Societal Slack and Progressive Taxation

By Nader Elhefnawy

Societal slack is not simply a matter of society's total resources, but specifically those resources which are both unutilized, and accessible for a given purpose, whether absorbing some shock, responding to some challenge or seizing an unforeseen opportunity.

At least according to the conventional measures, today's societies, certainly the advanced industrial ones, are wealthier than they have ever been. Nonetheless, the accessibility of that wealth is another matter, and where taxation (the capacity to bear which is an important part of societal slack) is concerned, financial and political reality has always made income distribution important.

Recent years have seen a trend toward regressive taxation, in the fashion for flat taxes and value-added taxes, and the reduction of taxes paid by corporations and people with high incomes.

The U.S. has been no exception. This may seem surprising, given the publicity afforded to figures released in recent years indicating that the collection of individual income tax has become more rather than less progressive since the 1980s, in particular a widely cited Tax Foundation analysis from last year.1 This holds that the wealthiest 1 percent went from paying 19 percent of Federal income tax to 39 percent of it from 1980 to 2005. However, the same data also indicates that their share of the nation's adjusted gross income went from 8.46 percent to 21.2 percent in the same period. This means that even as their share of the country's wealth went up 150 percent, their share of the income tax bill only went up 107 percent. In other words, the growth of their share of the wealth outpaced the growth of their share of the tax burden, implying the reverse.

Of course, one can object that the Tax Reform Act of 1986 made data from before 1987 not strictly comparable with that from later years. However, such a trend is also clearly visible in the years after that date. From 1987 to 2005, the top 1 percent's share of national income went up 72 percent, its share of the tax bill just 59 percent-indicating a regressive change, not a progressive one at that level.

The claims for the progressive character of American taxation are also, and more significantly, offset by the dramatic reduction in corporate income tax. In 1944-45, this equaled 35 percent of Federal receipts, or about 7 percent of GDP.2 While it was quickly cut after World War II, it did not fall below 20 percent of Federal receipts until 1968. Since 1981, it has never accounted for more than 11 percent of receipts, or 2 percent of GDP, save for the 1994-2001 period when it reached and sometimes slightly exceeded that level.

At the same time, social insurance and retirement receipts have accounted for much more of Federal revenue, rising from 7.6 to 37 percent of receipts (1.6 to 6.7 percent of GDP) between 1945 and 1988, a level at which they have stayed since.3 This has been especially important given that borrowing from the Social Security account has been crucial to reducing government borrowing from external sources (creating the illusion of smaller deficits than would otherwise be the case) since the Bush I administration.4

The result, especially given a picture of widening inequality, is an increased reliance of the Federal tax base on a decreasing portion of the nation's wealth. Of course, one can argue that this situation, despite its frequent characterization as somehow inherent in the logic of twenty-first century economic life, may not be that after all; and that in an emergency warranting such action, governments would alter their tax pattern to take fuller advantage of their economic bases. During World War II, for instance, the Federal government levied famously high taxes on individual and corporate incomes (which began to drop soon after, though the sharpest cuts awaited the Reagan era). Nonetheless, governments do not always succeed in adopting such policies, the division over taxes producing a crucial divide among the elite in pre-revolutionary France, among other instances. Additionally, their response in a situation where the problem that needs to be met is less obvious, slower-moving or simply more prolonged (as is often expected to be the case with many of the twenty-first century's challenges) is likely to be far more muddled.

1 See Gerald Prante, "Summary of Latest Federal Individual Income Tax Data," Tax Foundation Fiscal Fact 104, Oct. 5, 2007.
2 Budget of the U.S. Government Fiscal Year 2004 (Washington D.C.: Government Printing Office, 2003), Table 2.2, pp. 31-32 and Table 2.3, pp. 33-34.
3 Keep in mind that Social Security this year was levied on only the first $102,000 of income; while Medicare is supported by a flat tax. Social Security Adminsitration, Social Security Update 2008. Accessed at http://www.ssa.gov/pubs/10003.html.
4 One should also keep in mind that state and local taxes, not insignificant in the United States given its Federal structure, tend to be far less progressive.

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50 Best Inventions (?)

Time magazine has offered a list of the year's fifty best inventions.

Unfortunately, the list makes me wonder if the people who compiled the list even know what an invention is. I like Hulu.com, but does it really count as an "invention" in the same way that "smog-eating cement" (#37) does, and if so, does Hulu.com really rate the number four slot? What about "Facebook for Spies" (#32)? For that matter, why do several different brands of electric car rate different slots, the Tesla Roadster (#2), the Chevy Volt (#7), the Aptera Electric Car (#46) each get their own, even though the hyperlinked articles do not show them to contain any really different, fundamental innovations?

Even sloppier, many of the things that may actually be considered "inventions" have yet to be invented properly speaking, the more exciting items generally just concepts characterized as still in development, like "Green Crude" (#11), or "Airborne Wind Power" (work on which did not begin in 2008, but much earlier, and which will deserve much more than the crummy #35 awarded it here if the R & D folks deliver the goods).

Most of the items on the round-up are certainly worth knowing about, but the presentation is a reminder of the execrable quality of journalism about science and technology, to which this article is no exception.

Merry Christmas

Merry Christmas, everybody. And a happy New Year too.

The Situation in Greece: Update

This article in today's Guardian provides some additional, useful background to, and clarification of, the events in Greece I have been following on this blog.

Some interesting points the article raises:
*The Greek police are running out of tear gas, and contacting Israel and Germany for fresh stocks, a testament to the scale and length of the clashes-or, depending on how you look at it, how unprepared the authorities were for a situation like this.
*The recent police shooting of a fifteen year-old youth was not a unique occurrence, but only unique in that the victim was an ethnic Greek, rather than an immigrant or Roma, whose deaths "do not make the media." Additionally, the scene of the shooting has long been "aggressively policed."
*While some have drawn attention to the strength of the "extreme left in the country," as the spokesman for the French Interior Ministry put it in a statement that much of the media has been quick to quote, it would be a mistake to overlook the strength of the extreme right. As the article notes, "the populist Orthodox Rally won 10 seats in parliament for the first time last year, and the neo-fascist Golden Dawn organisation is known to have supporters inside the police."
As the article also notes:

The teenagers and twenty-somethings who have come close to toppling the Greek government are not the marginalised: this is no replay of the riots that convulsed Paris in 2005. Many are sons and daughters of the middle classes, shocked at the killing of one of their own, disgusted with the government's incompetence and corruption, enraged by the broken promises of the education system, scared at the prospect of having to work still harder than their exhausted parents . . .
Anarchist groups dreaming of revolution played a key part in the first waves of destruction, but this week's protests were not orchestrated by the usual suspects, who relish a good bust-up and a whiff of teargas. There's been no siege of the American embassy, no blaming Bush, very few party slogans.
Though the spectacular violence has dominated the news, thousands have also set out to join in peaceful demonstrations, among them parents worried for their children's future. Linked by the internet, by twitter and text messages, many are trying to distance themselves from the destruction, which they attribute to "extremists, idiots and provocateurs."

That fact may not be comforting, but it would be a grave error to overlook it, especially because, as the sympathy for the protests has evoked in other countries demonstrates, Greece is far from being the only country in such a bind.

The Return of the Russian Navy

While the plans for it got quite a bit of publicity a few months ago, it seems that the Russian-Venezuelan naval exercises (which included the participation of the Russian battle-cruiser Peter the Great) drew little attention when they actually took place at the start of the month.

Incidentally, the exercises were followed up by the Russian navy paying a visit to Nicaragua before heading east via the Panama Canal, the first time Russian warships have used the canal since 1944. Next up for the Peter the Great is a trip to the Indian Ocean, where it is to take part in exercises with the Indian navy and help in "maintaining a regular [Russian naval] presence" off the Horn of Africa. According to the Times of India this will be the fourth Indo-Russian exercise since 2003, which included one in the Sea of Japan last year.

And of course, there are all the more unlikely stories, like the idea of relocating the Black Sea fleet to a base in Syria (at which point, it would of course need to be renamed).

One has to wonder what to make of all this. Today's Russia is not the Soviet Union, nor can it seriously hope to be. Where the Soviet Union in the late 1980s had perhaps 6 perhaps of the world's population and accounted for 12 percent of global GDP (to say nothing of having its troops sitting on half of Europe), today's Russia has a little more than 2 percent of the world's population (and shrinking in absolute as well as relative terms), maybe 3 percent of global GDP-and that because of a rise in oil prices, which since July has gone into reverse. (Believe it or not, today's Russia is actually less industrialized than it was in the Soviet period.)

I expect oil prices to rebound, perhaps in the not too distant future, but even were they to do so, oil alone cannot sustain a superpower's ambitions (and anyway, the benefit Russia derives may be undercut by its peaking production, the worries of foreign investors and the country's own consumption growth), while at the same time, being likely to hobble the country's continued development with a well-known "resource curse." (I discussed the issue at some length in an analysis of the Russian economy for the Space Review back in November.)

In short, the power base isn't there. In fact, as the strain of defense spending on the Soviet economy showed, it wasn't really there even then. The result is that it looks more than anything else like grandstanding off of old military-industrial capital and new petrodollars to score some prestige points (and in cases, prop up a few friends and clients), while hoping that the limited positive signs seen to date will lead to a more substantial recovery enabling it to really fill that enlarged role.

Right now that looks like a long shot, and in any case, it would seem that the money (while admittedly limited next to what the Soviets spent on their military) would be much better spent on rebuilding infrastructure, restoring public health and making other desperately needed investments at home. For that matter, it might have been expended reforming the horrendous conditions faced by Russian conscripts during their national service (or better still, ending conscription, and moving to an all-professional force).

The Situation in Greece

The unrest in Greece (which has included peaceful protests and strikes as well as the highly publicized street fights) is a week old now, and the event itself is increasingly internationalized. A new Reuters article, "Angry young Greeks give wake-up call to Europe"-incidentally, the most comprehensive piece on these events that I have seen so far-describes "sympathy protests from Moscow to Madrid, some quickly organised over the Internet or by SMS message, as many young people feel leaders are ignoring their frustrations." Some were violent, the article citing incidents in Spain, Italy, Denmark and even Russia, as well as the setting afire of two cars outside a Greek consulate in France.

While the Reuters article goes into the issue in somewhat more depth, the journalistic coverage in general increasingly acknowledges the economic factors in these events, echoing much of what I blogged about on Wednesday. These include high youth unemployment (Generation 700 Euros describes "Young Greeks, even those up to the age of 35, make up a silent majority of overworked, underpaid, debt-ridden and insecure citizens," 56 percent of Greeks under 30 earning less than that amount per month), high levels of poverty (20% of households living on less than $7,300 a year), an exceptionally ineffective (mismanaged?) welfare system (highlighted by the government's inadequate poor relief this winter), and inflation that has been worse than the "faked reported values" used by the country's leaders to meet the criteria for accession to the eurozone. The government's combo of a neoliberal hard line and generous corporate welfare (in particular a highly controversial financial bail-out (relative to the size of the Greek economy, equivalent to a $1.5 trillion package in the U.S.)) has not exactly increased the confidence of a public which already views the nation's leadership as corrupt and incompetent (its handling of last year's wildfires a particular sore point).

When I first looked at the situation, I thought of the anomalousness of Greek politics (its radicalization by the junta years of 1967-74, etc.), but given the economic context it occurred to me that if Greece is vulnerable, then a lot of other countries are too. It now seems others are saying the same thing, as the Reuters article shows. Check out this excerpt from it about Nicolas Sarkozy's reaction:

"Look what is going on in Greece!" French President Nicolas Sarkozy told members of his UMP party, rejecting budget proposals which would have cushioned the wealthy from losses.

With memories fresh of weeks of suburban rioting in 2005, Sarkozy expressed concern the anti-government backlash could spread to France: "The French love it when I'm in a carriage with Carla, but at the same time they've guillotined a king."

The man's pretensions to being a latter-day Sun King never cease to amaze me, emerging even in this attempt to sound conciliatory, but I am even more amazed at the imagery he evokes in this comment. Especially when one considers that much of Europe is in roughly the same position as Greece with regard to slowing growth, high unemployment (in general, but particularly among the young) and unpopular neoliberal reforms, it is clear that the potential for such outbursts has been underestimated in the media's preoccupation with immigration and culture wars.

Yet, there is also a danger of overreaction. This is not the French Revolution, and it would be highly regrettable if governments across the continent were to use this as an excuse to engage in repressive measures (hinted at in the anxiety expressed by the authorities in this Wall Street Journal article), rather than considering and addressing their pressing domestic problems.

Nanotechnology Culture War?

An interesting new study of public opinion regarding nanotechnology finds that broad political attitudes make a great deal of difference in how the tech is perceived. Put simply, those who are pro-business see opportunity, while those concerned about economic inequality are more apt to see it as dangerous.

I see little mystery here, or much reason for surprise in the findings. We are long past the point where people imagine technology is likely to fix the world or correct its injustices all by itself. Certainly there are technologies about which the left is more enthusiastic than the right (like renewable energy production from wind, solar and other such sources), but all other things being equal, those who lean left, given the experience of the last few decades (if not longer), have plenty of reason to doubt the likely outcome of such developments-not only in their implications for social justice, but ecology as well. Those who lean right (at least, on matters of commerce and science), being rather more sanguine about the social order, are more optimistic.

The Rising Cost of Military Force

By Nader Elhefnawy

An examination of the defense picture in the advanced states instantly presents the onlooker with a host of contradictions. The military establishments of the major countries appear both massive and strained, important grand initiatives coming to naught, their efforts to rein in costs continually frustrated. The technological Revolution in Military Affairs appears to promise leaps in capability-but perhaps at such leaps in cost that virtually no one can actually afford them, perhaps not even the collective members of the European Union, commonly criticized by American observers as a laggard in this regard.

Such developments make it plausible that Joseph Tainter's observation that modern societies are seeing diminishing marginal returns for investment in complexity also applies to their militaries.1 Indeed, if one accepts Tainter's theory as basically valid, the odd thing would be if militaries did not parallel society at large in suffering from that trend.

Military establishments are certainly not exempt from the increases in the costs of key goods and services that affect other sectors of the economy. A rise in the price of energy will necessarily mean that militaries pay more for their own energy consumption. Additionally, even specifically military purchases and programs are broadly susceptible to broader trends affecting the civilian economy (even if more problematic for military establishments because of certain considerations). A number of these are listed below:

* A tendency toward diminishing returns on technological investment in recent decades, particularly in areas like aerodynamics, hydrodynamics and propulsion.2 For instance, the same technological issues which kept the size, speed, capacity, operating altitude and range of civil aircraft roughly constant since the 1960s also apply to military aircraft, which have not significantly changed in these respects either. While information technology is supposed to be an exception, and its centrality to the "Revolution in Military Affairs" may suggest this translates to the defense sphere, its impact may well have been overrated, not least because of IT's limitations with respect to tasks requiring eye-hand coordination.3 It is also worth noting that avionics have long comprised the area of greatest cost increase in the prices of fighter aircraft.4
* The divorce between designers and users of technology, which diminishes the efficiency of design processes, one reflection of which is the pursuit of features of limited utility by engineers (a process which has been referred to as "gold-plating" in military context).5 Exaggerating the problem is the tendency of customers of high technology to pursue the newest for fear of falling behind, rather than carefully weighing costs and benefits.
* The tendency of the unreliability of systems to rise along with their complexity, encouraging redundancy as a compensating approach, driving up costs further.6
* The increased need for collaboration on the part of multiple buyers, whether branches of one nation's armed forces, or several governments, which may have different goals and priorities, as a result of the price of developing and producing a major system. Historically this has resulted in expensive design compromises.7
* Just as there are fewer customers, there are also fewer suppliers, given the size and specialized nature of the industrial entities which alone can produce many of the needed services and systems; and the political sensitivity of military supply chains. The consolidation of the defense industry, not just in the U.S. but Europe as well, has slashed the number of participants in the market still further.8 This leaves customers with fewer practical option, diminishing the room for market forces to operate, and exacerbates a problem raised in a recent study of the fighter aircraft market by Defense-Aerospace.com, namely that "aircraft prices . . . like those of other manufactured goods, are determined as much by how much the market can bear as by their actual development and production costs."9
* The problem of amortizing the costs of system development, given shortening production runs. As a result the bill for research and development (an increasingly large part of the total) has to be recouped from a smaller number of sales, driving up unit cost.10 At the same time, the short runs make it more difficult to exploit economies of scale.11 It does not help that the weapons procurement process is subject to major, politically-driven work stoppages and restructurings, which lengthen the program and add to its costs.12
* Political corruption. This is difficult to quantify, especially over time, but the widely perceived "privatization of politics," dramatically described in books like Thomas Frank's recent The Wrecking Crew, makes a strong case that the situation has worsened.13 Additionally, the fact that governments are the sole buyers for major weapons systems makes this more of a factor in setting the price than other, dual-use goods with large non-governmental markets.
* The graying of populations, particularly in the industrial world. While the full consequences of this on economic performance have yet to be determined, given the possibility of extending healthy working life; changes in the nature of work; and the present looseness of the labor markets; the particular reliance of militaries on the young makes them more vulnerable to such a trend than other sectors. Put simply, smaller youth cohorts mean more difficulty filling a given number of billets.

However, it is also arguable that a number of problems unique to militaries are contributing to this trend.

System Senility and Technological Uncertainty
For decades now it has been argued that the weapons systems predominating in modern arsenals (aircraft, armored vehicles, warships) are increasingly "senile."14 That is to say, the weapon continues to perform its core, offensive function, but only with the aid of continual incremental modifications, simply to insure their survival in a more dangerous environment, or enable them to retain their effectiveness in the face of similarly upgraded opponents, which drive up their cost.

Tanks and battleships alike progressively moved through a cycle of thicker armor, more powerful engines to accommodate the extra weight and bigger guns for penetrating that thicker armor, without becoming dramatically more effective on the battlefield-and indeed, less so given that their function increasingly becomes their fighting other tanks.15 In recent decades, tanks have also become larger and heavier, complicating their mobility and ease of deployment (such as the M1A2 Abrams), so much so that in the case of the U.S., there has been great interest in pursuing lighter armored fighting vehicles (like the Stryker) specifically to compensate for this problem (without notable success). There is also more emphasis on their integration with other systems to this end, diminishing their effectiveness in the offensive (as with the surrounding of carriers with escorts, and the devotion of an increased proportion of their air wings to group protection).16 In the process, they also impose a greater strain on the logistical systems supporting them.17

However, this is not to imply that investment in "revolutionary" systems is an unproblematic matter. Senility is not obsolescence, and a convenient replacement does not necessarily exist for the major systems discussed above. It was fashionable in the wake of the U.S. invasion of Afghanistan to imagine aerospace power and light infantry working in concert to defeat any conceivable enemy.18 Yet, the "thunder runs" of the Iraq war a year and a half later were widely regarded as affirming the traditional value of armor. Similarly, despite the publicity given Predator drones, there was also no real sense that unmanned aerial vehicles and cruise missiles were on the verge of fully replacing air forces consisting of expensive manned aircraft (even if there was room for doubt about the necessity of F-22s), or "street fighter" warships doing away with carrier groups.

Meanwhile, the overselling of new technologies and tactics of even more limited kinds has led to costly disappointments, as with Harlan Ullman's "shock and awe" theory.19 Of course, it may be pointed out that shock and awe was simply a repeat of the claims theorists have made for air power since Giulio Douhet.20 Nonetheless, given the ambiguity of the post-Cold War strategic situation, and the emergence of "capabilities-based planning" (which shifts the focus from the need to respond to tangible threats, to the pursuit of whatever capacities modern technology might offer as almost an end in itself), there may be a greater susceptibility to this kind of thinking, with the effects on budgets and priorities all too obvious.21

At the same time, the advanced capabilities purchased so expensively have, in many real-world military situations, appear superfluous, raising the issue of whether or not older systems would have performed the task just as well, if not more cheaply. In the air defense environment of Afghanistan, for instance, it was not clear that the B-2 justified its high selling price.22

"War Amongst The People"
Additionally, whatever the costs and benefits of advanced weapons systems, it may be that contemporary political reality means they can only achieve so much. Conventional warfare, while still the technological and budgetary focus of the major defense establishments, has been increasingly rare since the end of World War II.

Many arguments have been offered for why this is the case (the dangers of armed conflict in the nuclear age, the diminished profitability of territorial conquest, the world's growing economic interdependence, etc.), and consistent with this disagreement about the causes, there has been disagreement about how long this pattern will continue into the future. A great many observers continue to anticipate large-scale conventional warfare among major powers, for instance, a Sino-American conflict over Taiwan.

Nonetheless, the decreasing frequency and duration of conventional, interstate conflict in the last half century has not been in doubt, or the trends observed in the fighting that did take place irrelevant to the thinking on the issue. And increasingly, when conventional fighting does take place, as in the invasion of Iraq in 2003, the battlefield victories appear to count for less since these wars are, in the phrasing offered by General Rupert Smith, fought "amongst the people."23 What this means is that rather than actors achieving political ends by destroying the forces of an enemy state and seizing its territory, doing those things (while still necessary) is only a way of creating conditions in which other "means and levers of power" are brought to bear on individuals and societies to achieve those ends-often, over the very long term.

In other words, the conventional phase, instead of essentially settling the conflict, is merely the opening portion of a longer, often costlier "mission other than war." Complicating matters further, it may be more rather than less difficult for the most advanced military forces to execute those tasks today.24

As a result, the value advanced conventional systems bring for the money spent on them is increasingly in question. Indeed, where counterterrorism is concerned, many experts hold military force should support police and intelligence efforts, rather than be the principal instrument. The result is that conventional forces may be seen as competing with them for priority in policy and budgeting (just as they are demanding more money themselves). In cases, an ill-judged use of military force may even worsen the problem by producing a political backlash-a charge repeatedly made against the conduct of the War on Terror, particularly by observers outside of the United States.25

The emphasis on missions other than conventional warfare has also meant that when the major states exercise military force, they tend to do so for vaguer objects and more ambiguous interests. Especially given the absence of old-fashioned territorial threats (certainly, to the homelands of most of the advanced industrial countries), this may have helped to depress traditional tendencies to identify patriotism with military service. Martin Van Creveld has also gone so far as to offer the argument that it is the irrelevance of conventional warfare that has permitted major weapons programs to become as politicized, protracted and costly as they have.26

The Pursuit of "Strength Against Madness"
Finally, there is the pursuit of an unprecedentedly high level of security in a key respect, namely the making of defense policy around the presumption of actors unconstrained by rational deterrence, an object sociologist Zaki Laidi describes as "strength against madness."27 The existence of weapons of mass destruction, and the risk of certain destruction in the event of their use, has enlarged the danger that such actors are seen to present, as with the scenario of a "rogue" state willing to launch a devastating nuclear attack in spite of the certainty of its annihilation in a retaliatory strike.28

Assuming an undeterrable opponent, and the devastating consequences of the attack, the sole approach becomes either to deny them access to the weapon entirely, or to fully neutralize that capability, with all the challenges involved. Permanently denying other actors the possession of whole classes of weapon requires an extraordinary degree of political (and sometimes, military) commitment that may ultimately be unsupportable-especially when one considers the demands of preventive war. Neutralizing those weapons once they do have them may be even less feasible, as the demands of ballistic missile defense and, even more ambitious, space dominance, make clear.29

However, it should be noted that this kind of threat is viewed as chimerical by many observers. Martin Van Creveld in particular has made a strong case against such thinking in The Future of Nuclear Proliferation, where he showed that, where at least states are concerned, such claims of irrationality (regarding the Soviet Union and the People's Republic of China under the "mad" Stalin and Mao, or the supposed irrationality of Pakistan and India) ultimately did not hold water.30

Conclusions
It appears that modern militaries are seeing diminishing marginal returns on investment in complexity. This is partly due to broad technological, economic, political and demographic trends affecting advanced societies in general ways, from which militaries simply are not exempt. However, changes in the security environment-particularly the "senility" of the major weapons systems and the diminution of the conventional war-fighting around which militaries are organized (and the emphasis placed on the prospect of irrational actors presenting existential threat) also play an important role.

While much of the cause for the rising cost of defense is not neatly separable from the problem facing modern societies at large, some amelioration might be found in more cautious decision-making regarding both the level of security sought, and particular decisions regarding the mission orientation and technological acquisition of military forces.

AUTHOR'S NOTE: This article was originally part of an early draft of my article, "Societal Complexity and Diminishing Returns in Security," which appeared in the Summer 2004 issue of International Security. It has since been heavily revised and updated.

NOTES
1 For a discussion of Tainter's theory, see Joseph Tainter, The Collapse of Complex Societies (New York: Cambridge University Press, 1988). Also see T.F.H. Allen, Joseph Tainter, and Thomas W. Hoekstra, Supply-Side Sustainability (New York: Columbia University Press, 2003).
2 Michael O'Hanlon, Technological Change and the Future of Warfare (Washington D.C.: Brookings Institution Press, 2000), p. 194.
3 Robert J. Gordon, "Does the 'New Economy' Measure up to the Great Inventions of the Past?" Journal of Economic Perspectives 14.4 (Fall 2000), pp. 49-74.
4 Dr. Richard P. Hallion, "A Troubling Past: Air Force Fighter Acquisition Since 1945," Airpower Journal 9.4 (Winter 1990), pp. 4-23.
5 Gene I. Rochlin, Trapped in the Net: The Unintended Consequences of Computerization (Princeton, NJ: Princeton University Press, 1997), pp. 29-34.
6 Chris C. Demchak and Patrick D. Allen, "Technology and Complexity: the Modern Military's Capacity for Change," in Conrad C. Crane, ed., Transforming Defense (Carlisle, PA: Strategic Studies Institute, U.S. Army War College, 2001), p. 110.
7 Mary Kaldor, The Baroque Arsenal (New York: Hill and Wang, 1981), pp. 20-26.
8 For an examination of the less-discussed situation in Europe, see Rachel Epstein, "Divided Continent: Globalization and Europe's Fragmented Security Response," in Jonathan Kirshner, ed., Globalization and National Security (New York: Routledge, 2006), pp. 231-257.
9 Defense-Aerospace.com, "Sticker Shock: Estimating the Real Cost of Modern Fighter Aircraft," occasional report, Jul. 12 2006, p. 2. Accessed at http://www.defense-aerospace.com/dae/articles/communiques/FighterCostFinalJuly06.pdf.
10 According to one study, the ratio of R & D costs to production costs went from 5 percent in 1945 to 47 percent in 1989. Thomas L. McNaugher, New Weapons, Old Politics (Washington D.C.: Brookings Institute, 1989), pp. 98-99.
11 McNaugher, pp. 179-80. To give one recent example, it was calculated that whereas three to four Los Angeles-class submarines could be manufactured annually for $6-800 million each, each submarine would cost $1.5 to $2 billion each if produced at the rate of one a year. David Lewis, "Is the DD-21 Another Seawolf?" Proceedings 127.8 (Aug. 2001), pp. 54-57.
12 Indeed, the Defense-Aerospace report cited above emphasized the role of discontinuous development in cost overruns. Defense-Aerospace.com, "Sticker Shock," p. 4.
13 According to the work of Mancur Olson, long political stability tends to permit the growth of special interests which undermine economic performance. The postwar situation, particularly with respect to the defense establishment, may be a case in point. See Mancur Olson, The Rise and Decline of Nations (New Haven: Yale University Press, 1982).
14 George and Meredith Friedman, The Future of War: Power, Technology and American World Dominance in the Twenty-First Century (New York: Crown, 1996). You can find my review of that book here.
15 Additionally, senile systems increasingly reply on collaboration with other systems to preserve their effectiveness, diminishing the flexibility and autonomy that make them effective in the offensive. Also see Martin Van Creveld, Technology and War: From 2000 B.C. to the Present (New York: Free Press, 1989), pp. 280-282.
16 Van Creveld, Technology, pp. 280-282.
17 More expensive weapons systems mean higher costs for training, spare parts and other support functions all too likely to be short-changed, with a negative impact on readiness. McNaugher, pp. 98-99.
18 Edward Luttwak, "Power Relations in the New Economy," Survival 44.2 (Summer 2002), pp. 16-17.
19 This also extends to the overselling of other kinds of policies, like the privatization of military services, and the savings and other benefits that were supposed to accrue from it. See Peter Singer, Corporate Warriors (Ithaca, NY: Cornell University Press, 2003).
20 See Giulio Douhet, The Command of the Air, trans. Dino Ferrari (New York: Coward-McCann, 1942).
21 For a trenchant critique of capabilities-based planning, see Frederick Kagan, Finding the Target: The Transformation of American Military Policy (New York: Encounter, 2006). It is worth noting, however, that it had an antecedent in the "follow-on" system of the Cold War era. See Kaldor, pp. 65-74.
22 According to one estimate, a B-2 cost over $2 billion, compared with $42.9 million for the B-52 bombers which also saw service in the conflict. Stephen I. Schwartz, "Stealth Bomber is Latest in a String of Failures," New York Times, Sep. 26, 1997.
23 You can read the theory of "war amongst the people" in Smith's The Utility of Force: The Art of War in the Modern World (New York: Alfred A. Knopf, 2007). I also offer a summary of his idea in my review of the book for Strategic Insights, accessible here.
24 Territorial occupations in the developing world, for instance, increasingly mean policing a larger, more urbanized and more socially mobilized population, while advanced militaries increasingly substitute technology for manpower both for advantage and necessity. See Nader Elhefnawy, "Are Territorial Military Occupations Becoming More Difficult?" The Rambling Man, Nov. 13, 2008. Accessed at http://naderelhefnawy.blogspot.com/2008/11/round-up-of-news-items.html.
25 Michael Howard, "'9/11' and After: A British View," Naval War College Review 55.4 (Autumn 2002), pp. 11-22; International Institute of Strategic Studies (IISS), The Military Balance 2003-2004 (London: IISS, 2003).
26 Martin Van Creveld, The Transformation of War: The Most Radical Reinterpretation of Armed Conflict Since Clausewitz (New York: Free Press, 1991), p. 209.
27 Zaki Laidi, A World Without Meaning, trans. June Burnham and Jenny Coulon (London: Routledge, 1998), pp. 105-122. For a discussion of such thinking, see Keith Payne, Deterrence in the Second Nuclear Age (Lexington, Kentucky: University Press of Kentucky, 1996).
28 A related concern is the worry that such strikes may be staged in such a way that their culpability is not immediately obvious (as with a state which chooses to smuggle a bomb into a target city rather than using military means in the attack), or, particularly where non-state actors like terrorist groups are concerned, retaliation is impossible for lack of an appropriate target.
29 Robert S. Litwak, "The New Calculus of Pre-emption," Survival 44.4 (Winter 2002-03), pp. 53-80. For an overview of the relevant discussion of space policy, see Nancy Gallagher and John D. Steinbruner, Reconsidering the Rules for Space Security (Cambridge, MA: American Academy of Arts and Sciences, 2008). Also see Nader Elhefnawy, "Four Myths About Space Power," Parameters 33.1 (Spring 2003), pp. 124-132.
30 Martin van Creveld, The Future of Nuclear Proliferation (New York: Macmillan, 1991). For the response to the arguments of this sort made prior to the 2003 invasion of Iraq, see John J. Mearsheimer and Stephen M. Walt, "An Unnecessary War," Foreign Policy 134 (January/February 2003), pp. 50-59.

Reconsidering the IT Revolution's Place in History

By Nader Elhefnawy

Contrary to the common claims that we live in a time of accelerating technological progress, many observers have pointed to slow and often disappointing progress in fields ranging from commercial air travel, to energy production, to medicine and longevity. Several plausible explanations have been offered for this:

* An intellectual property regime that has got out of control, so that it is now stifling innovation.1
* Falling R & D spending in an age of "financialization" and "short-termism."2
* Diminishing returns on investment in established areas of technology.3
* Slow economic growth since 1973 since, according to many long wave theorists, slow growth historically favors the continued use of "sustaining" technologies over the exploitation and proliferation of "disruptive" ones.4

The great exception to this stagnation is usually held to be information technology, which is widely credited with driving recent increases in productivity.

There is, of course, little question as to the significant impact technologies like the personal computer and Internet access have had on our way of life. Yet, it may be the case that they have had far less impact at the macroeconomic level. During the 1980s and early 1990s, a "productivity paradox" (known as the Solow paradox) in which the investment in information technology failed to produce improvements in productivity was widely noted. While the situation appeared to improve by the mid-1990s (when the rate of productivity growth increased from 1.3 to 2.5 percent a year or more), one study indicates that the gains were all in the information technology sector, failing to materialize in other areas.5

One economist, Robert J. Gordon, has offered three arguments as to why the computer's impact may have been underwhelming.6 These are

* The weak impact of information technology on activities requiring eye-hand coordination thus far.
* The "rapid decline in the marginal utility of computing power," improvements early on ceasing to be meaningful and becoming instead a pursuit of features largely for fear of falling behind rather than any practical gain they offer. A good example is the features on word processing programs.7
* The likelihood that computers have been less helpful in letting businesses do new things than offering new ways to do old ones. In most cases it has merely substituted for or duplicated ongoing commercial activities, and in doing so often raised the cost to a company of defending its market share. A good example of this is brick-and-mortar bookstore chains which have been forced to open web sites to keep up with the market after the appearance of Amazon.com.

Of course, one could argue that Gross Domestic Product has its limitations as a unit of measure, and that it may simply have failed to count in many real gains these technologies afford their users. However, it can be pointed out that GDP is at least equally inadequate at taking stock of the full costs of information technology at the macroeconomic level. These include

* The rapid depreciation of IT capital (i.e., software and computers).
* The costs of computer crime, which the OECD recently estimated to be in the range of $100 billion a year; and the cost of the computer security services purchased to help check such crime.8
* Certain one-time problems, like the Y2K bug, which is estimated to have cost as much as $600 billion during the late 1990s ($780 billion in 2008 dollars, or roughly 1.5 percent of global GDP at the time).9

According to economist Roland Spant, the failure to include such depreciation in Gross Domestic Product may mean growth rates have been overstated by as much as 0.5 percent a year in the 1995-2000 period in some advanced economies.10 Similarly, Gross Domestic Product registers the services purchased to deal with problems like crime and Y2K as gains rather than costs.

This warrants a reconsideration of much of what is taken for granted about recent economic history. It certainly throws into doubt a common explanation given for the fall of the Soviet Union, namely that it was simply unable to keep up with "New Economies" turbo-charged by the microchip. (After all, computerization only generated meaningful productivity increases after the Soviet collapse, and even then may have been comparatively minor.11) It also throws into doubt the sources of U.S. growth in the late 1990s, and contributes to suspicions about the reality of that growth in the years since, much of it centered on a suspected understatement of inflation.

Of course, none of this necessarily rules out greater future impact. One notable study indicates that such modest contributions have been the historical norm in comparably early phases of other technological revolutions, like steam and electricity.12 The advent of "strong" artificial intelligence, especially in combination with robotics, would explode the constraints that have hitherto existed on applying computing power to economic productivity. Consequently, it may be that the ultimate significance of the computer revolution depends on the success or failure of technologists to realize those possibilities.

1 Ha-Joon Chang, Bad Samaritans (New York: Random House, 2008), pp. 122-144.
2 See James Crotty, "The Neoliberal Paradox: The Impact of Destructive Product Market Competition and Impatient Finance on Nonfinancial Corporations in the Neoliberal Era," Policy Economic Research Institute, Research Brief (Jul. 2003); John R. Graham, Campbell R. Harvey, and Shivaram Rajgopal, "The Economic Implications of Corporate Financial Reporting," Journal of Accounting and Economics 40 (2005), pp. 3–73.
3 W. Brian Arthur, "Increasing Returns and the New World of Business," Harvard Business Review 74.4 (Jul.-Aug. 1996), pp. 100-109. Also see Michael O'Hanlon, Technological Change and the Future of Warfare (Washington D.C.: Brookings Institution Press, 2000), p. 194.
4 While Joseph Schumpeter viewed upswings in the cycle as driven by the innovation of "leading sectors," other theorists, like Nikolai Kondratiev, or Ernest Mandel, argued that other economic stimuli led to the capitalization on technology. For a discussion of technological innovation and growth in long wave theory, see Joshua S. Goldstein, Long Cycles: Prosperity and War in the Modern Age (New Haven, CN: Yale University Press, 1988), pp. 21-98. For a discussion of disruptive and sustaining technologies, see Clayton Christensen, The Innovator's Dilemma: When New Technologies Cause Great Firms to Fall (Cambridge, MA: Harvard University Press, 1997). The energy sector in particular seems to reflect such patterns. See Marshall Goldberg, "Federal Energy Subsidies: Not All Technologies Are Created Equal," Renewable Energy Policy Project, Research Report, Jul. 2000, p. 2; Robert M. Margolis and Daniel M. Kammen, "Underinvestment: The Energy Technology and R & D Policy Challenge," Science 285 (Jul. 1999), pp. 690-692; Margolis and Kammen, "Energy R & D Innovation: Challenges and Opportunities for Technology and Climate Policy," in Stephen Schneider, Armin Rosencranz, and John-O Niles, eds., A Reader in Climate Change Policy (Washington D.C.: Island Press, 2001).
5 Christine Cooper, "The Persistence of the Productivity Paradox," Jul. 2001. Accessed at http://www-scf.usc.edu/~ccooper/Productivity_Paradox.pdf.
6 Robert J. Gordon, "Does the 'New Economy' Measure up to the Great Inventions of the Past?" Journal of Economic Perspectives 14.4 (Fall 2000), pp. 49-74.
7 The problem may be exacerbated by poor decision-making on the part of consumers in this area, often characterized a drive to acquire the newest (and "best") rather than cost-benefit calculations. Rochlin, Trapped in the Net: The Unintended Consequences of Computerization (Princeton, NJ: Princeton University Press, 1997), pp. 29-34.
8 "Cybercrime toll threatens new financial crisis," New Scientist, Nov. 20 2008. Accessed at http://www.newscientist.com/article/dn16092-cybercrime-toll-threatens-new-financial-crisis.html .
9 For a discussion of Y2K, see William M. Evan and Mark Manion, Minding the Machines: Preventing Technological Disasters (Upper Saddle River, NJ: Prentice Hall, 2000), pp. 58-79.
10 However, it may also understate the rate of growth in some other countries. See Roland Spant, "Why Net Domestic Product should replace Gross Domestic Product as a Measure of Economic Growth," International Productivity Monitor 7 (Fall 2003), pp. 39-43. Accessed at http://www.csls.ca/ipm/7/spant-e.pdf.
11 This claim was recently reiterated in Max Boot's War Made New. A far more likely explanation would seem to be the Soviet government's slashing economic investment in the 1970s in an attempt to maintain consumption while continuing to run its arms race with the West. The economic weakness that resulted (exacerbated when the price of oil dropped after the mid-1980s), and Mikhail Gorbachev's particular strategy for redressing that weakness, created an opening for dissenters (particularly among Soviet elites) which ultimately led to the dismantling of the Soviet Union. See David Kotz and Fred Weir, Revolution From Above: The Demise of the Soviet System (New York: Routledge, 1997).
12 Nicholas Crafts, "The Solow Productivity Paradox in Historical Perspective," Nov. 2001. Accessed at http://www.j-bradford-delong.net/articles_of_the_month/pdf/Newsolow.pdf.

Thoughts on a Book Sale

Over the weekend the local Friends of the Library had their annual book sale. While the books on sale were fairly diverse (including many hard-to-find, out-of-print titles), surplus bestsellers were very prominent in the stock, making it a good representative of the market of recent years, and seeing it reminded me of two things:

1. How much of the section of books devoted to "Business and Economics" consisted of self-help nonsense.
2. How many of the "big" books on public affairs, politics and the like have appallingly short lives before they cease to be of significance to anyone but historians wondering "What were they thinking back then?" In my mind, the prize for this sort of ephemeral writing goes to Dick Morris for his anticipation of the 2008 presidential election, Condi vs. Hillary, but Kenneth Pollack's The Threatening Storm (about which I'd forgotten until my eye fell on a copy there) certainly fits the bill.

Despite all its flaws, the publishing industry gets out a fair number of good books. Unfortunately, the trash-to-gold ratio is very high, and probably worsening, especially in this area. But what else could you expect given the direction of the business, and the dominance of public intellectual life by the lobotomized punditry of television and radio?