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Thursday, May 15, 2008


Efficiency and Defense

How can be defense be privatized? I cannot answer that more than I can answer how watches and delicious miniature pickles could be provided for privately.

Usually the question is asked by people with a modicum of economic understanding or sometimes by people with much greater insight. It's these people and not the women and effeminate males goaded into outbursts of "WELL WHAT ABOUT" with the necessary follow up of "environment, homeless, community" and any other sundry non-existent plebeian prattle who attend the same social functions as me. I descend further into a stupor of belligerency and the only substance that makes other people tolerable. As the crowd gathers, a clever and observant bystander might see me slurring my words and unleash four years of state education, blurting out "WELL WHAT ABOUT DEFENSE", which is unfortunate for us both because I suddenly break out into a fit of laughter as I imagine Daniel Day-Lewis shouting,


But going back to people that matter a little bit more, these are the people that understand defense in an efficiency framework. In other words, they would understand that defense must be provided for by an external third party because of "free riders" or external beneficiaries. Because there exists a group of people that do not pay for the service of defense yet gain from it. The optimal amount (that's where your lines cross or your equal sign is happy)is now achieved. In this case, the economist would say there is not enough defense provided. Ergo, the super humans that comprise what we call government will intervene. This is commonly called taxation. Productive people have money taken from them and that money, without a doubt, goes to pay for defensive things like spreading democracy.

Actually, that's how I imagine almost every paid economist's day occurs. They slide open their drawer and pull out their TI-89E (Economist's Edition). Their eyes glaze over as they take off the plastic casing reveling Ben Bernanke's autograph on the back panel. Then they plug in a couple numbers, make their equal signs happy with a couple assumptions or a larger margin of error and call it a day.


Now that we understand how real world economics work we can proceed.

The problem comes in the "ergo" (that's a fancy word for therefore). It is true, defense of a nation will benefit people who do not pay for it. If I live on the southern boarder and pay to defend it with a wall, then the person living directly north of me might benefit without paying for it. The problem is the common argument leaps from saying external benefit to intervention. It does this because underneath the sleek exterior of contemporary economics lies a monster of JJ Abrams' proportions; also equally as corny. It is the assumption of pareto efficiency. To put it simply, pareto efficiency is the movement of resources to make someone happier without making anyone sadder. Thats right, the nation that brought us parmigiano reggiano, prosciutto di Parma, and Monica Bellucci also spawned Mr. Pareto. Its why we in economics draw the belly button where the two lines intersect.

"Hey look Pa, my economy is pareto optimal"

So using our fancy new words let's rephrase the argument. Privately provided defense will not be pareto optimal because of externalities. Therefore, to achieve
pareto optimality, government intervention is required. The problem is that this argument assumes a framework of both parties. When discussing with economists
subjects like defense it becomes difficult when they don't have the same normative judgments. I don't want pareto optimality. I would rather be pareto un-optimal
and remain untaxed. Now the clever TI-89E wielding economist would retort, "but without defense you couldn't have your utopian free-love libertarding society." This thinking represents the most common flaw in economics, the failure to see the unseen costs.

It is likely that within a system of private defense you would not see billion dollar stealth bombers or giant bases occupied by 19-21 year olds with bad taste
in music. Is this a bad thing? The unseen cost is how much better would my life be if the money that was stolen from me to support this system was instead used
to expand my collection of pretentious German expressionist film? Although this doesn't fully answer the retort. It cannot be answered in any quantifiable sense because it requires us to know things that will never be. For example, for the last one hundred years government was the sole producer of cars, and I come before you and make the claim, "government should stop producing cars". After the gasp of horror has subsided and you ask if I am serious and I nod my head to suggest
I am actually, the retort might be something similar to the one of defense. We very well might not have the tools of what is considered modern war but that is irrelevant because it assumes that what exists now is the best possibility. Going back to the car analogy, it would be similar to expounding on the beauty and performance of a Zaporozhet because it is the only thing that can be seen, ignoring that something like a Maserati would emerge.

The fundamental problem with thinking that defense could not be privately provided is to ignore another possibility. It is failure to understand the opportunity
cost of government intervention. What would emerge if government was to stop providing defense? I cannot say for sure. What I do know is that a system would emerge and in years' past has emerged.

"It is more a subject of joy that we have so few of the desperate characters which compose modern regular armies. But it proves more forcibly the necessity of obliging every citizen to be a soldier; this was the case with the Greeks and Romans, and must be that of every free State. Where there is no oppression there can be no pauper hirelings."

- Thomas Jefferson to James Monroe, 1813.

by Alex Devore

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