Rent Seeking during Wartime: A Smithian View of Military Action

This from the Wall Street Journal:

“Lockheed Martin Corp. spent nearly twice as much on lobbying during the first quarter of 2009 as it did during the previous three months as it aggressively campaigned to save key weapons programs ahead of a budget shakeup in April.

Lockheed — the Pentagon’s biggest contractor by sales — spent $6.41 million during the first quarter, up 97% from the prior quarter’s $3.26 million, according to company filings analyzed by the non-partisan Center for Responsive Politics”

Adam Smith believed that British Imperialism was bankrupting the country. He believed that most of the time the cost of the action was much higher than the benefit for the public. This is an area of research I have done a lot in. Scholars from Hobbes, Sumner, Cobden, and Schumpeter have all concluded at one time or another the companies that benefit from war either foreign or abroad will lobby the government for the exclusive contract. This is no different than domestic lobbying from teachers unions to Department of Education. The lobbying will allow the politicians who support more war actions to stay put in place. This is likely why the Democrats have not been as strong in their actions as they have been in their rhetoric.

Lockheed Martin gains a lot of money from military action. It is in their best interest to do so. This is not to put complete blame upon the Corporations. They would not have the power to do this if their wasn’t a politicial system willing to allow this. This is why many Republicans will not talk about this. They are too afraid of abanding their business and corporate roots.

War is very costly. If the political system was not set up in a way in which allowed the benefits to be concentrated while the costs were spread out, we wouldn’t have this problem. Corporations, at stand alone, do not go to war with each other. We never see Coca-cola buying mercenaries to fight Pepsi. This is because they then have to face both the costs and the benefits. As long as their is a politicial system like this, there will be a chance of rent seeking to benefit from war.

The rest of the article is here.

~PCCapitalist

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Published in: on May 14, 2009 at 12:33 pm  Leave a Comment  
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Book Review: War, Wine, and Taxes by John V.C. Nye

In doing some of my research on imperialism, I ordered this book authored by a Mason Economist John Nye. This book is about the political economy of Anglo-French trade from 1689 to 1900. This may seem boring to you but as you can see in the title, it definitely is not. The purpose for my research in the book is how the British empire raised their revenues . As Nye shows, they partly did this through excise taxes that are also known as indirect taxes. He mainly focuses on the taxes of wine and alcohol.

I could not better sum it up than he has here at the beginning of his book:

“Why do the British drink beer and not wine? How did commercial tariff policy designed to protect domestic interests help the British state raise revenues to the point where Britain emerged as the leading European power of the eighteenth century? These two seemly unrelated issues are at the heart of one of the most important and underexplored cases in modern economic. history.”

Obviously, this is what he explores throughout his book. Nye explains that the reason why the citizens of Britain drink beer and not wine is because of tariffs on French wine. This shows the competitive nature between both Britain and France during this time. Nye also busts the myth that Britain was all about free trade at this time. They in fact had many tariffs to protect domestic industries and were plagued by rent seeking activity. This means that the parliament would create these tariffs in exchange for stuff from the domestic industries.

There really isn’t any bad stuff to say about this book.  I just wish he went into more about imperialism, but that is my research program so I am being a purely self interested.  This book is well researched and not to hard for the layman to understand. There are some graphs and at the end of his book, Nye runs his model and his regression. Anyone who loves history and economics will love this book.

Rating 9.5/10

~PCCapitalist

Published in: on April 7, 2009 at 12:42 pm  Leave a Comment  
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Where is today’s Richard Cobden?

Richard Cobden lived in Britain and was considered a leading figure against imperialism in his time. As Edward Stringham points out in a Freeman Magazine article “Commerce, Markets, and Peace: Richard Cobden’s Enduring Lessons,” we have a lot to learn from Mr. Cobden.

Cobden believed that military and markets were substitutes, as in the more military you have the less markets you have. He believed that a person who was pro-market should also be pro-peace. He saw that every dollar the government spent (more like billion or trillion today) was a dollar (billion or trillion) that is not spent in the private sector. This is a classic example of an Economic term called opportunity costs. Some would argue that its all money and it is coming out some way or other. This is where Public Choice theory comes about. There is a large difference between the government’s interest and private interests.

That is where his anti-imperialism beliefs came in. He stated that no productive citizen benefits from the British government’s activities around the world. He began to educate the business class that they were paying for all of the governments projects. This may look good for the government, but the average person receives very little benefit, if any at all. He used America as the comparison. At this time, he saw that America had a small military and little influence abroad, yet, it was booming economically.

He even took down the argument that the British needed a strong Navy in order to prevent those from stealing from trade. The world is too big to police and the ones that they left to guard their ports were the worst of the worst. When you did the cost-benefit analysis, you would find that most of the money was not being spent on guarding the trade routes. Cobden believed free trade would benefit commerce a lot more than military supremacy. He believed that these battles for land ended up increasing the chance of being attacked in the future thus raising every British citizens cost. Military action cannot spread liberty, it is using coersion to free people from coersion. Liberty requires enlightenment, which can come about only by means of education and persuasion, not military force.

So my question is, where is our Richard Cobden? We have a party of anti-markets and anti-war. We have a second party of supposed pro-markets and pro-war. This is where the massive spending has been derived. It has not been a debate of more spending versus less spending. It has been a battle between military spending versus welfare spending. As long as political parties stay where they are on these issues, will we ever get spending cuts?

~PCCapitalist

Published in: on February 18, 2009 at 2:48 pm  Leave a Comment  
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