There’s a telling quote in George Will’s latest Washington Post column:
U.S. military aid for Ukraine has been inhibited by this: Our nation, which faces global challenges from two near-peer adversaries, has chosen to not have an adequate defense industrial base.
The column ostensibly compares our 1930s military build-up in the face of aggressive Germany and Japan to our situation now. I have two questions for Mr. Will.
- Primacy, i.e. military supremacy, has been the objective of our military since the end of World War II. Does Mr. Will support that objective?
- Assuming he answers that question in the affirmative, what would constitute an adequate defense industrial base to accomplish that objective?
I think there’s a major difference between now and 90 years ago. In the 1930s we already had whole supply chains in place. We mined the iron and coal; we produced the steel; we had lots of manufacturing that could be adapted for military uses. Today nearly every one of our major weapons systems requires components that not only do we not make here we don’t even have the supply chains needed to make them. Such are the costs of deindustrialization and too close an embrace of (allegedly) free trade.
There’s an old joke with the punchline “you cahn’t get theah from heah”. Okay, how do we get there from here?
We do not now and have never had free trade with any other country. We have had managed trade. I know of no economic argument akin to Ricardo’s “comparative advantage” that supports managed trade. In other words, it’s a strawman argument.
Please keep in mind that I support free trade. But I oppose managed trade—there are always winners and losers.
The US’ manufacturing problem is not just investments. A surprisingly large fraction of skills is passed on orally on the shop floor, even if that shop is an assembly line. Only the bare essentials are ever written down.
When a NASA engineer was asked a few years ago why NASA just doesn’t make new F1 engines (the Saturn power plant), he said NASA didn’t know how. Back in the day, each engine underwent a series of adjustments after delivery, and there was no record of that.
When the factories left, we lost our skilled laborers. It will take a full generation, 30+ years, to get the skills back. Ain’t gonna happen.
In the meantime, both Russian and China have eliminated the technology advantages we used to have and are now not only full peers across the board in all technologies, they both have complete supply chains for all their critical (and maybe just all) industries. Russia totally self-sufficient in everything, and what China lacks (namely wheat and oil), its ally Russia provides, across an interior land border that cannot be interdicted.
In the case of missiles, especially hypersonics, both Russia and China have multigenerational leads, with weapons deployed, and in Russia’s case used in combat.. We have only recently had two (TWO!!!!!!) successful actual physical tests (not computer simulations); the designs are not finalized; and production has not begun.
Our predicament is the necessary consequence of two things. First, Wall Street insiders used leveraged buyouts to gain control of various companies, and then broke up and sold the parts off for personal profit. Workers lost their jobs and pensions, and real investors lost their investments.
Second, the neocons lead us on a merry chase through Dar al-Islam, killing hundreds of thousands of Muslim civilians, and suffering many thousands of our own killed, many tens of thousands of our own crippled, and wasting at least $8 Trillion (trillion with a T).
In a jumbled list, raw materials (iron, rare earths, copper, oil, etc), scientists and engineers, factories, skilled workers and folks that want to make it happen and will choose wisely.
The last item will be the hardest.
There’s a conversation going on at LinkedIn right now about COBOL and why it’s still so widely used in banking. I pointed out that COBOL is much better suited for business applications than Java and that the old programs continue in use because they work and, importantly, nobody knows how they work any more. That didn’t start recently. When the air traffic control system was replaced 40-50 years ago nobody knew how the old one worked. I know that because I participated in multiple meetings on just that topic.
Meh. You are talking about older, well known technology. It’s not really so much a matter of not knowing how but willingness to accept the costs.
Steve
Yes, there won’t be rebuilding. It will have to be done again largely from scratch. And the demographics don’t support that. We’re a Third World country now. It’s just going to take time for it to become fully apparent.
Dave Schuler: We do not now and have never had free trade with any other country. We have had managed trade.
If you treat free trade as a strict dichotomy, then trade is free or not free. In the real world, trade freedom various considerably on a continuum.
Dave Schuler: What’s Needed for the U. S. to Have an Adequate “Defense Industrial Base”?
While some re-industrialization for military security may make sense, in the modern world, industry now requires international networks and cooperation. It’s unlikely that any one country can produce everything needed. It’s the very integration of the global economy that has produced vast modern wealth and technology, with the United States maintaining its share of the global economy by continually innovating, by spinning off tasks to other countries, and by being first among equals.
Of course, Trump is tearing this work of generations down.
I can see you’ve never read David Ricardo. That dichotomy is precisely the premise on which his argument in favor of international trade depends. Otherwise trade can be managed only to benefit one side or the other.
Dave Schuler: That dichotomy is precisely the premise on which his argument in favor of international trade depends.
While Ricardo worked with a simplified model, he wrote, “But this proportion between the different productions of different countries may be considerably disturbed by bounties, by duties, or by prohibitions on exportation or importation,” showing that Ricardo acknowledged that trade under comparative advantage could still occur, though less efficiently. (See Ricardo, On the Principles of Political Economy and Taxation, published by Murray 1817.)
Nor is Ricardo the last word on comparative advantage. John Stuart Mill showed that tariffs reduce the efficiency of trade, but do not eliminate the benefits of comparative advantage as countries will still specialize based on relative opportunity costs. (See Mill, Principles of Political Economy. published by Parker 1848.) More recently, rigorous models show how tariffs affect trade flows and comparative advantage. (See, for example, Dixit & Norman, Theory of International Trade, Cambridge University Press 1980.)
The simplest way to show that comparative advantage does not rely on a strict dichotomy is to put a very small tariff in place (or even just consider the transport cost). Would that eliminate comparative advantage? If not, then it’s not a strict dichotomy.
It could. Or it could not. Nowhere does either Ricardo (or Mill) say that managed trade will inevitably result in benefits for the party with the free-er trade.
There’s a reason they didn’t write that: because writing that would be fatuous. That doesn’t stop the doctrinaire free traders from making the claim.
My own opinion is that it is likely true that managed trade benefits the country with the free-er trade the most unless it is very carefully managed to avoid that. That’s one of the reasons I think our international trade should be free except in the case of China. IMO China is the closest thing to a technocracy in the world and its leaders are very, very smart. If you study Chinese language, culture, politics, and history, you’re likely to reach that conclusion, too.
In other words, comparative advantage does not hinge on perfectly free trade, but functions along a spectrum.