Crisis and Liberty: Lecture 8

0:00Good afternoon ladies and gentlemen. Welcome to session number eight. This session I'm going to be discussing the post-World War II operation of the national security state. This has been a major avenue for the growth of government in American history, sometimes faster, sometimes slower. Right now, here in 2003, we've entered into one of the spurts and it looks as if it's going to continue at least for another year or two, perhaps more, we shall see.

0:47During World War II, the United States built up a tremendous military industrial complex. It wasn't known as that at the time, but after that turn of phrase came into general use in 1961 when President Eisenhower used it in his final speech, Many people were able to look back and see that that's exactly what it was and indeed it was by many measures the biggest military industrial complex that ever existed in American history. We saw earlier today that some 40% of measured gross domestic product was being devoted to military purposes for some three years running during World War II.

1:47And the post-war military economy never consumed that many resources, World War II was such a big deal that, even in retrospect, it's still bigger than anything since then, without even comparing it to the economy or anything else. It was just a gigantic undertaking involving, I don't know, I don't know how to put it, without even comparing it to the economy or anything else. It was just a gigantic undertaking involving scores of millions of people in one capacity or another. Now when the war ended, the United States found itself in a position it had never before occupied in the world.

2:39The U.S. economy had been the biggest in the world for a long time. It became the biggest in the 19th century in terms of the value of its output, but even though the United States was a great industrial power, if you want to call it that, The United States did not channel that economic potential into military purposes except during World War I and then only very briefly. After World War I, the military forces that had been built up for the war were largely dismantled.

3:27The Army, which had four million people in 1918, was reduced back to a couple hundred thousand. And during the interwar period, the military typically received less than one percent of gross domestic product for its support. So it was not non-existent, but it was a very trifling military organization, even in absolute terms and certainly compared to the military forces of the major European countries or Japan. So, during World War II, when the United States became such a gigantic military power in every way, our Navy was built up enormously, it roamed the Earth's oceans, it had outpaced the British Navy by far during that time.

4:33The United States Air Force had been developed with the long-range bombing capacities and bases scattered around the world. The technology had been developed up to and including atom bombs, which only the United States possessed at that time. So in 1945, the United States was, in many respects, the world's military superpower. And that was a completely new situation for this country. And not one that everybody welcomed, but in a sense one that many people viewed as a kind of fate or destiny The United States should not simply dismantle its armed forces as it always had in the past after engagement in major war was because of the situation in Europe and Asia.

5:44As I said earlier, in many respects the Soviet Union was the true victor of World War II and at the end of the war it found itself in the possession of a big part of Europe stretching way out into what was then Czechoslovakia and penetrating deeply into Western Europe. in occupying part of Germany and Poland and all of those Eastern European countries that became its satellites and even though the United States and the Soviet Union had been allied in fighting Germany, I think it would be wrong to say that Americans in general The Russians never fully embraced the Russians in the same way that they embraced, say, the British allies.

6:47There was always lingering distrust. Many people were afraid of communism. And no matter how smiley a face the State Department and the President might paint on Stalin, It just didn't work for a lot of people, and they continued to view him as the worst kind of dictator, even though many of them still at that time did not understand what a horrible monster he was. But soon after World War II, many more people became aware of that, and that only heightened the tension between America and the Soviet Union. So the end of World War II merged almost seamlessly into this conflict with the Soviets.

7:46And within a few years, State Department officials such as George Kennan were propounding the Doctrine of Containment As a way of dealing with the Russians and what was taken to be their aggressiveness in the world, people feared that they had such a powerful military apparatus that they might simply overrun other parts of the world as they had overrun central and eastern Europe. And there was no doubt that they did have an enormously powerful military machine in 1945. We can say everything we want about the bungling Russians, but the truth is, although they got some aid from the United States in lend-lease assistance, for the most part, it was their own resources and ingenuity and blood that went into defeating the Wehrmacht.

8:46World War II, although most Americans don't appreciate it, was fought almost entirely on the Russian front, not on the Western front. I mean, there was hardly any fighting there at all until the last year of the war. and the fighting in the Mediterranean was a trifling affair by comparison with what was going on in Russia. So the Russians paid the price and they ultimately triumphed. They defeated the Germans. So I am not one of those who's inclined to just dismiss them and say it was a bogeyman. The idea that the world The idea that the world had anything to fear from the Soviets was just a creation of people who, for their own purposes, sought to have a Cold War.

9:36Now, of course, the fact that the Russians had a powerful military machine and an evil government, Those facts in themselves do not necessarily imply that they had aggressive designs or really hoped to overrun France or go any further than they had already gone. Those issues are more arguable ones, but I just want to make clear that I'm not among those who blame the Cold War entirely on Americans. I think there was another side involved, and there were some extremely evil people on that side. The more one reads about the history of the Soviet Union, the more disgusted one becomes.

10:26It was exactly what Reagan called it, an evil empire, in every sense of the word. But whatever might have been the reality, the view of decision makers in the U.S. government, in the Truman administration, quickly became one that favored stout resistance to Soviet expansion, and Truman himself took readily to that view. Now, the general public did not take quite so readily to it, particularly to the idea that huge amounts of money should be spent on the American military apparatus in order to provide the reality of resistance and the punch for an effective containment policy.

11:30After all, Americans had just finished paying enormous amounts to fight World War II, and they weren't exactly in the mood to keep coughing up those kinds of resources indefinitely as as of 1946 and 1947. Furthermore, these threats were far away. They were not so easily represented as immediate threats as Hitler had been or the Japanese after they let loose their bombs on Hawaii. So it was a harder sell for the government to persuade the general public that we needed to launch back into a big military program even though the leaders of the Truman administration decided fairly early that that's what they would like to do.

12:26Nonetheless, there was continuing resistance particularly by the public's representatives in Congress. When the administration proposed to increase the military budget there was tremendous opposition in Congress. And on one occasion, when the president was discussing this situation, with Senator Vandenberg, who by that time had transformed himself, he was no longer an isolationist as a result of the experience of World War II and the post-war situation and had become something of an early Cold Warrior in his own right. Vandenberg advised Truman that what was necessary was, in his words, to scare hell out of the American public.

13:12And I think that was good political advice. Indeed, that sort of scare works wonders, at least for a while, in the American political process. So, even in the late 40s, the government of the United States was working to represent the Soviet threat as really more menacing than in retrospect it appears to have been. They were releasing information about the number of Soviet divisions, for example, that counted divisions of the Red Army that were not fully equipped or manned or were not in active status and so forth.

14:00So it made it seem that the legions of potential Red Army personnel were endless. and the only way to keep them from overrunning Western Europe was by an enormous defensive effort. There's an essay I want to recommend to you that deals with this time and place by Ralph Reiko. It appears in the book, Reassessing the Presidency, which is edited by John Denson Published by the Mises Institute, and if you haven't read Rayco's essay on the Truman Administration, I highly recommend it. It's excellent, it's like everything Ralph writes.

14:50It's beautifully written, it's well documented, and it pulls together in a single essay more pertinent information and argument with regard to the Truman Administration and I've ever seen in one small space before so one can learn a lot from that single essay by Reiko and I hope you will read it if you haven't done so already. As part of the reorganization of the American defense apparatus after World War II in order to, in one sense, put into effect what had been learned during the war and in another sense to get ready for Future and Different Conditions. The military was reorganized. Congress passed a huge piece of legislation in 1947, the National Security Act, which created the Department of Defense.

15:51Before we hadn't had any single government agency, we had a separate war department and a Navy Department, now not only the Army and Navy, but another military department which was created at the same time, the Air Force, was brought underneath the Department of Defense and the Secretary of Defense became, from that time forward, if not the most important member of the cabinet, certainly one of the two or three most important in every administration. Besides the Department of Defense, for the civilian part of the war machine, the Act created the National Security Council, composed of high-ranking government officials, and in possession of its own permanent staff, so that these people could concentrate on and inform themselves with regard to issues bearing on national security, and then they would be the principal advisors to the president with regard to national security matters.

17:06So this became a very important part of the executive office of the president and remains so today. The Central Intelligence Agency was created at that time to replace the old OSS, The Office of Strategic Services that had provided intelligence organization during World War II and the Director of Central Intelligence was made the person responsible for bringing together all the intelligence that might be acquired not only by the CIA itself, but by any other government intelligence department, including those of the military service.

17:53Services. So we had from 1947 on this arrangement of national security affairs in the government that has operated ever since then. So this whole setup is now 56 years old and we've The events of the late 1940s helped to solidify what we can now see as the onset of the Cold War.

18:39Historians find it pleasant to argue endlessly about exactly when the Cold War began. It can't be dated in the same way as the Japanese bombing of Pearl Harbor. That's pretty definite timing. But as I said, there was always some tension between the United States and the Soviet Union even before the end of World War II. But that tension really became much greater after the war ended. Soviet troops were occupying northern Iran at the end of the war. And the US government decided, well, they shouldn't be there. That was a kind of expansionism that shouldn't be tolerated because where were they going to go next?

19:24If they had moved into Iran, then perhaps the next thing you know, they'd be at the Indian Ocean. So that was protested. They seem to be acting as if they were trying to somehow gain control of the Dardanelles, which is an important chokehold on commerce in the Eastern Mediterranean. So the U.S. government protested those Soviet moves. Communist insurgents were operating actively in Greece at that time, and the US government decided that that wouldn't do either to have the Greek government go communist after all we already had this this huge area of Central and Eastern Europe under Soviet control so a line should be drawn at the border of Greece and so they did draw that line and and they in connection with Greece in particular propounded what came to be known as the Truman Doctrine And that was the doctrine that when existing governments were menaced with communist takeover, the United States would, in one way or another, go to their assistance.

20:40Now, one has to do very little thinking to realize that this kind of commitment was simultaneously a commitment to prop up a lot of really vile governments around the world. because many of the governments that were under attack to some extent by communists or people who could be labeled as communist even though they might be just unhappy peasants out in the local jungle, a lot of those governments were in no other regard governments Americans would care to Support. In fact, they were eminently loatheable in many cases. And yet, commitment to aid anyone resisting communism put the United States in this position of drawing lines according to that one criterion. And over the years, the operation of foreign policy in accordance had countless unfortunate consequences. It, for example, led the United States to overthrow the government of Iran in the early 50s and to bring in and support the Shah and to support a really tyrannical government in Iran and to make a lot of Iranians profoundly unhappy,

22:12Not just against the Shah's government, but against the United States for supporting it. And we're still living today with the unfortunate consequences of that particular implementation of the Truman Doctrine. But it had similarly unfortunate consequences all around the world, including the US support for Anti-Communists or Alleged Anti-Communist Forces in Vietnam, which eventually led to U.S. involvement in full-scale warfare there and got several million people killed in the process. So this was a doctrine that was, we might think in retrospect, too readily arrived at.

23:04It might have been one thing to say, all right, let's go help the Greeks and keep Greece from being taken over by Communists, but by making this a kind of general rule for the conduct of U.S. foreign policy, the country was put in a straitjacket that didn't always serve its best interests. In 1948, these tensions with the Soviets reached the point where the Soviets decided that they would exercise their chokehold over access to Berlin, which had the curious position of being contained entirely within the Soviet sector of occupation in Germany.

23:51So it was a little island in their sector, but itself divided into sectors among the occupation powers. So it made no sense strategically to have ever made it that way to begin with, and it was tailor-made for the Russians to use to blackmail the Americans. And so they did that by closing off land access to the city in 1948. And the United States, of course, rather than just letting the city go and saying, all right, it's not worth fighting over and it's not worth worrying about in some other respect, it's in your sector, it's yours, decided to keep the non-Soviet sectors of the city alive with an airlift.

24:42and with the aircraft of that day this was a monumental undertaking because they didn't really carry all that much cargo and so we had all of these these small cargo aircraft flying 24 hours a day flying from West Germany to deliver supplies to keep alive the people of West Berlin until finally the Soviets decided that they didn't want to go to war over this and it really wasn't working. Their chokehold wasn't causing the Americans to give up control of Berlin in their sectors, so they relented. But that whole Berlin closure and airlift episode was like verging on war between the Soviet Union and the United States In the very next year, 1949, the Chinese forces in China finally, after decades of fighting, drove their opponents off of the mainland on to refuge in Formosa.

26:02and that became known here as the fall of China or if you were one of the fall guys the loss of China for which certain American diplomats were blamed supposedly if the United States had acted differently or perhaps had given more military support to the Nationalist forces then the Chinese would not have won I think that quite unlikely myself but But this, of course, became a kind of litmus test for conservatives as opposed to Truman liberals for a long time in this country, recriminations over and finger pointing and blaming people for the fall of China.

26:50I actually blame Gordon Tullock myself, but it's not as much fun to do that when Gordon's not in the audience. Gordon likes to talk about when he was in the Foreign Service in China before the Communist victory there, so he makes a good patsy in my mind. Also in 1949, the whole tenor of the conflict with the Soviet Union changed when the Soviets The Soviets had all of these divisions of the Red Army and these tens of thousands of tanks and so forth, but we had atomic bombs, and the kinds of aircraft that could deliver them over very long distances, so we always felt that if worst came to worst, we had to do something about it.

27:54First, we had what it would take to defeat them, and now in 1949 we realized that oops, we never thought they could nearly so quickly find their way to the development of a working atom bomb, but they had, in part because while they were carrying off factories from East Germany, they were also carrying off German scientists who were instrumental in hastening their production of nuclear weapons. So that changed things and made tensions even greater than they had been. And then the North Koreans began their invasion in the middle of 1950 of South Korea and almost drove American forces who went to the assistance of the South Koreans into the ocean before a successful counterattack was made and then of course that was too successful because MacArthur drove all the way almost to the Chinese border thereby provoking the and the Chinese to come across the border and counterattack the counterattack.

29:22So the outcome in Korea was a stalemate after a considerable loss of life on all sides and that stalemate has persisted to the very present and once again we have a situation here that is extremely germane to foreign policy today. We've now got this situation with these North Koreans claiming to have atomic weapons. And whether they do or not, they certainly have a gigantic conventional capacity right on the border, close enough that they can use artillery to blow soul to smithereens. And we know they can do that whether they have The Theory of Money and Credit

30:39South Korea in particular and perhaps against Japan as well. So the events of the past 55 years as it were in many cases just retain life. They never just happen and pass away. Situations continue to burn even if the embers don't seem to Well, we can look back and say definitely the Korean War got the Cold War started, for sure, even if we don't think it had already begun, and many people would think that war was certainly an unfortunate thing, but not Dean Acheson.

31:31Atchison wrote in his memoirs, Korea Saved Us. Well, what did he mean by that? Well, remember the Truman administration had been committed for years to a military build-up for the purpose of global containment of the Soviet Union and its proxies. But it had been unable to get Congress to approve the money. Well, with the outbreak of the Korean War and the intervention of large numbers of American military forces on the Korean Peninsula, the government could then go to Congress and get agreement for tremendous buildup of the military.

32:26And it's very easy to look back at the graphs and see this big jump up in military spending and associate that with the Korean War. But in a way, it's a spurious association. It's politically associated with the Korean War. But the great bulk of that buildup was not ever intended or ever directed toward anything connected with the Korean War. It was for the purpose of building and equipping forces in other parts of the world, in Europe and in other parts of Asia especially. So what Atchison meant was we were getting nowhere in getting Congress to give us the money for a big military build-up to wage the Cold War, but Korea saved us.

33:18And very often we'll see over the past 50 years some such crisis, some such flashpoint saves the government's whole military undertaking. This one worked like a charm. So we can view Korea as the fulcrum that turns us fully onto a Cold War status. Now, the Cold War was what we used to think of as a permanent war. I mean, all my life, I was born during World War II, so for all my life when I had any awareness of what was going on in the world, the Cold War seemed like just the state of nature.

34:09It's always been there, it'll always be there. It was hard to imagine there being no Soviet Union or no communists out there trying to, as our leaders always said, take over the world. Now, of course, we look back, we see this whole terrible central planning military machine called the USSR just went to wreck and ruin. It's no longer much of a threat to anybody directly, although it's still indirectly a threat because it still has all those nuclear weapons. And people can have accidents or let them fall into the wrong hands, so they're not without some danger.

35:03But the world no longer lives under the cloud of gigantic exchange of nuclear missiles that it lived under for decades during the Cold War. and the Cold War. So that's gone. It wasn't a permanent war after all. But now, just in the past couple of years, the authorities, having realized what a good deal in many ways the Cold War was, have found a new basis and an even better basis for permanent war, namely the war on terrorism. Whereas the Soviet Union could implode, the threat of terrorism can The President can never go away. The President can always come forth and announce that he knows something that we don't know about a terrorist threat out there.

35:54Nowadays, any of us could, if we cared to, actually take ourselves to Russia and hike around almost anywhere we wanted to go and say, Well, you know, it doesn't look too bad to me, but we can't hike around the world and say, well, I don't see any terrorists. It's in the nature of terrorists that one doesn't see them, right? They look like normal people. And that's good because anybody could be a terrorist, which means the government has to take measures not only against the whole world, World, any part of which might be harboring terrorists, but it has to take measures of surveillance and protection against all of us, because we might be terrorists, or in some way, perhaps even inadvertently be aiding or abetting terrorists. So what could be better for the conduct of a permanent war?

36:51I worked out a while back a little scheme, a mental model, if you like, of what you need if you want to have a permanent war. At the outset, you might think, that's a ridiculous concept. Why would anybody want to have a permanent war? So really what I'm thinking of is not a permanent shooting war. I don't think very many people want every year to be like 1944. That's not in too many people's interest. But if you can have permanent preparation for war, especially if that war never actually comes about, that can be a very good situation for many people who play some role in carrying on this permanent war.

37:45So what you need if you want to carry on such a campaign is first of all an ideology to justify doing it during the Cold War, anti-communism served that purpose. If we didn't already fear and hate communism, the government was continually exhorting us to do so, and most Americans were reared and instinctively came to revile communism. That was not a bad thing, except that it was embraced so mindlessly. It would have been all right if we had all done our homework and discovered who the communists are and what they do and had loathed them accordingly.

38:31Secondly, you need to have powerful political factions who benefit in terms of the realization of their very specific objectives in life. So if, for example, you want to get business interests involved in an enterprise, there needs to be money in it. Business needs to make money when it does things. That's what business is for. If you want to get politicians involved, then you need to give politicians what they want, which tends to be, for those who hold elective office, things that work toward helping them get re-elected.

39:21If you want to get the military organization involved, you need to provide somehow the things military officers want. Pay, perquisites, a big budget for the military organization, lots of opportunities for advancement and recognition of their military prowess. so you promote their careers and what we're talking about specifically here is what came to be called the military industrial complex and I called the military industrial congressional complex because in the United States by the late 50s and into the 1960s Congress had awakened to the potential that the military industrial complex held If Congress more actively micromanaged it, by doing so, members of Congress, particularly in the appropriation subcommittees that oversaw the military budget, and the military authorization committees, these people who held strategic positions with regard to Congress's military affairs, could, in fact, design things in a way that targeted benefits to people who would be grateful and then would, in return, see to helping them in various ways with getting votes and money for campaigns and in the good old days, in the 50s and 60s, just a lot of outright income and kind, entertaining them at hunting lodges, providing prostitutes, cash in a plain brown wrapper

41:07Congress began to take a much keener interest, so keen an interest that I think they need to be recognized as an important actor in the MIC, and so I add Congress to this whole setup here. I've got a little diagram here to add a few details. Notice at the top I've got the public, because it's easy to start talking as if the whole world is being run by a conspiracy. And first of all, it's not a conspiracy.

41:53A great deal of what's being done here is being done in a perfectly open way. There's a little bit of secrecy, like the cash in a plain brown wrapper. But most of it is not a conspiracy, it's just a coalescence of interests of people who have important roles to play in managing the military affairs of the country. Now the public is engaged up here because they pay the bills for all this and so they've got to be kept under the influence of the appropriate ideology They've got to be given the appropriate information to make them tolerate whatever it is that the machine is made to do. But furthermore, the public gets involved here because many members of the public will actually themselves benefit.

42:44They'll get earnings, they'll get jobs, they'll get profits for their businesses. So, it's not just a handful of key players who are getting something out of the operation of the MIC. It was actually millions and millions of people for decades on end. So, it's not a small political faction. It's not like there being 2,000 sugar farmers who get sugar subsidies. It's more like anywhere from four to eight, ten million people at any given time in the Cold War who are quite directly tied and many others indirectly tied. For example, all the people who run retail businesses in areas with a lot of military activity have a keen interest in keeping those military contracts or those military bases operating at a high rate because it's the people who work there who provide the customers for their businesses.

43:46So we've got the public up here, but it's a removed part of the whole scene. And in the complex itself, we've got the Department of Defense and the regular military departments and the National Guard. We sometimes forget about the Guard, but that's a large number of people, and quite a bit of procurement and equipment and what have you, and it's especially important where Congress is involved, because the National Guard units are the descendants of the militia, and they're local people, they're your friends and neighbors, and you can make very tightly focused promises is to them, if you're a congressman, you can say, I'm going to insert in the next military budget funds for another C-130 for the local Air Force base. And in fact, so dependent did the Guard become on these special congressional favors that the members of Congress and the military departments entered into thinly veiled conspiracies to make possible these kinds of add-ons. So, every year the official Pentagon request doesn't include

45:12many items of equipment for the National Guard. But they've already sat down in the back room to decide which member of Congress will add on how many C-130s for which bases where. But of course, the general public doesn't know this and then the congressman goes forth in his next election campaign and he says, remember I worked very hard and was personally responsible for getting additional equipment for the base here and he gets a certain amount of political points with some people for acting in that way. So the National Guard is not inconsequential. I've already mentioned Congress and the key committees there. The defense As contractors, of course, some of them do hardly anything but military contracting. They're very specialized in that line of work. And companies like that, indeed, turn out when they try to do other kinds of work, to be very bad at it. Because the kind of skills you need to be a successful, dedicated defense contractor, completely different from the Somebody like Lockheed, who relies very heavily on military contracts to make money, doesn't

46:39have a clue about how to do anything entrepreneurial in a real market, but they know everything about how to find out what the Pentagon might be led to want, as one of the generals once The General said, the contractors are where the babies come from. We tend to think, well, the generals sit around and dream up these super weapons and then they go out and look for contractors, but in fact it's just the other way around. Lockheed and Boeing and Martin Marietta are out there full of evil geniuses in computer science and retired admirals and they're sitting around dreaming up the super weapons of tomorrow and when they get one in their mind fairly firmly, so they can draw a picture of it, then they go give a presentation at the Pentagon and say, gee whiz, wouldn't you like to have something like that? And the generals say, well golly, that looks great, you know, can you cook that up? Sure, you know, 50 billion and it's yours. So this is how the process

47:49This tends to operate, and as I just suggested, there's a revolving door, and has been since World War II, whereby high-ranking military officers, when they retire, go directly into employment in defense contracting companies. Thousands and thousands of them have done that. Low-ranking too, of course, but the low-ranking ones tend not to affect policy. They just get jobs. But you find thousands of people who were colonels or higher moving in to work for Boeing and Lockheed and General Dynamics all the time. It happens every year. New ones are brought on board, and they're not there to tell these manufacturers how to reduce the costs of machining parts.

48:40They're there because they know the system and because they know the guys at the Pentagon who are still dealing with procurement. After all, those guys used to work for them. So now when they go back to cut a deal with military buyers, they're working with old friends, sometimes old friends of decades long standing and people who used to be under their command in the military. So what could be nicer than that? No wonder General Mullins called this a family affair. That's exactly what it is. The military often thinks of itself as a big family. We're just all here on the base together. So the procurement system is a very much old-boy, greased setup.

49:31It goes through the motions of being a business and it fills out forms and everything, but the reality is quite different. The reality is a lot of schmoozing and a lot of people trading places, not just officers going into the firms either. firms giving leave to their highest executives who then, for a year or sometimes four years, go take up positions in the civilian bureaucracy at the Department of Defense or one of the military departments. So all of these guys who moved to the Pentagon, they're smaller in number than the number of officers who go the other way, but in some ways they're more important because they all go to high-ranking positions.

50:24You don't leave Boeing to go work as a flunky in the Department of Defense. You go there as an assistant secretary or something of that level. So they go there, they're very important, and once again, now they're working for the government, dealing with people on the business side who used to be their colleagues last month. So the whole system is incestuous in the extreme, and the setup designed to give it the aura of bureaucratic punctiliousness is a fraud. That's all fake. We've got some peripheral actors down here. I just listed for completeness.

51:14And we could go on with that list if we wanted to. Universities, think tanks. Of course, around Northern Virginia and Maryland, the beltway bandits are thicker than fleas on a hound. is on a hound, and they're all living off defense money, channeled to them by the Department of Defense or the military departments or one of the intelligence agencies, so they're there, local governments, if they have a base or a big defense plant, they get involved, labor unions, if they have a lot of members working in defense production and the veterans and service organizations who are numerous come into play as cheerleaders and people who can be counted on to always give a kind of general support for enlarging the military budget they just instinctively favor that no matter what the situation or no matter how outrageous the proposal They always say, well yeah, more money for defense is a good idea.

52:26Kind of a faux patriotism comes into play, but it's better than that because it's organized. They have conventions, they have lobbyists, they continue to have connections with active military officers who come and give them inside scoop and make them feel as if they're still involved. are all involved, so they play a role even though it's a peripheral role. Well, this setup has been operating now for over half a century. And along the way a lot of money was put at its disposal. I calculate that since 1948, coming up to the present, if we measure defense spending in current dollars, we're getting into the neighborhood of 17 trillion dollars.

53:29That's almost two years GDP of the present US economy. That's an enormous amount of loot. I mean, most countries in the world GDPs could be swallowed up in there many times over. So this was a big undertaking and it's a big undertaking today. If Congress gives the President what he's requested for the next fiscal year, the defense budget will be $400 billion and the merest babe can forecast that it'll actually be more than that. Because that's not going to include enough for all the expenses in Iraq and surrounding areas and they're going to have emergency supplemental appropriations requests Congress is really a pretty easy touch when it comes to the defense budget whenever there's a crisis, and right now with the war on terrorism providing the important cover, the administration is in a position to get Congress to approve big infusions.

54:44In the late 90s, the fallback of the defense budget was considerable, and by the end of the 90s, the defense was consuming only about 3% of GDP. But already, just in the last three years, that's gone back up to 3.5% and rising. So, even though the Cold War is over, the permanent war is still going on. Now, I don't know, last night was Dr. Strangelove shown? It was shown earlier in the week? Okay, well good. I always recommend that film. It's the greatest film ever made of any kind.

55:30and especially in this respect it's a perfect representation of the situation during what you might call the high Cold War, the 50s, 60s period of nuclear standoff and there's so many things that you can learn from Dr. Strangelove that I couldn't even begin to list them all. I'm still learning from it myself after all these years and I expect to view it many more times before I die and learn something new every time. So keep watching Dr. Strangelove and as you do so you'll understand better and better the world of the high cold war.

56:16It seems like a kind of other world, a kind of mad world that couldn't really exist. It's just a movie, but the beauty of it is, it's not really just a movie at all. It's that far away from reality, just that far. When Vietnam War engaged the United States after 1965, we had another periodic crisis that pumped the defense budget up for three years running, brought it up to almost 10% again of GDP by 1968.

57:06After the peak then, it started falling and there was a long period of about a decade during which defense spending fell relative to the economy. And then at the end of the Carter administration, before Reagan took over and set his defense build-up in motion, a turn had already been made and defense spending was beginning to rise, even relative to GDP. but of course Reagan accelerated that increase considerably and during that build-up defense spending was increased by fifty percent so it's it's very easy to spot on a time series a big build-up and and it's one that we can't associate very easily with any any specific war or crisis there was no major major war are connected with its onset, but there were events that made mighty contributions to giving it a boost at the beginning, and those were principally the Soviet invasion of Afghanistan at the end of 1979, and even more important, the hostage-taking in Tehran. I have never I've never in my lifetime seen so many Americans so hysterically angry as I recall them being in 1980.

58:33They felt frustrated. Every night the television showed these Americans being paraded out, blindfolded and pushed around by the hostage takers. and Americans watched this night after night after night and they felt as if their noses were being rubbed in the dirt by people and they weren't doing anything about it and many of them became extremely angry and wanted to lash out and as the saying goes, nuke the bastards and I have no doubt that many would have been quite happy at America chosen to drop atomic bombs on the Iranians in 1980. But cooler heads prevailed and eventually, of course, that crisis was resolved. But meanwhile, the defense buildup had been given a huge boost and even though the public lost faith after a couple of years in the buildup, the Reagan administration was so relentlessly are all really dedicated to it, that it managed to keep it going for years after the public had stopped favoring it very much.

59:46Here we've got defense spending in constant dollars from 1940 to the early 1990s and then And I've added a few points later to show you what happened subsequently, but you'll notice that there's a kind of classic Cold War plateau, which in this level of purchasing power, $1991, tended to run close to $300 billion a year.

1:00:39And then around that level Cold War trend, we have these deviations associated with the Korean War. There you see the big buildup, and then it only comes back a little bit, because now we've got the real Cold War going. It stays this way, and here's Dr. Strangelove right here. And then we've got Vietnam, the fallback to the late 70s, the Reagan buildup, and then We've got this fallback in the 90s, but now we've begun, I don't show it here, but we've begun another turnaround and just in the past four fiscal years, spending has increased by more than a third in real terms, so we're off and running for another build-up right now.

1:01:30Here we see how many people were getting a job from this activity in terms of millions of persons. The dark part is military personnel. The next section is Department of Defense Civilians and then on top the Defense Industry Workers. So you can see that all together during the classic Cold War we tended to employ maybe six to seven million people, somewhat fewer here, closer to five or six million in the 70s and 80s, although it got close to the old totals by the end of the Reagan build-up.

1:02:24So this is a big chunk of the work that's getting done in the United States over half a century. Now we did see some changes in the political complexion of the Cold War, starting in 1968, and they took place very suddenly. What I'm showing on this chart is a measure I constructed myself by using public opinion survey data. For many years, going all the way back to the late 1940s, Gallup and Roper and these other survey organizations would often ask people when they were making surveys, do you Do you think the U.S. should spend more for defense, or less for defense, or about the same as now?

1:03:24And that question, in almost identical form, was asked again and again and again. I found altogether 193 surveys, which were national, which asked that question in almost identical form, and which lacked any cues, they didn't have any introductory phrases is about in view of the Soviet menace or anything that might have biased the respondents toward an answer. And I took all of those data and in any given year I just averaged all the different ones in a simple fashion if I had several. And by the 70s and 80s every year I never had a number of such surveys available, so those data are more solid, but whatever I had, I created a variable called the opinion balance.

1:04:18I simply took the percentage of people favoring more defense spending and subtracted the percentage favoring less. Now, if people favored the same as now, or if they express no opinion, they're not playing a role here in this variable. The number in that third category I call the residuum, and in my statistical work I actually use that measure of residuum because it actually is a kind of measure of the inertia in the expression of public opinion. If there's a big residuum, then you would not expect any given opinion balance to have much political import compared to if almost everybody has an opinion, then the balance has more punch.

1:05:07But just from what I've shown here, the opinion balance itself, you can see that up until 1968, every time that question was asked, In the past, the balance was always, to some extent, positive, always a greater percentage of respondents said more defense spending than said less.

1:05:34Unbalanced opinion balance. In some years, crisis years, like here is 1961 and there was a transitory Berlin crisis that year and that clearly led a lot of people to favor increase in defense spending. At the beginning of the Vietnam War, you'll see here in 1965, 66, 67, that balance remained positive. in fact there was quite a lot of support for the American involvement in the Vietnam War in those first three years it was just a few college professors and hippies and Bob Higgs who were opposing the war but the massive Americans thought yeah they say it's a good idea President Johnson says we've got to What Happened As Casualties Began to Mount, People Began to Lose their Enthusiasm for What Was Happening There, John Mueller Tracks What Happens to Public Opinion As Casualties change in the course of war and when you look at both the Korean War and the war in Vietnam, it turns out that every time casualties increase by a factor of 10, the public opinion favoring

1:07:14the war drops by 10 percentage points. And it's the same statistical relationship in both wars, interestingly, even though in Korea we didn't have street demonstrations and so and so forth. We still had growing opposition to the war. People were just expressing it more privately. Ten percentage points. So what happened here was that already the support for the war, and in this case support for military spending, a kind of proxy closely related to that support, is down to a low level in 1967 already, but then it takes a precipitous drop, it's one of the biggest drops ever measured in public opinion surveys in 1968.

1:08:06And the reason for that was that the Tet Offensive at the beginning of the year made people realize that they'd been lied to all along, that the government had consistently been telling the public that we were winning. It was just a matter of a little more time before we had eliminated all these, you know, a handful of gorillas in the jungle. We had them on the run. We controlled all the cities. And then suddenly, there they are. They're running around in all the cities, killing Americans. I mean, right in the middle of things in Saigon. And the public said, wait a minute. We've been led down a path here. You've tricked us.

1:08:55And support for the war collapsed among the general public. And when it collapsed among the general public, then the politicians began to bail out. First of all, some members of Johnson's cabinet and advisors to the Johnson administration decided that it was a losing proposition, that they should terminate it. And the President himself realized that in the circumstances he could not be re-elected. He had reached the point where he couldn't even travel around the country because everywhere he went, so many protestors turned out and he feared for his life that somebody would kill him, so he cowered in his quarters and wasn't even able to make public appearances, so Johnson dropped out and Nixon was elected promising that he had a secret plan to end the war.

1:09:55Well, it was very secret. It's so secret that it took five years to be carried out, but at least Nixon did, I guess, begin the turnaround of diminishing the extent of the military engagement there. It's just that he wasn't prepared to just walk away from it. Yes? I saw some historical film footage where Nixon basically admitted that there was never any plan at all.

1:10:48and I arrived at this Paris Peace Agreement. Now, when public opinion collapsed, it had an effect. What I show you here is on the top, that same public opinion balance, I was measuring with the bar chart in the previous display. But below it here, I'm measuring on this left-hand scale, the rate of change of defense spending. And as you see, there is a very close association in the two profiles. Their movements are very closely connected. And I did a variety of econometric tests to find out what was leading what and to work in controls for the opinion residuum and to check all kinds of functional forms and so forth.

1:11:43So I rang the econometric changes on this baby, and I'm satisfied that what was happening here was that with some lags, changes in public opinion were being followed by changes in the rate of growth of defense spending. Now the easy way to interpret this would be to say, wow, public opinion is just as powerful as David Hume said. Public opinion is decisive in the end. When people decided they wanted less defense spending, then defense spending began to diminish at least in its rate of growth and actually became negative in its rate of growth.

1:12:31There's a zero line here, so by the time we get in some portions here, we're not really growing at all, to any significant extent at least. But it's not that simple. And it's not that simple because public opinion is not simply what the econometricians call an exogenous variable. It's not something that's just determined out there in the world somewhere and then brought to bear on the political process. And certainly when we talk about the operation of the MIC, we have to recognize that everybody from the President and his National Security Council down through these vested interests of the MIC itself are actively engaged at all times in attempting to determine what public opinion will be.

1:13:25to shape people's beliefs and preferences about national security affairs. And so it's even possible that the very public opinion to which the military apparatus seems to be responding has been created in the first instance by that very military machine. Now, I don't want to suggest that that's quite it either, because if you if you look at what happened, there are periods such as after 1968 for a decade, and there are periods in the 1990s when indeed there are substantial reductions in the resources being devoted to military purposes, and I think it's fair to presume that those were not desired by by the members of the MIG, and sometimes not even desired by the President and his Chief Ministers either, and yet they were forced upon people.

1:14:28So I'm not suggesting that these people pull all the strings, but only reminding us that public opinion is not exogenous. In the political process there is continual give and take between members of the public who come in all sizes and shapes and degrees of influence and information and members of the government who similarly differ in all sorts of ways. And they're interacting, trying to influence one another's beliefs and preferences constantly. And so what happens is the net result of all of these forces going one way than the other. On some occasions, clearly, the forces supporting military build-up are dominant, and we get the build-ups.

1:15:19On other occasions, the forces opposing build-up are dominant, and we get military cutbacks. So we do have a relationship here, but it's a tricky one to interpret. I did make some efforts in later work to try to build more elaborate econometric models to try to capture some of these intricacies, but those were never published or reported and indeed they never proved very satisfying to me either in trying to make sense of them. Did the Soviet Union have an analog to the Mech, or was their system so different than what the Maryland Congress had?

1:16:25The Soviet Union was above all else for its entire existence just a big military organization, and in fact, when we think of, we all know it was a failure in many ways, but in the ways that we can identify it as having succeeded, they all turn out to be a failure. When we think of, we all know it was a failure in many ways, but in the ways that we can identify it as having succeeded, they all turn out to be just technical military ways. Defeating the Nazis in World War II, that's just a military undertaking, developing ICBMs and big rockets and all that, that's just a military task. So the only things the Soviets ever, ever had to show for themselves that were genuine accomplishments, were military, and they put all of their best resources, their scientists, their engineers, their educated people, all were focused on the MIC over there. They don't have a congress muddying the water of course, but they have a military and an industrial side working together and a party

1:17:41Apparatus, which for them was kind of serving the same purpose as our executive and Congress over here. I just read Andrei Krypschenko's book, I Chose Freedom, and he was one of the first Soviets to defect, and he defected right after the war, and he makes the claim in his book that in fact it wasn't the Russian military machine that defeated the Nazis that it was the German military machine that defeated the Nazis because Germans came so far into Russia and they were surrounded and the Russians captured tons of German armaments and they used German armaments to defeat the Germans so he claims that their war machine was a disaster that they didn't have any of the materials, the raw materials, the metals or anything to make any arms so that they had to use the German armaments to defeat them, so that didn't even work.

1:18:47That's true to some extent that they didn't produce arms of change. Yeah, they got the bulk of the punch from their own making. I mean, that obviously helped them, that they were able to snatch so much German equipment at Stalingrad, but they shed the blood, and they won the Battle of Stalingrad. That's how they got that stuff to begin with, so they deserved some credit. I have a question for you, but just real quick for Bob. You're in Malta, not in the Cost of War books, but in the Cost of War tapes. He has to talk about the Russian military and the Russian economy, and how it was the Russian economy, but it's hard to get, you know, when you've worked in the MIC, it's hard to get your mind around this monstrous organization, especially since they try to sort of mimic the Market. But at one point, you know, far enough back in the stages of production, they do have to face prices somewhere. I mean, I mean, World War II

1:19:49they could just, and other times they can just confiscate things. Yeah. But way back at some point they have to face prices, they have to entice people through incomes to join, they have to buy raw materials. After that though, would you say it's true that they really don't, I mean, I would think that after that point where they initially buy their raw materials, from people who could sell it The arms manufacturers have to pay for their materials and the people they hire, of course, and they are in competition with market actors in doing that, but they still don't have to to pass a market test in the same way that market firms do, because let's suppose that they go out and they conduct their business and they lose money. Now, if you do that for some time running in the market, you're just going to have to go bankrupt. Your creditors will insure that. But in the case of the big military contractors, it's almost certain

1:21:05that you won't actually be allowed to go bankrupt because you'll be bailed out, and you can be bailed out in a number of different ways. You can be bailed out directly. The Defense Department can just give you additional money, and there are any number of accounting entries that can be done under. They are constantly readjusting contracts, and so you can do it in the guise of engineering changes, you can do it in the guise of adjusting for earlier failures to anticipate full costs of production, or any number of names you can give it. Or one of the ways that was frequently used in the Cold War is that a company's floundering and it's on the verge of going broke, well, give it a brand new contract to do something and shower it with a lot of advance payments.

1:22:01So that puts it in a flesh condition again, and it's off and running. So the bailout guarantee was absolutely critical in the operation of these sperms. At one time or another, they all got bailed out. Lockheed, Martin Marietta, they all got bailouts in a big way at some point, and many of them got repeated bailouts. So they're in the market, to be sure, and they have to make payments to market actors in order to acquire resources, but they don't have to meet a bottom line test in the same way that a commercial firm must. Yes, sir? I've heard people make statements that the Cold War resulted in a technology boom because of the competitive nature that existed between capitalism and socialism.

1:22:57I've heard criticism of this saying that you can't compare that to the existence that didn't exist in two capitalist structures where they compete and support one another. What are your thoughts on that?

1:23:45The Boeing 707 was actually designed as a tanker, and they pretty much just took out

1:24:15The 707 developed various techniques and materials and you can accumulate a gigantic list of examples. But again, the question is, this is what we see, what is unseen. If we hadn't been using resources in these purposes, What might we have produced with those same funds, those same resources aimed directly at producing something beneficial to the civilian economy? And just as a general principle, it makes sense to suppose that if you directly try to produce useful, profitable commercial items, I think the argument has always been used as a kind of propaganda to suggest that we don't have to worry that we're squandering resources when we use them on the military because it has all these great spillovers.

1:25:28Plus, all those engineers are being used to make war things instead of civil war?

1:25:58In some cases, if you look at, say, physicists, a majority of them, a big majority of them were working in the military and whenever there's a big military cutback, we'd find these highly skilled scientists and engineers being thrown in sometimes into work that seemed way below their level of training and preparation and often was, but you know, there's not that much demand for physicists outside the world of military R&D. Big percentage of like college students in America who are in engineering and science who are not of foreign descent are in ROTC. Yeah. Big percentage. I can understand that. When you go to the physics department or any department in the state, a lot of foreign students, most of them now, but the ones who are Americans, a lot of them are in ROTC.

1:26:50Yes sir. Also the prices of things, you can see how they've been really manipulated around, like what price it was back then. They had a contract for a thousand, maybe it was Hebron's, and a million dollars each. And within three years they was doing all kinds of funny things. It was the same thousand, but now it's three million dollars each. The airplane cost $350,000 thanks to the airplane. The next thing you know, it's being replaced by a $1 million airplane from $350,000 to $1 million. Then it was $8 million, and then it was, I think, within just something like 20 years, it had gone from the $340,000 thing to $25 million.

1:27:42The unit cost is when they have a stretch out. Normally when they plan these weapons programs, they'll plan to produce a certain number of units over a certain number of years. And then if Congress, in its wisdom, gets involved and sees the end of the production run looming and the closure of the plant, They are in Long Island. They may micromanage the defense budget to provide that Grumman should produce another 12 A7s this year. I know about that airplane in particular because I studied it for an article I wrote. They go on producing a handful of items on a production

1:29:03And this is just another aspect of the waste that Congress injects into what is already a wasteful process. Very well. Thank you very much.