Defense and Technology/Education

Defense and Technology

Focus Questions

1. How do we go about deciding how much to spend on national defense? What is the role of
marginal analysis?
2. What are the current key issues concerning defense strategy and their implications for the level
and allocation of defense expenditure?
3. What are some of the key ways by which the Defense Department is currently attempting to
increase its efficiency?
4. What is the rationale for government actions to promote research and new technologies?
5. What are intellectual property rights? How well do they address the problem of underinvestment
in research?
6. What are the other ways by which government encourages the private production of
knowledge? Why does government provide direct support to research?

Topic Outline

I. Defense Expenditure
i. The value of Marginal Analysis
ii. Defense Strategy
II. Increasing the Efficiency of the Defense Department
i. Defense Procurement
III. Defense Conversion
IV. Technology
i. Market Failure
ii. Government Direct Support

Technical Key Terms

Deterrence – establishing a strong enough force that no one would contemplate attacking.

Strategic Defense Initiative – attempted to provide a fail-safe defense capability.

Two-theatre capability – its major role is its role as a deterrent.

Cost overruns – the costs exceed the producer’s original estimate.

Cost-sharing contracts – sometimes the contracts calls for these costs to be shared by the government
and the private contractor.

Fixed-fee contract – a contract where the contractor was paid a fixed amount, regardless of the
eventual cost.

Dual-use technologies – technologies that could be used both by civilian and military customers.

Defense Conversion – the end of the Cold War brought with it both a downsizing of the military and a
restructuring.

Patent – gives the discoverer of the knowledge exclusive use of knowledge including the right to license
others to use it for a limited period of time.

Copyright – gives the author of a work the exclusive right to use and market his/her own writings.

Incremental research and experimentation tax credit – an indirect support you of the government.
Firms that increase their research allowed deducting 20% of the incremental expenditures from their
tax.

Industrial policies – Government pick out particular industries to encourage through supporting in those
areas. Such funding or other policies, such as protection from foreign imports, aims at promoting
particular industries.
Discussions

I. Defense Expenditure
i. The value of marginal analysis
In allocating a given defense budget one need to consider the effect of the
expenditures on various defense objectives. In evaluating whether we should spend
more on defense, we similarly need to know how much extra “protection” we get from
an expenditure of 1 billion.
ii. Defense Strategy
(a) Deterrence
The existence of strong capacities for retaliating serves to deter others
from “misbehaving”.
(b) Strategic Defense Initiative
The objective of this program was to develop weapons systems that
would protect against a nuclear attack, thus rendering nuclear weapon
“impotent and obsolete”
(c) Two-theatre Capability
With the threat of massive nuclear war subsiding, attention has focused
on regional wars.
(d) Arms Proliferation
The focused s to denuclearized countries that inherited nuclear weapons.
(e) Chemical and biological weapons and terrorism
Researched aimed at building the capacity to develop quickly antidotes
and anti-bodies.
II. Increasing the Efficiency of the Defense Department
i. Defense Procurement
(a) Standard procedures
To ensure that it obtains the best price, the government usually resorts to
competitive bidding: different contractors tell the government the price to
which they are willing to deliver.
(b) Excessive monitoring and procurement return
There are many who believe that the most important problem with
defense contradicting is not cost overruns, but the detailed procedures
which are instituted to ensure that the government is not cheated.
III. Defense Conversion
The end of cold war brought with it both a downsizing of the military and restructuring.
IV. Technology
i. Market Failure
The slowdown to itself might not be a rationale for government intervention. Is there
a market failure?
Intellectually property rights

(a) To enable individual to reap rewards from their knowledge -creating

activities. Others must be excluded from using it or at least form using it
without compensating the creator
(b) Not all ideas are patentable
(c) In determining the life of the patent, the government faces trade-
off.
Other mechanism for encouraging private production of knowledge
(a) Government encourages the private production of knowledge by
subsidizing a critical input into R and D, scientific manpower, through
its support of educational programs and through a tax credit
.
ii. Government Direct Support
(a) Direct support is particularly important for basic research.
Education

Focus Questions
1. What are the reasons why the government plays such a big role in education?
2. What are the key problems of education in the United States today?
3. What are the major proposed solutions?
4. What is the relationship between educational expenditures and outcomes?
5. What are vouchers, and arguments for and against them?
6. What other initiatives are there for changing school governance?
7. Why is there controversy over school standards?
Topic Outline
I. The structure of Education in the United States
i. Federal Tax subsidies to private and public schools
II. Why is Education publicly provided and Publicly Financed?
i. Is there a market failure?
ii. The Federal Role
III. Issues and Controversies in Educational Policy
i. Education outcomes
ii. School vouchers: Choice and Competition
iii. School Decentralization
iv. Performance standards and Goals 2000
v. Inequality
IV. Aid to higher Education

Technical Key Terms

Human capital view – holds that education increases the skills of individuals, and thereby wages. This
perspective sees investment in people as a kin to capital investment.

Screening view – argues that one of the important functions of education is to identify the abilities of
different individuals.

Discussions

This chapter describes the structure of the US educational system, explores the rationale of public
finance and provision of education in the United States and analyze some of the current issues in the
US education policy.

I. The structure of Education in the United States

Elementary and secondary school education has been the responsibility of local
communities. They finance it, hired teachers, and determined the curriculum.

i. Federal tax subsidies to private and public schools

Expenditures of state and local communities for education are implicitly
subsidized by the federal government.

II. Why education is publicly provided and publicly financed?

Is there a market failure? Those who seek to justify public education in terms of
market failure to focus on the importance if externalities.

III. Issues and Controversies in Educational Policy

i. There are different perspectives on the outcomes of the education process. One view,
implicit in the foregoing discussion, hold as that education increases the skills of individuals,
and thereby wages. Called the human capital view, this perspective sees investment, in
people as a kin to capital investment. Another view of education, called the screening view,
argues that one of the important functions of education is to identify the abilities of different
individuals.

ii. School vouchers: Choice and Competition

 Should parents be given more choice about where their children go to
school? The simplest proposals for providing school choice entail vouchers: each
child would be given a coupon – worth, say, $5000 – to be used at the school of
the parent’s choice.
iii. School Decentralization
School decentralization aims to address problems associated with the
control of schools by large educational bureaucracies. Decentralization
has been an issue in large urban schools districts, where such
bureaucracies have been seen unresponsive to parents.
iv. Performance standards and Goals 2000
Establishing a clear performance goal was the aim of the Goals 2000
legislation passed by congress in 1994. Under the legislation, task forces
have been established to set national performance goals in each of the
major subject areas.
v. Inequality
One of the underlying purposes of public provision (finance) of education
is to promote equality and opportunity. Both there is a major that today,
the public school system does not come close to living p that ideal.
IV. Aid to Higher Education
Many of the controversies that plague elementary and secondary education have
been resolved at a higher-educational level: The GI Bill of Rights, which spurred
the growth of higher education in the United States after World War II, in effect
gave veterans a voucher they could use at any university, public or private.