Here’s my question to Arnold Kling:
I was wondering if you could comment on the fact that you’ll never see papers or courses in defense economics, but there’s no lack of academic interest in other areas of gov’t involvement such as healthcare, education, agriculture, finance, etc.?
He very kindly responded:
1. It is possible that fifty years ago you would have not made this observation. RAND was a defense contractor, and I believe so were some lesser-known economics outfits. Dorfman, Samuelson and Solow, which was still a major textbook when I was in graduate school, is arguably motivated by military resource allocation problems. And of course Schelling’s Nobel relates to the defense problem posed by nuclear weapons.
2. Then you have the Vietnam War, and from then on anything defense-related has a negative stigma. Still, arguably a lot of work on principal-agent problems in contracting has applications for procurement…
5. It may be more difficult to have credibility without domain experience. The fact that Jonathan Gruber and David Cutler are not health insurance executives or doctors did not keep Congress from turning Gruber loose to redesign health insurance or trying to implement Cutler’s ideas for telling doctors how to practice medicine. But on defense, Congress probably would rather defer to a general or an admiral than to an economist.
I’m glad he picked up on the fact that there used to be a fair amount of defense economics published in top tier journals back in the 1950s and 60s. [How would I go about quantifying that other than manually?] Another person told me that the Vietnam War really led to an exodus of academic interest in these problems.
And here is more from the comments. First, Ricardo:
I remember reading one of Hirshleifer’s conflict papers as a grad student (not sure why, certainly wasn’t for a class) and wondering why it wasn’t more famous. Seemed foundational stuff to me.
Yes, Jack Hirshleifer, Armen Alchian, and others did really foundational work here in decision making under uncertainty that challenged all the linear modelling that made it into the journals. As I wrote:
One of the primary advocates for systems analysis within RAND, engineer E. S. Quade, later recalled “It wasn’t until Armen Alchian, Jack Hirshleifer, and other economists tore my first system study apart that I became aware that economic theory had anything much to contribute to weapon choice.”
But their point was that under uncertainty, you cannot do the types of optimization techniques that engineers and economists alike were fond of. David Hounshell wrote an excellent chapter in Systems, Experts, and Computers that showed RAND had all sorts of papers from these guys that are not available online. (And yes, Hounshell’s chapter is worth the book purchase alone).
Here is Handle on some other reasons:
1. Field Exhaustion: there just isn’t that much more to say about modern military-related issues the depths of which haven’t already been plumbed to the very bottom…
2. No private players / markets. In healthcare and education, there are at least some private-ish markets with some semblance of ordinary supply, demand, and price mechanism, and thus there is some data out there regarding elasticities and response functions and so on, that makes policy analysis tractable enough to be presented in a sufficiently respectable and impressive fashion…
3. Military economic problems are often, at root, entrenched political problems without good answers in anything resembling our system of governance.
Michael Gelfand correctly pointed out that there are a lot of unresolved problems in defense. And Handle commenting on me and Emergent Ventures:
“How the government spends its money” may be the best “intellectual leverage multiplier opportunity” out there in terms of potential improvements to welfare. Especially if there is some possible new avenue of approach to matters that have gotten stuck circling in an intellectual cul-de-sac for a while. That’s because the government spends so much money and so poorly, that even marginal improvements may have giant benefits in the aggregate and over the long term. A “marginal revolution”, you might say.
So, for example, Eric Lofgren – who I like a lot – is supposed to be the Scott Sumner of DoD acquisition. Most people would yawn or shrug their shoulders at that topic, but of course it’s not just hundreds of billions of year affecting all those companies and workers, but touches on big fundamental problems with American Cost Disease and bureaucracy, not to mention that future national security depends on doing it right.
The economics of defense acquisition isn’t about what particular weapon systems or doctrines should be pursued, but the culture and institutions encompassing decision-making under uncertainty. Defense just happens to have a slightly different environment than healthcare, finance, and education, but all relate to production/innovation more generally.
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