Gunfire, F.I.R.E., and Hard Reality

With eight endless years of the Cheney/Bush administration coming to an end and an economic crisis facing us, I’d like to step back and look at our economic policies from a long-term perspective. I’d like to explore three concepts: planned obsolescence, inherent obsolescence, and capital intensity.

Planned obsolescence is a familiar concept to most people, so I won’t dwell on it. It took hold in the auto industry in the 1930s, when the market was beginning to saturate with used vehicles. Up until then, car models came out periodically, but the automakers started coming out with the yearly model changes familiar to us today. The apex of this appears to be the computer industry, with last year’s desktop or notebook being hopelessly outclassed in both price and features by this year’s model.

Inherent obsolescence is a simple concept. Consider the candle. You buy it, you light it, it burns, and you need another.

Capital intensity is the quality of a business that churns great quantities of money in its operations compared to its production. One could contrast it with labor intensity, the quality of a business that requires relatively large amounts of human effort per unit of production.

These three concepts explain the economic appeal of the military industrial complex. By appeal I mean appeal to big business, not ordinary people. Especially not ordinary people who live where the bombs get dropped.

Military spending through the ages has been a profitable promoter of inherent obsolescence. Perhaps the best and simplest example of inherent obsolescence is the bullet. It is made (by the millions) to exacting specifications at high cost, because its failure could be fatal to its user. It is shipped at high cost to a battlefield, where it is fired. Then you need another. The problem with using the military version of inherent obsolescence is that it requires a war to really chew up projectiles, weapons, and the vehicles that carry them. Therefore, the bigger the better, because bombs cost thousands of dollars per death instead of a fistful, even with precision guidance. This is capital intensive war. Fewer soldiers mean fewer aggrieved relatives and a smaller constituency for peace.

We did have a way around this, for a while. We had the Cold War and the nuclear arms race. In the Cold War we managed to farm out some of the fighting, allowing military industries to make money without costing us voters’ sons. The nuclear arms race, however, was a brilliant program of capital intensive planned obsolescence. Military contractors designed and built incredibly complex bombs and missiles. The budget and details were secret, limiting oversight. The nukes were vital to our national security, so contractors could completely overrun their bids without penalty. When a missile was finished, it would be stuck in an incredibly expensive secret hole in the ground. At this point it would be obsolete, because the Soviets might already be ahead of us. The design and production of the next money churner would already be in place. As some persistent investigators later found out, we had always been ahead of the Soviets in the arms race, in both technology and quantity, and the insiders in Washington knew this. It was a great hog trough while it lasted.

There was the problem of taxes, and it was twofold. First, the government has to get taxes to pay for the endless stream of obsolete hardware, and this annoys the voters. Second, the few people who become rich from all this flim-flam pay a share of these taxes. President Reagan’s advisors solved this quite simply: Cut taxes on the wealthy and borrow money to make up the difference. During the Reagan years the national debt nearly doubled, deficit after deficit.

But then the damned Soviets collapsed on us and the party was over. People were talking about a peace dividend; the money we’d have left over once we stopped blowing it on nukes, tanks, and submarines. Heaven forfend. Luckily, with some encouragement from Secretary of State James Baker III and his ambassadorial minion April Glaspie, our angry pocket dictator Saddaam Hussein invaded Kuwait.

“We [The United States] have no opinion on your Arab-Arab conflicts, such as your dispute with Kuwait. Secretary [of State James] Baker has directed me to emphasize the instruction, first given to Iraq in the 1960s that the Kuwait issue is not associated with America.” Ambassador to Iraq, April Glaspie, July 25th, 1990, one week before the Iraqi invasion of Kuwait, in a meeting with Sadaam Hussein.

Back to capital intensive inherent obsolescence with a vengeance.

Our invasions and occupations of Iraq and Afghanistan have had the cash registers ringing all over the military industrial complex. Bush II and a compliant Congress cut taxes on the wealthy even more, so deeper in the hole we went. Of course, the bankers felt left out, so in the late 1990’s banking laws were relaxed and we had the credit boom. Talk about capital intensive – it was all about shuffling virtual money.

Consider that banking isn’t really an end in itself for ordinary people. It is a means to some other end, generally storing money or owning an expensive object such as a house or a car. Banking and its costs are a drag on the real economy of goods and services. A couple of decades ago finance, insurance, and real estate (FIRE) accounted for less than 15% of our Gross Domestic Product. More recently it has grown to around 18%. Meanwhile, our manufacturing sector dropped from 27% of GDP to less than 20%.

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(Data Source: Bureau of Economic Analysis, U.S. Dept. of Commerce)

What we are experiencing now is a return to reality. Our titans of finance cheerfully shuffled money around with a myopic eye on short-term profits and made a bundle of vapor. All they proved was that with a high enough credit limit anybody can look like a big shot…for a while. We have run full speed into the cold, hard questions of life. How much real stuff are we actually extracting from the earth and turning into useful things? What everyday services are we providing for each other? How much of our nation’s real wealth is ending up in the pockets of ordinary working people? How much can an average family really afford to spend on a house? How deep in debt can we go before bankruptcy engulfs us, as individuals and as a nation?

Big business will always be attracted to the profligate, wasteful nature of war and the unbounded, non-material world of finance. Politicians will always be tempted by deficit spending. I am somewhat heartened by Mr. Obama’s talk of Main Street superceding Wall Street in his stimulus plans. However, I doubt that he and Congress, filtered and threatened by big money, can spurn the advances of bankers and military suppliers. The material realities of nature and society will eventually force them to comply, but how much battering will we endure between here and our inevitable destination? I’m hoping for some uncharacteristic foresight.