.
This explains the continued effort to develop the F-35 despite failure after failure. The only real solution would be to drastically reduce the size and scope of the military and related government agencies which remove many of the incentives for special interests to influence our foreign policy and defense spending.