Saturday, June 14, 2014

Klein and DiLorenzo on "War Innovation"

At LRC, Peter Klein and Thomas DiLorenzo have responded to Tyler Cowen's view that The Lack of Major Wars May Be Hurting Economic Growth:

Klein writes:
The belief that war, and government spending more generally, fosters economic growth by spurring innovation is one of those fallacies that won’t die, no matter how often it is challenged and refuted. Today’s New York Times gives us the usual spiel:
Fundamental innovations such as nuclear power, the computer and the modern aircraft were all pushed along by an American government eager to defeat the Axis powers or, later, to win the Cold War. The Internet was initially designed to help this country withstand a nuclear exchange, and Silicon Valley had its origins with military contracting, not today’s entrepreneurial social media start-ups. The Soviet launch of the Sputnik satellite spurred American interest in science and technology, to the benefit of later economic growth.
As I noted in a recent Mises View, this sort of argument is devoid of any economic analysis. First, it confuses technological innovation (impressive to engineers) and economic innovation (valuable to consumers). Second, it confuses gross and net benefit — of course, when government does X, we get more X, but is that more valuable than the Y we could otherwise have had? (Frédéric Bastiat, call your office.) Third, it confuses treatment and selection effects of government spending — government typically funds scientific projects that would have been undertaken anyway, such that a main benefit of government spending on science and technology is to increase the wages of science and technology workers. Fourth, as writers like Terence Kealey have pointed out, if you look carefully at the details of the sorts of programs lauded by the Times, you find they were grossly inefficient, ineffective, and potentially harmful.
I addressed these claims in more detail in Free Market article from last year (and also inthis talk, starting around 1:37). The Times writer’s claims are simply ex cathedra pronouncements, not arguments backed by evidence.
DiLorenzo follows up:
 In addition to all these arguments based on sound economics, Peter, (in stark contrast to Tyler Cowen’s non-economic New York Times article), there are public choice considerations that are relevant.  Namely, the kinds of “innovations” that government will fund will always be heavily weighted toward politically-connected companies that have supplied the most “campaign contributions” to the political class.  Obama’s lavishing of subsidies to bankrupted and useless “solar energy” companies is one recent example.

1 comment:

  1. The military did have influence on aircraft improvement but not as much as is thought. The DC-3 combined all-metal stressed-skin construction, variable-pitch propellers, and retractable landing gear in a two-engine, low-wing monoplane and it was built prior to WW2 for civilian use and military aircraft followed its pattern. Interestingly it was introduced in the middle of the Great Depression when US military spending was at its lowest

    The big push for military aircraft during WW2 was much more powerful engines but these engines were often not suitable for civilian aircraft, they had high maintenance and low fuel economy. Some of these powerful engines were used by civilian use after the war but usually were only successful after modifying the design

    Military standards often hold back progress, many of the merchant ships built during WW1 and WW2 were designed more for mass production then as efficient cargo ships. The shipping companies were flooded with these ships after the war and this held back the introduction of new and better designs. It also hurt the shipbuilding companies since they could not get orders as long as the mass produced surplus ships were so cheap