Practical Integration of Positive and Normative Approaches to Cost-Benefit Analysis of National Defense Spending

Abstract

Cost-benefit analyses for national defense spending can suffer from industry trade association biases evident in inflated supposed gains from industrial multiplier effects. At the same time, ideological presumption of normative values to either increasing or decreasing defense spending (and therefore presence) by the US ignores a more effective analytic framework: first quantifying the purely financial costs of defense spending: immediate cash expense, and increased borrowing costs and slower growth due to increased debt; and the purely financial benefits: the most accurate multiplier effect.This is still only the first part of the story. Quantifying the above first allows us to evaluate the premium we may be paying for defense as a public good. This positive approach could be complemented by a normative one that ignores rhetoric, but simply attempts to assign particular defense spending line items to the particular percent reduction in the chance of a possible conflict (with an identifiable cost) to which it contributes, and use this expected value to determine the return-on-investment of defense as public good. While this framework is tested on the sequestration cuts (for the positivist component) and the costs of potential conflict in Sudan (for the normative one, where ideally defense spending items could be traced to the expected value of their ability to reduce the chance of that conflict occurring), it can be extended to any defense investment decision. This framework is hopefully preferable to anything short of combining sophisticated input-output models with a wargaming simulation.