War, Money, and Moral Hazard

Thomas Magstadt, Op-Ed: “In the wake of the US bank-induced 2008 global financial crisis, policy makers, pundits, and economists suddenly rediscovered moral hazard in the under-regulated "free-market economy" both as a theoretical concept and as an existential danger. Nobody was more ardent in pushing this idea than then Secretary of the Treasury Henry Paulson, who served in that position from 2006 to 2009....

 

We have brought into being the military-industrial complex President Dwight Eisenhower warned against in his farewell address a half century ago.  It's worth remembering that the man Americans called, as "Ike" was not only the Commander in Chief but also a five-star general in World War II – a military man who spurned militarism. 

Our war economy is self-perpetuating and mutually enriching for defense contractors, arms manufacturers, and the politicians who collude with the Pentagon to keep the war machine fully stoked.  There is virtually no congressional district in the United States that does not have key defense industries, military installations, and major suppliers of uniforms, food, fuel, and medicines, as well as a wide range of services to the armed forces.  Pull the plug on military spending and every state in the union would feel the economic impact – some more than others, of course, but none would be spared.  Incumbents in Congress would pay a heavy price.   

As it is, the people who pay the price for keeping the war economy going are the taxpayers and the troops – the former with money, the latter with lives and limbs.  Meanwhile, the individuals and enterprises that benefit from war while taking no risks and bearing no costs are incentivized to do it again and again, thus giving rise to the mother of all moral hazards.