Scott Horton Interviews Thomas E. Woods, Jr.

0:00Welcome back to the show Anti-War Radio Chaos 95.9 FM in Austin, Texas. I'm Scott Wharton and it's my pleasure to welcome back to the show Thomas E. Wood. He is the author of the new book Meltdown, A Free Market, Why the Stock Market Collapsed, The Economy Tanked and Government Bailouts Will Make Things Worse. He has a bachelor's degree from Harvard, Ph.D. from Columbia, he's also the author of The Politically Incorrect Guide to American History, Who Killed the Constitution, We Who Dared Say No to War, Sacred Then and Sacred Now, 33 Questions about American History You're Not Supposed to Ask, How the Catholic Church Built Western Civilization, the Church and the Market, and on and on like that, geez.

0:53And let's see, oh, I mentioned We Who Dared Say No to War, and he edited and wrote the introduction to The Betrayal of the American Right by Murray Rothbard, wow, that's a good one too. Welcome back to the show, Tom, how are you doing? Scott, glad to be with you. And I'm sorry, what are you, senior fellow at the Ludwig von Mises Institute? That's right. Okay. Now, speaking of which, I got a PDF file in front of me called The Neglected Costs of of the Warfare State, an Austrian Tribute to Seymour Melman. It's at Mises.org, slash journals, slash scholar, slash woods2.pdf. That ain't so bad. I think we'll link right to it in the blog entry for this. Who was Seymour Melman? Well, this matters. This is not just some obscure guy.

1:41This matters. Seymour Melman was an unjustly neglected figure. In his day, he was acknowledged by some people on the left. He was a professor of industrial engineering and operations research at Columbia University. But what he was known for was his studies of what the military economy does to a society. It's one thing to say, and it's very important to say, that war itself has social effects, economic effects, political effects. But also his argument was the preparation for war. So even the so-called peace time, If we ever actually have that in American history, it also distorts human relationships, distorts the economy, and his critique, I think you can get a sense of it just from the title of one of his books, Pentagon Capitalism, gives you some idea of who this guy is, and incidentally an easy way to get to this paper I did about him and what he has to say, because it's so important.

2:37We're living with this, with these consequences of the military state. I link to it at my website, tomwoods.com, on the articles page. I think it's the second to last one called, as you say, Neglected Cause of the Warfare State. Awesome. And by the way, how's Meltdown doing? Are you still on the New York Times bestseller list with this thing? No, but it was a good ten weeks. We had a good ride with the thing. Ten weeks? Right on. And I just want to, in case we don't ever get a chance to get back to it in this interview, I cannot recommend a book about anything economics,

4:11Our Society would collapse if we had the slightest understanding of what's really going on here and tried to do something about it. Well, the interesting thing is that this paper of mine you mentioned that is going to be published soon, but as I say, there's an unpublished version you can read. This is one of the things I'm the happiest with that I've done ever in my entire writing career is this paper, because it's stuff that if you believe in the free market or So if you're just against corporatism, you're just against the cozy relationship between big business and big government, that to add insult to injury is carried out beneath this banner of the common good and national defense and all these wonderful sounding things, then I think you're going to be very interested in what this paper has to say, because what I'm bringing to light are all the ways in which we've already seen our economy deformed.

5:04For example, during the Cold War, we had maybe two-thirds of our technical research scientists diverted from what would normally be the pursuit of research for commercial purposes, to make our lives better, to make them easier. Instead, their labor was diverted to weapons research, weapons production. And it's not the case that there's an infinite supply of geniuses who can carry out R&D work. If two-thirds of these people are engaged in building a better missile, then that means those people can't also be building better transit, they can't also be researching better consumer products, that's all gone by the wayside. I would say that transformation is almost complete too.

5:49I know scientists who complain that. There's just no work other than going to work for the government and almost all of that is military industrial complex stuff. Otherwise, you know, go run a garden shop or something, you're not going to be able to Use Your Degree. No, that's right. And there are two other points I want to make with that. One is that you're draining these people away from the private sector simply because the public sector can afford to pay them higher salaries because it can just grab the money from the taxpayer or print it up or whatever. Private sector finds it very hard to compete with that. And secondly would be the transformation of our university system into basically a giant wing of the Department of Defense, basically. If you look at, and I hate the Orwellian name Department of Defense, as if this has anything to do with defending anybody, obviously it's Department of Offense, but regardless, if you look at what's happened to our universities, to MIT for example, and then on down to Stanford,

6:44and you look at different departments, whole fields, and the way they're taught, and the types of students who have been admitted, and the type of research that's done, and And the research angles that students are taught to take up, they're all governed by military priorities, or to an absurd degree. And that's something actually that Ike Eisenhower brought up specifically in his farewell address, was the corruption of the university curriculum there. And by the way, as a little parenthesis about the Department of Defense, they didn't name it that until America became an outright NSC 68 empire. And then they renamed it the Department of Defense, it was always the War Department before that. Well, that's right, so you have to love that, I mean, obviously these things don't happen by accident.

7:29Another thing that's interesting to me is how apparently private firms become deformed and distorted by their relationship with the Pentagon. When you get into a relationship in which the Pentagon is your biggest customer, basically, or even, in some cases, your only one. That affects your business model, affects the way you run your business, because the Pentagon, sure, at some level, they care about costs. I mean, if you're going to produce something that costs 10 quintillion dollars, well, they can't pay that. But beneath that, basically, cost is not the most important thing to the Pentagon. If they need the money, they'll get it one way or another. What matters to them is, are you easy to work with? Can you deal with constant changes in the design?

8:15Cost is really subordinate to that. So instead of being a cost-minimizing firm where you want to keep your costs low, these become cost-maximizing firms so that when they go back, if ever, to being normal firms on the free market, they don't even know how to compete anymore. They have no idea how to function in a market economy. For example, the machine tool industry in the U.S. was a very, very important industry, dominated the world up to the 1960s. Then the Pentagon became the number one customer. And suddenly you saw the American machine tool industry It suddenly became incredibly uncompetitive, and so when, for example, the big thing was something called numerical control machine tool technology, yeah, American firms did produce it, but they produced it at a price no business could possibly afford.

9:01It was the Japanese and the Germans who produced it at realistic prices, but again, when all that matters is, hey, the Pentagon is going to buy this stuff for me, these things, normal cost-cutting measures that you would obviously be normally under pressure to undertake are just swept by the wayside. I mean these are sicknesses, deep-seated sicknesses in our economy that are by and large not discussed and we have economists who supposedly are for the free market and they're libertarians supposedly they claim to be or especially the ones who are conservatives. Of course they're never going to mention this because this is the one big government program they like so they don't want to cast it in a bad light. Well, you know, on the machine tool thing, it reminds me of your article the other day on lewrockwell.com where you talk about the robber baron who refused to take any government subsidies for delivering the mail across the ocean and the guy that was dependent on the

9:53government subsidies, he just wouldn't innovate his business enough and he ended up being outcompeted by the guy who wasn't subsidized. That often happens, right? Yeah, it definitely does. It distorts your decision making, because in the same way we saw that in developing the railroads. I mean, if in the 19th century, if you're going to get land grants and you're going to get more land grants, the more circuitous your route is, and the more dangerous the route is, so the more mountainous the terrain and everything, well, what does that encourage you to do? It encourages you to build on mountainous terrain and have a circuitous route, whereas when you had James J. Hill building a railroad from St. Paul to Seattle without any government at all. He didn't have the luxury of producing such an insane, ridiculous thing. Instead, he built the flattest track he could, the most directly he could. That's what a free market system encourages. It doesn't encourage the bizarre distortions we see now. And what's

10:46even funnier is that when some of these major so-called defense firms then turned to try to produce mass transit systems for various American cities, they were, again, way over over cost are totally unreliable, or they broke down all the time, it's just like you get sucked into a black hole, a productive black hole, the more you get caught up in this pentagon nexus. I think there's something, a lot of times there are things, truths that are so obvious, but you don't really think of them until somebody says it out loud, and then you go, oh yeah, okay. There's this thing that economists talk about all the time, and I don't think just Austrians, The Seen and the Unseen. When you talk about, okay, this submarine costs this much money, and that's money that could have gone to something else.

11:34There's also the fact that the money that goes into the submarine is basically destroyed, where if that money had gone into something private and productive, it would have been used to create even more wealth and to expand opportunities that people didn't even imagine. They don't even know, like Rumsfeld's unknown unknowns, right? All these things that we don't even know the ripple effects of what would have happened if we hadn't have taken these trillions of dollars and shot them in outer space the way we have. That's exactly right, and that's one of Melman's points, is that this spending by the Pentagon is parasitic spending. He's not a pacifist, so he doesn't say there should be no Department of Defense or anything, He says that, you know, once we have enough weapon power to destroy each enemy city six times over, I mean, presumably that should be just about enough, right?

12:32I mean, we probably, that might even be overkill. So then we have to really think of this as just being pure loss, because, as you say, that money, if it had stayed in the private sector, might have gone, for example, to replace regular shovels with steam shovels so we can do more work with the application of less effort. We can thereby create wealth. So in other words, we would be able to spend that money on things that pay for themselves in terms of the new stuff they produce. This doesn't pay for itself, it's just all destroyed or it all sits there. It's not necessary for the security of the country, but it lines the pockets of influential people and every single time, and I mean every time there's been a blue ribbon commission over the decades to investigate the

13:44to do something about this and examine the problem and all those things. And it never gets done. And then Melman also made the point that he was attacking other people on the left, particularly the Marxist left, who argued that if the U.S. were to get rid of a lot of its military spending, then the economy would collapse. Because if we weren't spending this money on the military, then we would just collapse. Well, that's got to be true, at least temporarily, right? It would be a catastrophe. Well, that's true. I mean, temporarily, yeah, you'd have to figure out, okay, well, what are we going to deploy this money for now? But the point is that eventually the money would be redeployed for civilian use. It's not like we'd all sit around scratching our heads saying, darn it, you know, now that we're not squandering a trillion bucks, I mean, I don't know, I can't imagine where these resources could go. I mean, in fact, when you talked about the seen and the unseen, the classic essay, of course, is by Frederic Bastiat from the nineteenth century when he talks about a kid throwing a bag of money into the trash.

14:42baseball through a window, and it breaks the window, and people say, oh, no, no, no, that's good, because that'll give money to the guy who repairs the window. But, okay, but then where would that money have gone if you hadn't had to blow it on replacing a window? Well, what's forgotten is that Bastiat also gave a military example. He said, suppose we bring a hundred thousand troops back from overseas. Are we just going to collapse into depression because there's nothing for these men to do? No. The spending stream that we used to direct toward them and whatever they spent the money on, alcohol and prostitutes or whatever, can be redirected into civilian needs. I mean, sure there's an adjustment period, but I for one am willing to live through that in order not to see my money blown on products produced by Raytheon. Right on, yeah, and all the blood that goes with that.

15:27Well, you know, here's the thing, too, is it's 2009 by the time we're having this conversation. This transition from the last vestiges of the old republic is a long time gone, Tom, and so this country's government occupies the whole world. Gareth Porter, for one, I know, his model for the way he examines this thing is that The Pentagon is the center of gravity of all foreign policy, everything, all policy really in this country, that for all the talk about the oil companies and about the Israel lobby and the military industrial complex and all the businessmen on Wall Street, it's the Pentagon that runs this entire show.

16:16They are their own empire in and of themselves and the national security, it's not just the of the Pentagon, but you know the entire national security state as it exists in DC, that is the engine, the perpetual engine of all this policy, so you know it's kind of like as we face this economic collapse I think it's pretty obvious to see whether it's Republicans or Democrats in charge, the empire is going to be the very last thing to go, you know what I mean? We'll all be completely starving to death and we'll still have bases in Kyrgyzstan. I know it, I know it, I mean, because this is, you know, that, the empire is it, that's the thing that they're going to hang on to, to the end, and yet you're right, it's the most parasitic, non-value-producing aspect of the whole economy, and this is another of Melman's criticisms, and here we have his criticism of GDP, because he says that GDP stupidly adds in military spending as if this is a net plus for the economy. This is parasitic on the economy. This isn't a good thing, so we don't want to measure our economic health

17:18Hey, look at all these Abrams tanks we created. Isn't that wonderful that we built all these tanks that use up 3.8 gallons of fuel when they drive a mile? I mean, ain't that great for our economy? That's just wonderful. These aggregates are totally misleading. Or the fact that if you just look over the past few decades at just the sheer dollar amount that's been blown by the Pentagon on these various firms getting all this stuff, we could have double the entire capital stock of the U.S., which would make us a zillion times more productive and wealthy. So we don't, this is again the problem, because so much of this is unseen, because we haven't been able to spend the money on these good civilian uses, we don't actually come face to face with the real degree of the loss we've endured.

18:05Because it never comes into existence, we never see it, and so we don't realize just how much we're being looted. Well, and I think this is why people often times think that, you know, a little bit of socialism would only be fair, because they see these numbers that say hundreds and hundreds of uncounted billions of dollars, trillions of dollars, and they think, well, wait a minute, you know, if there's 300 million people in America and you divide this by that, how much would it cost to buy everybody a house and a doctor and whatever? Obviously, it would be, we could afford it if we weren't spending all this money killing and that basically is Melman's view and this is the only area of his research where his being on the left really comes through because as you can see the rest of his analysis, any sensible person would have to agree he's right but then he concludes that it would have been better if we'd spent this money on school lunches and stuff well, on a certain level of course I agree with that, that would be much better but I just don't like this use of we to refer to the government and it to refer to resources taken by force from peaceful people

19:09My view is, I think human beings should interact with each other peacefully, both at home and abroad, and the right has its exceptions, and the left has its exceptions. You and I don't make any exceptions. But still, his research and his findings are so path-breaking, and I think people on the left and libertarians ought to be looking at it. He deserves to be listened to. He was an extremely important figure, and so I hope people check it out, tomwoods.com, the articles page, it's the second from the bottom, The Neglected Costs of the Warfare State

20:09government bailouts will make things worse and again this great article at Mises.org is called The Neglected Costs of the Warfare State and your website is ThomasEWoods.com right and even easier it's just TomWoods.com oh just Tom Woods and it forwards on there yeah right okay right on hey thanks a lot for your time on the show today really appreciate it take it easy Scott my pleasure