The New Drone Order, Part IV- Reapernomics: An Economic Way of Thinking About Drones

To get some pointers about how the defense industry is intimately involved with governmental policy affairs, we’ll speak with an economist who has written numerous scholarly papers on the subject. In Part 4 of the New Drone Order series, Reapernomics: An Economic Way of Thinking About Drones, we’ll unpack pertinent information surrounding the increased use of drones and UAV technology, asking if it actually serves the public’s best interest. Need funds for your project, with the Dept. of Defense as a creditor? Don’t say ‘put your money where your mouth is’ because we’re already eating through Predators...

The loss which is probably the most evident, on account of the enormous proportions which it assumes, is the direct expenditure for war appliances. Especially is this true in these days of inventive science, when new firearms, new projectiles, new methods of naval construction and engineering apparatus are daily displacing the old. No nation is willing to be outdone by any other in the perfection of the material which it employs, and hence a governmental activity in this department is incessantly going on, the result of which is a factitious demand for a certain kind of manufacturing skill which the best scientific energy of the day finds it well worthwhile to satisfy, even at the expense of withdrawing itself from the remunerative fields of ordinary industrial activity.

Thus the latest scientific results, the finest artistic contrivances, and the most exact mechanical appliances are, at the first moment of their discovery, impressed into the service of war, and render those previously in use incapable of fulfilling the newly created ends. It need not be pointed out how great a consumption of precious material and diversion of ingenuity all this involves, when it is multiplied over so many centuries and repeated in such interminable succession. The support of armies in peace as well as in war constitutes another channel into which flows the wealth of nations. Of all the political and economic forces that now operate in modern Europe, these armies are considered the most absolutely indispensable to the stability of the government. Let us consider their cost. It has been estimated that the average sum expended for the training of a soldier is $500, while to support him annually costs $150. In Europe alone, the force of the standing armies in time of peace is approximately 4,000,000 men to which 500,000 recruits are added each year, thus making a total annual expenditure of $850,000,000.

“From this array of figures, the mind instinctively retreats, and yet the undoubted tendency in Europe at the present time is toward an enlargement rather than contraction of the system. The conflict between these so called military exigencies and a better economic condition is every day becoming more momentous, and if continued, must at some time assume so monstrous a form as either to be no longer tolerated or to be tolerated only by the destruction of what are now the most powerful states.”

--Arthur K. Kuhn, The Economic Waste of War, March 1, 1895

Economics & War are Inseparable

As a non-economist who is slowly learning the ropes (and dealing with rope burn), it is interesting to turn another knob of understanding, to build on the phrase ‘the numbers don’t lie’ by hearing insight about decisionmaking and the human mind. In order to grasp how the world functions politically, psychologically, and socially, understanding economics and having a basic understanding of the financial markets of defense procurement is usually a good place to start.

Economics is defined as the science that deals with the production, distribution, and consumption of goods and services, or the material welfare of humankind. When making a decision, it’s considered wise to consider the implications of what you are doing, and also to consider the immediate, short-term, or long-term effects your decision will have. It’s also a question of motives, wants, and needs. Supply and demand. The same rules of economical thinking apply when thinking about how the U.S.’s drone policy is either helping or hurting the economy. The monthly Department of Defense expenditure/distillation reports provided by BFP’s Christian Sorensen serve as a constant reminder that the U.S. government’s defense spending is ‘leading the world market’ so to speak.

“It is assumed that those who design and implement drone policy set aside private incentives and construct policies to maximize the production of national defense and security,” says Abigail R. Hall, an Assistant Professor of Economics at the University of Tampa. Her academic paper: Drones: Public Interest, Public Choice, and the Expansion of Unmanned Aerial Vehicles, is the first of its kind to offer an examination of “the robustness of the assumption of publically interested drone policy [by analyzing] UAVs in the Global War on Terror with a particular focus on the broader institutional structure under which drone policy is formed, and offers insight into the interplay between the relevant actors in government and in private industry and how their interaction generates outcomes that are often at odds with what the public interest would predict.

“Academic scholars and policymakers have assumed, often implicitly, that the increased use of UAV technology and decisions regarding drones have been, and will be, made in the ‘public interest.’ That is, it is assumed that those who design and implement drone policy set aside private incentives and construct policies to maximize the production of national defense and security. The purpose of this paper is to explore a number of conjectures that follow from this assumed public interest and to examine the robustness of these predictions. To the extent these claims are not supported empirically, this work seeks to offer an alternative explanation to reconcile observed policy outcomes and the public interest ideal.

“If drone policy is constructed solely to serve the public interest, we should expect to see strong evidence supporting each of the above conjectures, as well as general agreement among experts on their implications. Evidence contrary to these conjectures, or substantial disagreement regarding these claims would indicate that motivations outside the public interest are impacting the creation, implementation, and ultimate use of drones.”

Listed below are the “public interest conjectures”, followed by Hall’s analysis and assessment of each:

Conjecture 1: Defense expenditures on the production of UAV technology are allocated to maximize defense and security for U.S. citizens  

Conjecture 1.1: Producing drones is the most cost effective means, relative to known alternatives, of achieving U.S. security objectives.

The available evidence casts doubt on the suggested cost efficacy of drones. At best, drones appear to provide a minimal cost advantage to comparable manned aircraft. At worst, UAVs provide no more security than manned aircraft and are significantly more expensive. Taken together, this suggests the public interest framework may be insufficient in explaining the current utilization of drones by the U.S. government.

Conjecture 1.2 Drones provide a technically and operationally superior means of defense relative to alternative technologies.

A variety of reports, including those by top military officials, indicate drones are operationally suspect. Gen. Mike Hostage, chief of the air service’s Air Combat Command, for example, described the drones most frequently used in Iraq and Afghanistan, “useless in [many] environment[s]….[Drones are] not the force structure the nation needs or can afford.” Dyke Weatherington, head of the DOD’s UAS planning taskforce stated that issues with drones had complicated missions to the point that the technical effectiveness of UAVs had been greatly reduced.

Conjecture 2: Ineffective or counterproductive drone policies would be eliminated or modified

Conjecture 2.1 Drones are superior at detecting, targeting, and dismantling terrorists and other enemies better than manned aircraft or other means. 

Evidence suggests that, at a minimum, drone strikes are not intrinsically better than other means at targeting and eliminating terror threats. In the worst case, current UAV policy has led to an increase in terrorist group membership and an expansion of terror activity. One study of over 250 terrorist groups found that most terrorist groups cease operations when group members decide to join in the political process (43 percent) or local law enforcement dismantle key members of the group (40 percent). Only seven percent of terrorist groups ended through military force, suggesting that drones, and military strikes in general, are not the best method for eliminating terrorists.

Conjecture 2.2 Drones are more effective at reducing collateral damage, minimizing civilian casualties, and at reducing potential harms to troops relative to alternative technologies. 

Analysis indicates the narrative regarding casualty reduction is at best unclear and raises doubts regarding the proposal that drones protect civilians or soldiers. At worst, drones not only increase the number of civilian casualties, but also increase the number of U.S. personnel in the field. In this case, current policy would be in direct conflict with the assumption of publically interested policy.

Conjecture 2.3 Government officials responsible for constructing UAV policy will utilize the best information available to create, evaluate, and alter drone policies to maximize social welfare.

In the case of drones and defense policies, we should expect policymakers seek out those with a comparative advantage in military and counterterrorism experience and to incorporate this feedback into their decision making. While it is impossible to know of all the correspondence between the military and policymakers, there is evidence to suggest that the advice of experts with regard to drones is being ignored. A variety of former military and counterterrorism experts have pointed out a number of issues regarding technical and allocative issues, and called for radical policy changes.

Prof. Hall then asks: “How may one explain the continued expansion of UAVs despite evidence their use may not align with, or even contradict, the public interest?”

To answer this, she “examines two core groups from the public choice model—special interest groups (namely, defense contractors) and politicians (Congress and other elected officials).”

See her paper for full details on this.

The conclusion of the paper presents four main implications:

  • We cannot be confident that drone technology is being developed and utilized in a way which fully fulfills the public interest.
  • Despite the fact drones may not be the best means to serve the public interest in these and other cases, the internal and external pressures faced by policymakers indicate further development and manufacture of UAVs.
  • Given that the rules that govern drone policy are very similar to the rules which govern other defense acquisitions, this indicates that the misalignment of defense policy with the public interest may be substantial.
  • The standard narrative of benevolent public actors looking to maximize a larger social welfare function may not be the appropriate lens for analyzing defense issues. Instead, it is necessary to understand the individual incentives facing both private and public actors.

Prof. Hall has also co-authored a highly informative paper with her colleague, Christopher Coyne, an economics professor at George Mason University, entitled “The Political Economy of Drones”, in which they conclude:

The Big Players in the market and the polity (i.e. the military, elected officials, and drone manufacturers) utilize a variety of means, including lobbying, campaign finance, political clout, and other pressures to influence the other groups and reap various benefits for their members. The central issue is whether these narrow interests align with broader notions of the public interest as it relates to defense. Our central purpose has been to document this history. In itself, this has value purely as an exercise in U.S. military history and political economy. But beyond this, the political economy of drones has important implications for current policy debates. Lastly, our work sets forth a significant challenge to those undertaking the construction of drone policy. How does one design policies which constrain the narrow interests of those involved in the drone industry while maintaining the potential benefits offered by UAV technologies. Given the entrenched entanglements discussed throughout this paper, this is no easy task. Such issues, however, must occupy the foreground of any policy discussion if we are to avoid perverse outcomes and obtain the best possible policies.

Interview with Abigail Hall

BFP: Thanks for taking the time to speak with us today. What is the role of an economist in a permanent war economy? (As in, do economists have a more fundamental understanding of how the numbers work, and how we as societies are affected by it, than others?)

Abigail: As economists, our job is to understand how individuals make decisions in the real world. With regard to the permanent war economy, the job of the economist is to understand how the structure of the military, our political system, and private industries influence the decisions of policymakers. I don’t know that economists necessarily have a better understanding of how the numbers work. Indeed, there are others who are more familiar with the particulars of weapons development and production than your average economist. What an economist has that others don’t, however, is a powerful framework for understanding and analyzing the world. As economists, we can understand decisions on multiple levels. By looking at how individuals act and respond to incentives, we can bring valuable insight into discussions of military spending and foreign policy more generally.

BFP: What is the path that led you to thinking critically about subjects like the military-industrial complex, the U.S. arms industry, and foreign intervention?

Abigail: I’ve always been interested in military issues. My grandfather was a WWII veteran and I always asked him about it. When I was six, I brought home a library book about the atomic bomb drop in Hiroshima. I remember being both intrigued and terrified that such things existed…and was subsequently banned from getting any more such books by my parents who were really unhappy they had to explain nuclear warfare to their first grader! As a college undergraduate, I became interested in economic development. As I started my graduate study of economics, I came to the important realization that foreign intervention, whether we’re discussing humanitarian aid, war, or anything in between, is vital for understanding human progress. Programs we don’t think about as having development implications, like weapons as foreign aid, for instance, have very real consequences for people who are often the least able to defend themselves or seek change.

BFP: Can you share some economic theories that you have applied to the processes of the defense industry?

Abigail: The theories I apply to the economics of defense really all come back to those things we teach our students in econ 101. I look at things like institutions, rational self-interest and decision making, and scarcity. What people seem to find the most interesting is what’s called “public choice” economics. This is essentially taking economic frameworks and applying them to the political arena to understand the decisions of policymakers. I’ve looked intensely at how the economic incentives facing Congress, the military, and private industry, for example, have led to the rapid expansion of the use of drones in the post 9/11 period.

BFP: As a scholar, professor, and a member of an organization like the Independent Institute, that focuses on social and economic issues in the U.S., have the tides changed at all? For instance, do you see more awareness in the populace about the negative effects of perpetual war?

Abigail: I really think it depends on who you ask. My frequent co-author and I are presently working on a book that explores how foreign intervention has domestic repercussions. We look at how things like torture, surveillance, police militarization, and drones, which were once exclusively tools of foreign intervention, have wound up coming home to the United States. We then analyze how these changes have and continue to impact civil liberties. It’s interesting what happens to peoples’ views of foreign policy once you get them to lose the false dichotomy of “foreign policy vs. domestic policy.” Too often, people see these two areas as completely distinct. Foreign intervention happens “over there” and that’s the end of the story—but that’s not at all the case. Take drones, for example, the American public greatly favors the use of drones in the Global War on Terror, but are highly opposed to the use of drones by domestic law enforcement for many activities. When people start to see these tools of war used at home, they get understandably nervous. That said, I’m not sure that many people readily understand the connection. We’re hoping our work may help more individuals understand these connections.

It’s also very hard to present a complete accounting of the true cost of war. One theme of my work is that the costs of foreign intervention are grossly understated. There are things that happen no one can predict—casualties, geopolitical changes, and other things. Sometimes, these costs don’t appear until ten, twenty, or more years down the road. When you’re looking at a supposed immediate threat, bringing up the issue of unseen costs is often unsatisfying when the natural response of many in the face of crisis is to cry out from someone to “do something."

BFP: How do you keep up with the news about these issues, especially from an economic perspective?

Abigail: I keep up in a few ways. I read a variety of defense blogs, for example. Every morning I read the news. I have alerts set up for particular topics I’m researching. Google News has a great feature where you can sort what kind of news you’re interested and what sources you’d like. This lets me get a lot of information from multiple sources. Also, never underestimate the power of social media. I cannot tell you how many times someone has pointed me to a great article or piece of information on Twitter!

BFP: What are some tips, tools, or general guiding principles that someone who isn't seasoned in an economic way of thinking can use?

Abigail: The basic principles of economics teach us that individuals make decisions. Moreover, people make choices based off the perceived costs and benefits of an activity. If the expected benefit is greater than the cost, we’d expect people to do whatever they’re thinking about. Conversely, if the expected cost is greater, we’d expect them to refrain. Even people who have never taken an economics class can use these basic economic tenets when thinking about foreign policy, or any policy for that matter. Ask yourself, who is involved in this transaction? What incentives do they face in making a particular choice. It’s amazing how this way of thinking can shed so much light on remarkably complex scenarios.

BFP: What is your advice for people who are just dipping their toes into this subject, and may be overwhelmed by by all of the facts, figures, numbers, and balance sheets?

Abigail: For people who are looking for a primer into economics, I’d highly recommend the book Economics in One Lesson by Henry Hazlitt. It’s a wonderful book that’s easily accessible and jam packed with economic insight. For those who are particularly interested in issues surrounding foreign policy, I’d actually encourage them to stay far away from datasets and databases. One thing I have learned from researching this topic so intensely is that the data is often scattered, overwhelming, or the statistical method used to gather or interpret the data can skew what is being presented to the reader. It’s just not a profitable exercise in many instances, especially if your goal is to gain an understanding of a broader topic of issue. If you are keenly interested in foreign intervention and want to have an economist’s perspective on the issue, there are two books I’d suggest by economist Christopher Coyne. The first is titled After War, the second is Doing Bad by Doing Good. They are excellent pieces of work that do a wonderful job of bringing the economic way of thinking to foreign intervention, specifically exporting democracy and humanitarian aid. Coyne and I have also written several papers together on topics ranging from weapons as foreign aid, to imperialism, to drones, to police militarization. A Google Scholar search of our names and one of those terms should pull the papers up. Most of our papers are absolutely accessible to those with limited economics training. I’d also recommend the work of economist Robert Higgs. Higgs also blogs a great deal with the Independent Institute and has many posts on foreign policy. He’s also written a variety of books on the topic which I reference frequently.

BFP: If you and a colleague of your choice could have a sit-down with the CEO's of the top 10 most profitable defense contractors, the secretary of defense, the Federal Reserve chairman, and the president, what would you say to them?

Abigail: I’m trying to envision a scenario in which this would happen! I’ve actually thought about this before, as when I lived in northern Virginia during graduate school, I lived a stone’s throw away from one of the largest defense contractors and would actually run past it while I exercised. I don’t know what I would say, to be perfectly honest. One thing that I’m frequently asked is why there are so many “bad people” in foreign policy. But that’s not accurate. The people working in these institutions aren’t naturally nefarious, looking to harm other people or the American public, they are just like any other economic actor. They respond to the incentives they face and make their choices. Where we would likely differ is in our outlook on whether or not U.S. foreign policy can actually achieve its stated goals. One recurring theme in my work, the work of my coauthors, and others, is that the stated goals of foreign policy may be extremely difficult, if not impossible to achieve. It all comes down to basic economic ideas of knowledge and incentives. Put simply, we argue that there is no way any one person, or group of supposed experts could have the knowledge necessary to successfully plan many interventions. Moreover, we’d argue that the current incentives facing those in the foreign policy arena are misaligned. Put these two together and you’re bound to get less than ideal outcomes. This is a conversation and an argument we make frequently to those with whom we disagree. So if I had to guess, I think we’d probably start there.

# # # #

Erik Moshe, Newsbud Analyst, is an independent writer who resides in Northern Virginia. He served in the U.S. Air Force from 2009-2013. His writings focus on technology, weapons of war, and futurism. He's currently studying Rhetoric at George Mason University.

Sources

The full list of Abigail’s academic papers & Her personal website.

Wall Street Keeps Wary Eye on Defense Biz

The Political Economy of US Military Spending

Blowing the Roof off the Twenty-First Century: Media, Politics, and the Struggle for Post-Capitalist Democracy

Do we underestimate the economic commitments involved in lengthy wars overseas?

The Economics of War

The Origins of the Permanent War Economy

http://www.morssglobalfinance.com/vice-investments-when-and-how/

http://www.morssglobalfinance.com/the-economics-of-military-interventions-part-1-the-numbers/

http://www.morssglobalfinance.com/the-economics-of-us-military-interventions-part-two-%e2%80%93-effectiveness/

Part 1: The New Drone Order is Only Beginning: All is Buzzing on the Geopolitical Front

Part 2: Dronetopia: Lessons and Parallels from the Insect World

Part 3: At the Advent of Winged Drones, Research Progresses Forward

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Comments

  1. Thank you for posting this, I look forward to reading Prof. Hall’s work.
    “One theme of my work is that the costs of foreign intervention are grossly understated.”
    I couldn’t agree more.

    • Thanks Katie, the economical side of defense spending is so important, especially when considering the broader ideologies driving forward current and future policies. Prof. Hall is a breath of fresh air in this respect, and she is just getting started, which is also encouraging.

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