MARCH 5, 2013 12:06PM

Modern Economics & Managing the Defense Sequester

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For MEB, forever.

"Money are the sinews of war." Roman adage.

"War is merely the continuation of policy by other means, i.e. violent means." Clausewitz

There will be many tools of modern economics applied to this question of the Pentagon and the Sequester, systematically, macro and micro, if not only such tools, as this is not a "hegemony" of economics piece, if it is about American hegemony, and preserving that part of which is good.

The first part will actually mainly be about politics, and things to consider as to the "utility" provided by defense "output."

If you don't like American power, you would like to do other things, ceteris paribus, if that is a different question than how cooperative and rivalrous relations can be in international relations, especially among the Great Powers.

That is actually the most important question, your "model" of international relations, in what is assumed here is that Great Power cooperation exists, per the "Folk Theorem" of Game Theory, but it remains driven in no small measure by the zero sum character of the security dilemma underlying the Prisoner's Dilemma as the single play game underlying the cooperative solution of the repeated game of the Folk Theorem.

That means that the Powers cooperate, but that it has its limits too, not pure zero sum, but not optimal either. Note, that means that diplomacy has a large utility.

As a premise then, as to the nautre of the "utility" provided by defense "output," although the United States first prefers to settle disputes with State and non-State actors lawfully, it will not always find that either in its interest, or possible.

Diplomacy again provides a lot of potential utility, if some problems do not have likely solutions, alas. That doesn't make trying to seek out such solutions a bad idea on its face, as if one did not do that first, you might experience pain by self-fullfilling prophecy.

As to limits of diplomacy, some States in fact would destroy or more likely seek to dismantle the United States if they could in terms of not facing nuclear retaliation, although to what level we could lower nuclear weapons and retain deterrence isn't clear.

Some in the Air Force think around 300 weapons is enough, no matter what the Russians did, which could be true, but only so long as very, very secure Command and Control remained the case, and that basing modes remained very, very secure as well.

More on that later, but just remember that a Minuteman III field went down in 2009, maybe an anamoly, or maybe a trial run/test, to induce a current overload, that if one had reverse engineered the system, one would know the default mode could be offline, which if one then in wartime had taken out the TACAMO systems and other C4RSI systems, and had used tactial nuclear weapons on subs etc.. would mean the other team had just won, as to theories of victory to guard against.

Who knows too, if something to consider at least as to unilateral versus negotiated nuclear weapons processes with Russia and probably China as well, as the latter's lack of transparency in such matters might not be tenable at lower levels of nuclear weapons, lower levels of nuclear weapons of course saving money for other things, private consumption or private investment, debt repurchases net, or more government activities of other character.

That of course points to the nature of economics in all this Sequester talk, namely that resources in some sense are scarce, including the limited ability of States to borrow money and maintain a vibrant economy, the argument from financial markets in the debt downgrade debate that led to the Sequester in the first place, something many seem to have forgotten.

That is the case even as one could argue that a balance of Keynesian and Classical considerations would lead one to drop the amount of the Sequester by some amount, even by half, as was done on the tax side, a Bunny Slope instead of Fiscal Cliff, if a lower level of government activities relative to recent trend is almost a certainty, absent a total disaster.

As to the macroeconomics, the current fiscal path of the United States is not tenable with price stability over a 20 year time horizon, and things are going to give at some point, although if one initiates changes now, gradually, that would seem to be the proper balance between Keynesian short-run concerns about immediate fiscal impulse and valid Classical concerns about unbounded growth in government debt.

As to a much more narrow application of economics, as to the ongoing utility of the ability of the United States to continue its pursuit of policy by the use of other, i.e. violent means, deterrence nuclear and conventional being one aspect of that, that is because as to premise of defense output and its utility, to settle disputes lawfully requires at least the acquiesence of the Great Powers on, and off, the Security Council, often their concurrence, and this will not always be the case, and yet the interest in question can be perceived as important enough to warrant considering the use of force.

That ability to use force in the pursuit of policy of dispute resolution by violent means is the utility provided by defense output.

As to lawful, that is because under the UN Charter, which is the main basis of contemporary international law, although Article 51 can be stretched rather far as to notions of self-defense, fundamentally, the abstinence of Great Power opposition to the use of force remains the key variable as to whether the use of force is considered lawful, and even then, we have found it in our interest a few times to use force in the face of Security Council veto, and then run the risk of a Great Power War in order to pursue policy.

Only a Great Power can challenge that American ability, which if you examine especially Russian doctrine,, if also that of China, is what hegemony has really meant as to empirical consequence.

To date, none have directly done so since 1989, although Russia clearly contemplated that in Kosovo by trying to move paratroopers, treated as a joke, but which most definitely would not have been had they continued to escalate, say by announcing the paratroopers had tactical nuclear weapons, which is Russian doctrine.

Moreover, Russia can now be regarded as an overtly force-using State since the Georgian War in 2008, if the vast majority of Russian efforts remain of the proxy variety as to sources of their system power, although Russian nuclear weapons do that too, as does their still reasonably capable conventional capability, if it remains limited in its ability to project force outside the CIS.

China of course has large cyber capabilities that are in addition to its small nuclear arsennal a version of Assured Destruction, as to strategic priorities, in which we can see that the utility provided by diplomacy and strategic thought is to avoid problems, or manage them at lower cost.

In that Kosovo case, as in Iraq, Russia made the calculation that it wasn't in its self-interest to continue escalating with the United States, as did China, the two States that in alliance could most readily challenge American system dominance existing since 1989.

Note, our failure to escalate in Georgia, if understandable, was an important event in the evolution of power.

In any event, as to the utility provided by defense output, the United States often has a choice, to bargain with Powers, but not be able to reach a mutually agreeable solutions on the Security Council, plus the de facto Great Powers of Japan and Germany, plus whoever is the relavant regional actor, in which Brazil, India, Israel, Saudi Arabia, Iran and Turkey can be considered near Great Powers and/or near Regional hegemons.

Of course, some people want American power to decline, which is a theory to consider, as the United States was unlikely to maintain the level of dominance acquired during Russia's latest Time of Troubles forever, especially given the diffusion of economic power intrinsic to globalization.

That is one of the tradeoffs implicit in the Sequester of the Pentagon, especially the Navy.

On the other hand, hegemonic stability theory, and experience with Great Power bargaining, suggests everyone might be less safe if American power were to radically decline too, as then Great Powers would have to settle their disputes, not all of which would go well.

That then is the argument for lowering the total amount of the Sequester and spreading its impact out in terms of modern economics applied in a political context, say by half, and including means tested portions of entitlements, which would also have the effect of lowering the impact of the Sequester in general on those least able to afford it, while still maintaining credibility with financial markets that the United States is still a credit worthy nation, vital in maintaining the first function of government, National Defense.


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Parmesan Cheez GR-r-rated!...for mentioning the Romans in the first few lines. You gotta read my take on the sequester Herr DonStrangeLove , eyes only for you, and Burn After Reading (on toilet seat)...wink
Ja chitaeu tibya starke.