Wall Street v. the Pentagon

The focus of the original 99 Percenters in the US who came together in response to a call to occupy Wall Street on September 17, 2011 was the metaphorical Wall Street – the big commercial and investment banks that pumped up the housing bubble to spawn risky home mortgages until the bubble burst and brought on the Great Recession with its enduring legacy of 9+ percent unemployment.

The government rescued Wall Street but not its victims, homeowners who over-borrowed from the value of their new or existing homes after being assured by their bank-financed lenders that housing prices always went up.  Borrower beware was the lesson they learned the hard way when housing prices plummeted.

Beware Wall Street Unregulated was the lesson that we as a country relearned one more time.

But we have more special interest groups than Wall Street to be wary of.  Wall Street is prominent because of the havoc that it caused and because of its outsized political contributions to forestall regulation.  At heart, what bankers want is the freedom to exploit other bubbles and other marks without government interference.  They don’t need a government commitment to bail them out because they expect to enrich themselves and their banks, not fail, or at least enrich themselves before their banks fail.

By contrast, another special interest group, centered metaphorically in the Pentagon, could not thrive without a government commitment, in this case a commitment to perpetual war budgets.  War budgets tend to get cut when we have no wars to fight, but since 9/11 we’ve been engaged in a perpetual war against terrorists that is the longest war in our history and second only to World War II in cost.

In his farewell address, President Eisenhower named this special interest group the military-industrial-congressional complex (MICC), although he judiciously deleted the “congressional” portion in the public version of the speech.  MICC consists of a large standing military represented by the top generals and admirals in the Pentagon, a huge defense industry built to support the Cold War and a widespread bipartisan congressional patronage network.

After the Soviet Union stood down the Cold War at the end of 1988 and then liquidated itself at the end of 1991, leaving the US as the world’s lone superpower, we might have expected a significant reduction in the defense budget as a peace dividend.  The defense industry, however, had other plans, and competing in the market for non-defense businesses in the free market wasn’t one of them.  As one CEO conceded, “sword makers don’t make good and affordable plowshares.”  Ford switched from Ford cars to producing Jeeps and one B-24 Liberator every hour during World War II – and then back to cars after the war – but that was then and this is now.

What the sword makers proved particularly adept at are what a seminal 1990 paper by veteran Pentagon analyst Franklin “Chuck” Spinney called defense power games.  These games, which are “played” with the other MICC members (the Pentagon and Congress) much as adults play games with their young children, involve two moves by the sword maker, front loading and political engineering.  Spinney explains:

Front loading is the practice of planting [i.e., inducing the Pentagon or Congress to allocate] seed money for new programs while downplaying their future obligations.  This game, which is a clever form of the old-fashioned "bait-and-switch," makes it easier to sell high-cost programs to skeptics in the Pentagon and Congress.  Political engineering is the strategy of spreading dollars, jobs, and profits to as many important congressional districts as possible.  By making voters dependent on government money flows, the political engineers put the squeeze on Congress to support the front-loaded program once its true costs become apparent.

The games create a bias for complexity, since the ultimate costs of complex systems are harder to forecast (making front loading easier to get away with) and involve more subcontracting to spread around the country.  But complex systems are also more expensive to build and to maintain, meaning that costs grow faster than budgets.  Who within the MICC takes the hit?

“The defense power games,” Spinney tells us, “are stratagems for … transferring money from the taxpayer to a central bureaucracy that subsequently disburses the money to a socialistic industry, even if the transfer sacrifices the capabilities of our military forces [emphasis mine].  That is what slashing the operations budget [which supports the military] to save the investment budget [which supports the defense industry] is all about.”

In the Pentagon, defense power games have never been called off.  As a consequence, we have the highest military budgets since World War II but our all-volunteer forces are stretched to fight the fights that the President says are necessary.  Something is wrong here, and I’m not talking about the budget deficit.

Until that wrong is righted, let’s make sure that the Pentagon ranks high among the objects of our occupation.