4 - Political Moral Hazard and Bureaucratic Autonomy

Summary

From the redistributive societies of ancient Egyptian dynasties through the slavery system of the Greek and Roman world to the medieval manor, there was persistent tension between the ownership structure which maximized the rents to the ruler (and his group) and an efficient system that reduced transaction costs and encouraged growth.

– Douglass North (1981, 25)

BRACKED

May 13, 2005, was known as “BRAC Friday” around the country, as the Pentagon revealed the selection of 33 major military installations to be closed. These closings, together with significant reductions at 29 other bases, would result in a net loss of more than 10,000 military positions and 18,000 civilian positions. Many of the bases had a Cold War mission; others were just outdated or had missions that could be accomplished more effectively elsewhere. The Department of Defense (DoD) regarded these closures as a boon to operational efficiency and essential to its goal of shifting resources in such a way as to get the most national security benefits for the buck. With the security challenges posed by 9/11, wars being waged in Iraq and Afghanistan, and threats from Iran, North Korea, and other hot spots, providing an adequate level of national security required the efficient use of every dollar.

Legislators saw these base closings differently from the DoD. One base scheduled for closing was Portsmouth Naval Shipyard in Maine. Senator Olympia Snowe of Maine, not someone known for purple prose, called the recommendation a “travesty and a strategic blunder of epic proportions on the part of the Defense Department” (CNN, 2005). Other bases scheduled to be shut down were Ellsworth Air Force Base in South Dakota and Pascagoula Naval Station in Mississippi; legislators from these locations were equally vehement in their opposition to the plan.

Base closings are an example of political moral hazard: the incentives for political actors to take actions that aggregate to inefficient outcomes. National security is the classic example of a public good. Effective protection against external and terrorist threats is non-exclusionary – everyone gets the benefits of an effective national security apparatus if anyone does. Although the benefits of national security go to all, the costs of closing useless military bases are local.