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Bahan Kuliah P.Point SDM untuk jurusan EKP Unsyiah dari Prof. Said dan Dr.Eddy. (Coba-coba posting :D)
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23CHAPTER
National Defense
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 23-2
National DefenseNational Defense In 1960, comprised half of federal In 1960, comprised half of federal
government spendinggovernment spending In 1999, just over 16%In 1999, just over 16% Defense spending can be adjusted on Defense spending can be adjusted on
the marginthe margin Especially expenditures to defend U.S. Especially expenditures to defend U.S.
interests internationallyinterests internationally
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 23-3
The Level of Military The Level of Military ExpendituresExpenditures
Year Percent of GDP1945 41.0%1950 4.8%1955 10.5%1960 9.4%1965 7.2%1970 8.1%1975 5.5%1980 5.0%1985 6.3%1990 5.4%1995 3.7%2000 3.0%2003 3.7%
Source: Calculated from data in the Statistical Abstract of the United States , various
Table 23.1 Expenditures on National Defense as a Percentage of GDP
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 23-4
The Marginal Benefits of The Marginal Benefits of Additional ExpendituresAdditional Expenditures
Marginal Costs of Military = Marginal Marginal Costs of Military = Marginal BenefitsBenefits
MB decline as dollars are spent on MB decline as dollars are spent on less vital itemsless vital items
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 23-5
The Marginal Benefits of The Marginal Benefits of Additional ExpendituresAdditional Expenditures
The Optimal Level of Military Expenditures
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 23-6
The Arms Race and the The Arms Race and the War on TerrorWar on Terror
What if reaction of other nations to What if reaction of other nations to military spending is negative?military spending is negative? Arms raceArms race
Potential prisoner’s dilemmaPotential prisoner’s dilemma Incentive to heavily armIncentive to heavily arm End up worse off as resultEnd up worse off as result
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 23-7
The Arms Race and the The Arms Race and the War on TerrorWar on Terror
An Arms Race as a Prisoners’
Dilemma Game
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 23-8
Military AlliancesMilitary Alliances Optimal sharing group may be larger Optimal sharing group may be larger
than one nationthan one nation Economic rational for alliancesEconomic rational for alliances Example:Example: NATO NATO
Increased security also increases Increased security also increases propensity for warpropensity for war
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 23-9
Economic WarfareEconomic Warfare Arms races can cause major Arms races can cause major
economic problemseconomic problems Example:Example: Soviet Union during Cold War Soviet Union during Cold War
Economic warfare can be used to Economic warfare can be used to bankrupt an adversarybankrupt an adversary
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 23-10
Do Democracies Spend Do Democracies Spend Enough?Enough?
Military spending reduces current Military spending reduces current consumptionconsumption
Might be investment towards future Might be investment towards future consumptionconsumption Example:Example: 1991 war with Iraq 1991 war with Iraq
Democratic governments might be Democratic governments might be biased towards short-term spendingbiased towards short-term spending Leads to inadequate military investmentLeads to inadequate military investment
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 23-11
Military Procurement Military Procurement ContractsContracts
How can contracts be written to How can contracts be written to purchase uncertain items?purchase uncertain items?
Fixed feeFixed fee Often infeasibleOften infeasible
Cost plus fixed feeCost plus fixed fee Little incentive to control costsLittle incentive to control costs
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 23-12
Military Procurement Military Procurement ContractsContracts
Cost plus percentage feeCost plus percentage fee Incentive to overspendIncentive to overspend
Cost plus incentive feeCost plus incentive fee Limited applicabilityLimited applicability
The perfect contractThe perfect contract Does not existDoes not exist
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 23-13
Procurement Versus Life-Procurement Versus Life-Cycle CostsCycle Costs
True cost is cost over life-cycleTrue cost is cost over life-cycle Two aspects relevant to military Two aspects relevant to military
expendituresexpenditures Cost of maintenanceCost of maintenance Cost of finishing a started programCost of finishing a started program
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 23-14
Conscription Versus Conscription Versus VolunteersVolunteers
Advantages of conscriptionAdvantages of conscription Lower personnel costsLower personnel costs Constant costsConstant costs
Disadvantages of conscriptionDisadvantages of conscription Heavy tax on conscriptedHeavy tax on conscripted Misallocates labor resourcesMisallocates labor resources
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 23-15
Conscription Versus Conscription Versus VolunteersVolunteers