Uwe E. Reinhardt is an economics professor at Princeton.

It may be sheer coincidence that in this 11th anniversary year of the invasion of Iraq, my fellow blogger Casey Mulligan chose to use the economist’s case for an all-volunteer military as a peg to assert that political factors, rather than the sound reasoning of economists, tend to drive our nation’s public policy, including the decision in the 1970s to abandon the military draft.

Today's Economist Perspectives from expert contributors.

The economist’s case for the all-volunteer army is straightforward — and also quite interesting from a broader perspective.

In classrooms or textbooks, the case is usually illustrated with the aid of a simple demand-and-supply analysis, with a hypothetical supply-of-soldiers curve such as the solid, upward-sloping line in the chart below.

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A supply curve of anything exhibits the quantity of the thing suppliers are willing to supply to the market per period at different prices being offered for the thing. In the present context, the curve represents the number of individuals willing to rent out and potentially sacrifice their bodies, so to speak, for military service in the armed forces at different wages being offered them for that service (including such benefits as health insurance for them and their families).



On the lower left of the solid, upward-sloping supply curve are individuals who either (a) have meager economic opportunities in the civilian sector (i.e., with relatively low opportunity costs for serving in the armed forces) or (b) are patriots willing to bear sacrifice for their country, regardless of their own opportunity costs of doing so.

On the upper right of the supply curve are individuals who may well love their country and consider themselves “patriots” but who either (a) face great economic opportunities in the civilian sector (i.e., have high economic opportunity costs for serving in the armed forces) or (b) are averse to the risk of getting maimed or killed in a theater of war.

Now suppose in the wake of a military campaign somewhere in the world the armed forces needed a force of N 0 , as shown in the graph above.

Under a military draft with, say, a draft lottery, the Selective Service Boards tasked with conscripting military recruits would, in principle, conscript individuals all along the segment AC in the graph, including segment BC.

By contrast, under an all-voluntary armed force, only individuals on line segment AB would join the armed forces, sparing the individuals located on segment BC the duty to fight and sacrifice for their country.

This is the core of the economist’s case for the all-volunteer army. As the University of Rochester economist Steven E. Landsburg puts it succinctly in his welfare-economic analysis of the military draft in his textbook “Price Theory and Applications”:

In concrete terms, what this means is that [under a military draft] the Selective Service Board will draft young people who are potentially brilliant brain surgeons, inventors and economists — young people with high opportunity costs of entering the service — and will leave undrafted some young people with much lower opportunity costs. The social loss is avoided under a voluntary system, in which precisely those with the lowest costs will volunteer. What if the authorities choose to draft only the low-cost young people? Here, of course, the problem of knowledge becomes insurmountable. Information about individual opportunity costs, available free under a voluntary system, is available only at high cost with great uncertainty in the absence of prices.

How well that lecture would be received at, say, the Basic School on the United States Marine Corps Base at Quantico, Va. (where Marine Corps officers are educated and trained), or on any American military base, is an interesting question.

On the other hand, I know from personal experience that, before the invasion of Iraq and thereafter, this welfare-economic analysis of the military draft was music to the ears of the many undergraduates who enthusiastically cheered on that invasion and the subsequent dangerous occupation of Iraq, leaving the fighting, the bleeding and the dying to someone else, all the while being assured by their economics professors that by this posture they were actually helping to maximize their nation’s overall economic welfare (review this letter, starting at Page 5).

Remarkably, one does not find in the economist’s welfare-economic analysis of the all-volunteer army any mention of a phenomenon that usually creates great concern among economists, namely, the moral hazard built into the arrangement.

Economists can wax quite stern when exposing moral hazard in the context of health insurance, environmental pollution or tax-financed bailouts of banks. Amazingly, though, not in connection with decisions to go to war.

The dictionary defines moral hazard as “a situation in which one party gets involved in a risky event knowing that it is protected against the risk and the other party will incur the cost,” or as Investopedia puts it, as the “idea that a party that is protected in some way from risk will act differently than if they didn’t have that protection.”

In the context of war, moral hazard crops up when the socioeconomic class empowered to declare war is largely insulated from the lethal risks faced by those sent to the battlefield because neither they nor their offspring are likely to be thrust into harm’s way by the war.

Under our system of governance, in which political power is highly correlated with economic power, Professor Landsburg’s “low-cost” people recruited into the military and onto the battlefield are unlikely to have much representation in a decision on whether to go to war. On the other hand, few of those authorized to make that call are likely to have offspring in the fray.

Clearly this is a classic case of moral hazard. It raises the probability of a nation going to war, especially if huge profits can be made off a war by those bearing little personal risk in that war but with powerful sway over government.

On this 11th anniversary of the invasion of Iraq, we shall see numerous retrospectives on that event, reminding us, among other things, of how few of those in government or in the news media who most ardently pushed for that war had ever donned a uniform, let alone served in combat, and how few of them had offspring in harm’s way. Former Marine Corps Gen. Anthony Zinni referred to them acerbically in a television interview last year.

Moral hazard arguably played a major role in this nation’s decision to embark on a pre-emptive strike on Iraq and a haphazardly mismanaged subsequent occupation. One can fairly wonder whether the United States would quite so readily have stumbled into that military adventure if more of the cheerleaders for that war had had their own children exposed to the risk of lethal weapons, including the biological and chemical weapons we were assured that Iraq had and was willing to deploy.

Moral hazard is likely to have played a role all the more so, of course, because the war was accompanied not by a war tax, to pay for it, but by a tax cut. For the most part, the policy-making elite did not bear any sacrifice at all for its decision to go to war.

In the eyes and minds of economists, their welfare-economic case for the all-volunteer army has great intuitive appeal. To make their analysis complete, economists should give some thought to the moral hazard of war to which an all-volunteer armed force can give rise.