Veröffentlichungsreihe der Forschungsgruppe GLOBUS
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R E A G A N I N M A C H I N A :
Model-Based Analyses of Recent Changes in American National Security Policy
by Dale L. Smith
September 1987
Prepared for presentation at the 1987 Annual Meeting of the American Political Science Association,
Chicago, Illinois, September 3-6, 1987.
Publication Series of the GLOBUS Research Group Wissenschaftszentrum Berlin für Sozialforschung
Steinplatz 2 D-1000 Berlin 12
ABSTRACT
As the Reagan Presidency draws to an end, speculation grows as to its legacy in various areas, from the judiciary to international politics. The current study takes as its focus the Reagan legacy in the area of national security policy: specifically, the long-term effects of Reagan's defense spending and Soviet policies. Using the global political-economic simulation model, GLOBUS, a set of Reagan-like budgeting and foreign policies are formally implemented within the model and the resulting changes in behavior systemati
cally evaluated. Beginning with the direct political effects of these policy changes on the Soviet-American relationship, the national security of the two superpowers, and the budgeting behavior of the United States, the study then expands its focus in two directions:
from the political to the economic and from the national to the systemic. In the first case, the effects on the American economy are explored, while in the second, the impact on the East-West system is examined. These changes in American national security policy reverberate strongly throughout the international political- economic system, though their effects are neither as uniformly positive as the supporters of these policies would claim nor as consistently negative as the critics profess.
ZUSAMMENFASSUNG
Je näher das Ende der Präsidentschaft Reagans rückt, desto stärker wachsen die Spekulationen über das Erbe, das er in vielen Bereichen, - in der Rechtspolitik wie in der internationalen Politik - hinterlassen wird. Diese Studie beschäftigt sich insbesondere mit dem Problemfeld der nationalen Sicherheit, genauer: mit den langfristigen Auswirkungen der Reagan'schen Rüstungspolitik und seiner Außenpolitik gegenüber der Sowjetunion. Mit dem politisch
ökonomischen Weltmodell GLOBUS werden eine Reihe haushalts- und außenpolitischer Optionen berechnet. Die daraus resultierenden politischen Verhaltensweisen werden systematisch analysiert.
Ausgehend von den direkten Auswirkungen auf die amerikanisch
sowjetischen Beziehungen, auf die nationale Sicherheit der beiden Supermächte und auf die Ausgabenpolitik der USA, wird die Studie in zwei Richtungen vertieft: zum einen in ihren Auswirkungen auf die nationale Wirtschaft, zum anderen bezüglich ihrer internationalen Effekte. Im erstgenannten Falle werden insbesondere die Konsequenzen für die amerikanische Volkswirtschaft nachgezeichnet. Im zweiten Falle dagegen geht es um die Konsequenzen für die Ost-West-Beziehungen insgesamt. Die aufgefundenen Veränderungen amerikanischer Sicherheitspolitik, das zeigt die Analyse, wirken sich nachhaltig auf das internationale System aus, politisch wie wirtschaftlich. Allerdings handelt es sich keineswegs durchgängig um wünschenswerte Folgen, wie es die Protagonisten einer solchen Politik behaupten, noch sind die
First, responding to the alleged neglect of the previous decade, he would rebuild American military strength. And, second, to prevent future Soviet "adventurism" around the world, this new President would institute a "harder line" toward America's principal antagonist in the international system. While most observers agree that both of these policies have been implemented, and while one could argue the positive or negative effects each has had over the last half
decade, the purpose of this study is to look forward, examining the possible legacies of such policies. Specifically, what might be the as yet unforeseen consequences of such changes in American national security policy, not only for the United States and the Soviet Union, but also for the larger international system in which this superpower dyad is embedded?
This study, therefore, is meant to be a contribution to the growing discussion concerning the Reagan legacy. However, unlike most of the discussion up to now, which has generally taken the form of newspaper editorializing or armchair speculation, the current study takes a very different tack, bringing to bear a unique instrument for the analysis of alternative future developments.
Using GLOBUS, a global simulation model, I will, as stated in the paper's title, put "Reagan in the machine."1 Specifically, Reagan- like changes in two aspects of American national security policy will be implemented within this nation-based global model and the political-economic effects examined. While these changes originate in the political sphere of American activity, their effects certainly do not remain there, and the strength of GLOBUS is its ability to trace those effects as they spread from the political to the eco
nomic, from the domestic to the international.
What will not be done in this study is to forecast the future;
GLOBUS is not a crystal ball. It is a laboratory in which experi
ments such as this one can be carried out in order to provide us with a better understanding of the possible consequences of today's policies. In this case, the focus is on recent changes in American national security policy, specifically Reagan's military spending and Soviet policies, with the purpose of illustrating their possible consequences.
This introductory section begins by examining these two aspects of American national security policy under Reagan and con
cludes by posing the question of whether these Reagan policies represent a temporary aberration or a permanent shift in the
1 The title of this paper borrows from Bremer and Mihalka's
"Machiavelli in Machina" (1977), an attempt to introduce the rules of realpolitik into a computer simulation.
American position. Subsequent sections discuss the instrument, the GLOBUS world model, with which the study will be performed, the representation of Reagan-like policies within this formal model, and finally, an analysis of the effects of those policies on the political- economy of the United States, the Soviet Union and the interna
tional system.
"AMERICA REARMED": REAGAN'S MILITARY SPENDING POLICY
Reagan's ease for increasing military expenditures was based on his view of the 1970s as a "decade of neglect" with respect to defense spending.2 As is shown in Figure 1, the decade began with the level of real military outlays falling from their peak in the late 1960s due to the Vietnam War.3 This decline continued until 1977, when a modest reversal began under the Carter administration. In six years out of that decade, real defense outlays actually declined, and in the other four years, the annual growth rate in real spend
ing never exceeded 1%. Even when viewed in terms of American military spending as a percentage of its gross domestic product, one finds a decline in all but one year of the decade. Figure 2 illus
trates this fall in real military expenditures from 7.9% to 5.1% of GDP during the 1970s.
However, it was the inevitable effect which this long-term decline in the flow of defense dollars had on the stock of American military capabilities that lay at the core of the Reagan argument.
According to this view, the absolute decline in its conventional capabilities meant that the United States could no longer protect its vital interests throughout the world. So, while the "Carter doc
trine" declared the Persian Gulf an area of vital interest to the United States, America did not have the ability to back up with actions the words of that doctrine. And this large absolute decline in its conventional capabilities, coupled with a much smaller decline in its strategic might, was severely accentuated by the even sharper decrease in American power relative to its main interna
tional antagonist - - the Soviet Union. On the strategic side, ad
vocates of the Reagan policy saw the United States as basically standing still during this decade, while the Soviets increased sharply their own nuclear arsenal (see, e.g., Korb and Brady,
1984/5).
2 For those outside the administration, there is still debate as to whether this decade of neglect even existed, much less its causes and consequences. An issue of International Security was devoted to this debate, with contributions by Laird (1985), Gray and Barlow (1985), and Komer (1985).
3 All American military spending data were taken from the SIPRI Yearbook, various years.
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FIGURE 1
FIGURE 2: AMERICAN DEFENSE BURDEN M ilita ry E x p e n d itu r e s a s a P e r c e n t o f GDP
The effect of the decline in defense spending on American conventional capabilities is graphically illustrated in Figure 3.4 Using the military capability indices developed by Cusack (1981, 1984), the figure shows that in just ten years, from 1968 to 1978, American conventional power went from a post-war peak to its lowest post-war level. In the 1970s alone, this precipitous fall amounted to a 37% decline in conventional capabilities.3
FIGURE 3
AMERICAN CONVENTIONAL MILITARY POWER: 1960-1980
YEAR
The strategic capabilities of the two superpowers are shown in Figure 4. Due to a succession of nuclear arms limitation treaties, the 1970s, relative to the previous decade, are charac
terized by considerably less change in the power levels for both the 4 The capabilities indices have only been updated through 1980,
and so I have no measure of the effect on military capabilities of the large increases in defense spending instituted by Reagan.
3 While American conventional power was declining at an average rate of 5% per year during this decade, the Soviets were increasing their conventional capabilities at an average annual rate of 1.2%. This meant that from a level of near parity in 1970, American conventional power relative to Soviet power fell to 0.56 by the end of the decade.
United States and the Soviet Union. And though the changes might not have been as dramatic, the nations were moving in different directions during the 1970s, with America's strategic power declining by 12% during this period, while Soviet capabilities increased by 18%. The result was that by 1973, the strategic capabilities of the Soviet Union were greater than those of the United States. In terms of the strategic balance of power, the ratio of American capabilities to those of the Soviets, one finds that it fell from 1.1 in 1970 to 0.8 by 1980. It was this sharp absolute decline in American military capabilities, coupled with a large decline relative to its main international antagonist, which provided the new administration with a strong set of arguments for pursuing a policy of increased emphasis on defense spending.
FIGURE 4
AMERICAN AND SOVIET STRATEGIC CAPABILITIES: 1960-1980
□ AMERICAN CAPABILITIES + SOVIET CAPABILTIES
While it is true that President Carter turned the corner on defense spending and introduced budgets containing significant increases in military expenditures toward the end of his tenure, the policy of "rearming America" was a keystone of the Reagan revolution. As Korb and Brady (1984/85: 7) note, the Reagan administration's first five-year defense plan, drafted in 1981, called for an average annual real budget increase of 8.1%, while the cur
rent 5-year plan, covering the 1985 to 1989 period, requests a 5.1%
increase. The sharp increases in military spending shown in Figure 1 indicate that at least for the first few years of the Reagan administration there was a continual increase in the growth rate of defense spending, reaching an annual rate of over 11% for the 1982-83 period.
"THE NEW COLD WAR"; REAGAN'S SOVIET POLICY
Since 1945, there has been no bilateral relationship within the international system more important than the one between the United States and the Soviet Union. As the two dominant nuclear powers, as leaders of the world's largest opposing military alliances, and as rivals in almost every international crisis, they have, in a sense, been the global "center of gravity" for almost 40 years.
While the actions of each have had consequences for the other's national as well as international policies, the impact of their actions extends far beyond this dyad. All levels of the interna
tional system have been, in some way or at some time, affected by the Soviet-American rivalry. From Europe to Latin America, Africa, the Middle East, or Asia, almost all nations have played roles - - whether as pawns, surrogates, or allies — in this superpower drama.
The international political climate between the two super
powers has moved in the last 40 years through various phases, from the hostile climate of the Cold War in the 1950s and 1960s to the relatively cooperative climate of detente in the 1970s. In each case, these climatic shifts have been preceded by explicit policy changes by one or both of the superpowers. Most recently, shifts by the Reagan administration in the national security policy of the United States have seemed to usher in a new and relatively more hostile phase in Soviet-American relations.
In addition to the failure of the previous administrations to maintain and expand American strength during the 1970s, Reagan also saw the post-Vietnam period as being marked by a general failure on the part of the United States to challenge Soviet expansion. From South-East Asia, to the horn of Africa, Angola, and Central America, the Soviet Union had, according to this view, continually pressed the advantage, establishing and encouraging sympathetic regimes. By the end of the decade, the invasion of Afghanistan and the continuing threat of military intervention in Poland seemed to confirm the view of the Soviet Union that had been advocated by Reagan for years. For, at least based on its rhetoric, the Reagan administration holds a fundamentally different view of the Soviet Union than that held by most of its prede
cessors. An "evil empire" soon to be swept into the "dustbin of history" were the images of the Soviet Union presented by this President.
The most basic reason for the hardening in America's Soviet policy can be found in the clear ideological shift that accompanied
the inauguration of the Reagan administration.6 The administra
tion's view was that the Soviets had used to their advantage the relatively cooperative climate that existed between the two super
powers during the period of detente. In addition, it was felt that the American signals to the Soviet Union during the last half of the 1970s had often been confused, and the advocates of this policy change felt that a harder stance would more clearly define the boundaries of acceptable international behavior, thus preventing the
"adventurist" Soviet actions which typified the 1970s.
REAGAN: A TEMPORARY ABERRATION OR A PERMANENT SHIFT?
Both advocates and critics of these two changes in American national security policy have debated their possible effects, and in the present exercise certain aspects of these policy changes will be implemented within the GLOBUS model and the resulting shifts in behavior examined. However, in addition to these changes in policy, a second type of question is worth including in the analysis:
Are Reagan's positions a temporary aberration or a permanent shift in American national security policy? As noted in Bialer and Afferica (1982:254-255), one school of thought views Reaganism as a "significant, if temporary, departure from the long-range thrust of American policy" toward the Soviet Union; while a second group believes that "the ascendancy of Reaganism in foreign policy has deep systemic roots and derives from secular changes in American politics and social policies as well." So, while the first group sees Reagan's policies as basically only being in place as long as he is in the White House, the second group views them as long-term changes in American national security policy. While the model will not resolve this issue, it will permit me to explore the implications of assuming one or the other position to be true.
NATIONAL SECURITY DECISION-MAKING WITHIN GLOBUS
The experiment was undertaken within GLOBUS, a global simulation model built to examine the stresses and strains that might confront national governments into the next century. It is obvious that the GLOBUS model cannot be described in any detail here; that is the task of a 900-page volume (Bremer, 1987) which
6 It should be noted that some (e.g., Huntington, 1984) find this change in America's Soviet policy occurring under Carter and only continuing with the Reagan administration. Therefore, it was not the clear ideological shift from Carter to Reagan which brought about this change in policy, but rather deeper changes in the international system (e.g., Soviet and Cuban expansion in the Third World) and would have occurred regardless of who occupied the White House.
fully documents the model, including its structure, parameters and initial conditions, and some illustrative results. Here I can only provide a few brief comments about some of the model's general characteristics. This will be followed by a more detailed, though still incomplete, explanation of the two GLOBUS modules which lie at the center of this study: foreign policy and government budgeting.
Like most of the global models that have preceded it, GLOBUS sees the actual "limits to growth" in social rather than in physical terms.7 It will be our own policies — not the physical limits of a finite planet - - which will determine the future we face. However, unlike its predecessors, which were largely ecological and economic, GLOBUS has a political-economic focus and views the national government as the core actor in the system. While future "stresses and strains" will occur at all levels of the system - - from the sub-national to the international — it will be the abilities of the nation to manage these changes that will shape our future. It is the explicit focus on the nation and its politics and policy-making which sets this model apart from previous efforts.
Given that one technically cannot, and substantively should not, include all the 150-plus nations in the world, the decision to limit the model to 25 of the world's most important nations was made very early in the project.8 While these 25 represent only 15%
of the total number of nations, they account for three-quarters of 7 GLOBUS is most correctly characterized as a confluence of two traditions in world modeling. The first branch must be traced back to the Forrester-Meadows work in the early 1970s, which led to the Limits to Growth volume (Meadows, et al., 1972, also known as the first report to the Club of Rome). Following rapidly in this tradition came the Mesarovic and Pestel (1974) group; the Bariloche model (Herrera, et al., 1976); the United Nations project (Leontief, 1977); the SARU model from Great Britain (Systems Analysis Research Unit, 1978); the FUGI model from Japan (Kaya, et al., 1977); and the MOIRA group in Amsterdam (Linnemann, et al., 1979). A second tradition which heavily influenced GLOBUS must be traced to the Inter-Nation Simulation work of Guetzkow in the late 1950s (see Guetzkow and Valdez, 1981) and its later translation into a computer environment by Bremer (1977). There have been numerous reviews of the developments in the field of global modeling, both by critics as well as the converted, a few include: Alker (1977); Ward and Guetzkow (1979); Meadows, Richardson, and Bruckmann (1982); Ashley (1983); Pollins (1984); and Hughes (1985).
8 A list of the 25 nations is provided in Appendix 1. In describ
ing the evolution of the project, Bremer notes that "two-thirds of the 25 (nations) were chosen unanimously and these ... would appear on anyone's list of the world's 25 most significant actors. The remaining one-third were chosen only after negotiations among the team members." (1984:6)
the world's population, 80% of its production and 85% of its mili
tary expenditure. Internationally, they represent two-thirds of the world's exports and are involved in 68% of the world's hostile interactions. Further, the 25 states are distributed across the advanced, industrial West; the centrally planned East; the develop
ing South; and OPEC. All other states are portrayed within a rest- of-world entity which is the 26th actor in the model. So, while the GLOBUS-25 represent only a small sample of the total number of nations, the fact that they are so prominent with respect to the above-mentioned activities leads one to believe that this sample will have a decisive influence on world developments.
Substantively, the model is composed of five linked sectors:
domestic politics, domestic economics, international politics, inter
national economics, and government budgeting. For a given nation, each sector models the processes taking place within it, as well as the governmental policies controlling them. Given the core role of government within this model, Figure 5 illustrates the primary poli
cies and processes each sector models and the types of issues each can address. In the domestic economic area, the government employs both fiscal and monetary policy instruments as it attempts to steer economic processes regarding growth, employment, and
prices. In response to domestic political instability (i.e., mass protest and organized violence), the government may implement sanctions against its political opponents. In the foreign economic area, the government is constantly monitoring the nation's balance of payments, exchange rate, foreign debt, and foreign aid, and is equipped with the appropriate instruments (e.g., the restriction of imports and the alteration of exchange rates) to intervene in each of these processes. Finally, in the foreign political area, the government can change both its foreign policies toward other nations and its own military spending policies in response to changes in its international environment. The scenario to be implemented and examined in this study involves changes in the policies represented in the lower right quadrant of Figure 5. The following two sections summarize those aspects of the foreign policy and government budgeting modules which are directly related to the current experiment.
THE FOREIGN POLICY PROCESS
Within GLOBUS, the foreign policy module is tasked with simulating the international relations which exist among the 25 nations. Taking the directed-dyad as the level of analysis, each nation's foreign policy module determines the level of cooperation and conflict it sends to every other nation. The "currencies" of this sector are indices of hostility and cooperation which are the weighted, annual aggregations of the conflictual and cooperative acts sent from one nation to another. While I can provide here only a summary of the model's structure, the reader is referred to Smith (1987b) for the complete specification of this module's theo
retical bases, equational structure, initial conditions, and parameters.
Above all, the foreign policy module views international action as purposive behavior, with nations determining a desired level of cooperation and conflict with every other nation in the system. However, given that this model is representing a foreign policy process which is in reality an organization, the speed at which the model, like the organization, can move toward some new pattern of behavior is influenced by bureaucratic inertia. While this desired-actual gap produces the dynamics of foreign policy behavior, it will not be further dealt with in this discussion, for the scenario to be implemented here does not affect this aspect of the model. It is in the determination of the desired level of behavior where changes will be made.
The desired level of cooperative or conflictual foreign policy behavior is composed of a reactive and an autonomous component.
Reactivity represents the degree to which a state responds to the cooperation or conflict it receives from another, while the non- reactive component reflects the level of foreign policy behavior autonomously generated by the bureaucracy. Both are assumed to have a variable as well as a constant component, with the constant
part being analogous to an organization's standard operating pro
cedures and the variable part responding to changes in the bureaucracy's internal and external environments. The variable part of a nation’s dyadic reactivity is a function of the multi
dimensional relationship which exists between itself and another state, and as that relationship changes over time, then so too will its reactivity to both conflict and cooperation received. While the multi-dimensional relationship between any two states will differ somewhat depending on the type of dyad, it is operationalized for the Soviet-American dyad in terms of: (1) their military balance of power (including both conventional and strategic capabilities); (2) their international economic relations; (3) the overall state of their diplomatic relations; and (4) the level of East-West tension.
Changes in any or all of these factors will lead to an alteration in the level of dyadic reactivity. The second component of a state's desired level of foreign policy behavior is autonomous, implying that its determinants lie outside of the action-reaction dynamic. In the current version of the model, this component is represented as a constant parameter, and so it can be interpreted as the institu
tionalized predisposition to generate (or absorb) conflict or coop
eration. It will be in this autonomous constant where the changes, necessary to implement the scenario, will be made.
THE GOVERNMENT BUDGETING PROCESS
The other sector within GLOBUS necessary for the implemen
tation of this scenario is the government resource allocation model, developed by Thomas R. Cusack and completely described in Cusack (1987). In terms of its theoretical orientation, the model views government budgeting as a process and identifies strongly with the behavioral theories of decision making pioneered by Simon (1947) and Cyert and March (1963). Standing at the core of GLOBUS, the government budgeting model determines everything from defense spending and foreign aid to indirect taxes, welfare benefits, and educational expenditures.
For the purpose of this experiment, I will concentrate on how the three major spending aggregates - - military expenditures,
"exhaustive" civilian expenditures (e.g., health, education, and welfare), and civilian investment (or capital) expenditures — and the total spending (or fiscal) authorities interact to determine final budgetary allocations. Cusack represents the target level of spending in each of these categories as being determined by sepa
rate, autonomous bureaucracies, each responding to different exter
nal environments, pursuing different goals and facing different bureaucratic pressures. These aspirations for spending in the mili
tary, civilian, and capital sectors represent the "bottom-up" pres
sures on government spending, while opposing these pressures is the desire of a fourth bureaucracy, the fiscal authorities, to hold total government expenditures below a certain level. As inputs into the final reconciliation phase of the budgetary process, the military,
civilian, and capital bureaucracies bring in their minimum levels of spending, while the fiscal authorities introduce their maximum level for total government expenditures. As long as the maximum level of total spending is greater than the sum of the minima arising from the three spending bureaucracies, budgetary slack exists, and the issue becomes how much above their minimum each bureaucracy will receive and how close the fiscal authorities will come to their maximum level. The division of this slack is determined by the bargaining power associated with each of the budgeting authorities.
Since the budget represents an accounting system in which certain identities must hold, Cusack (1987) shows that the sum of the bargaining power parameters for the three spending bureau
cracies plus the fiscal authorities must equal one. For instance, if the total spending authorities had all the bargaining power, then the three bureaucracies would be held to the minima with which they entered this reconciliation phase. Alternatively, if all the bargaining power was distributed among the three spending bureaucracies, then total spending would be pushed up to the maxi
mum level set by the fiscal authorities, with the difference between this maximum level and the sum of the bureaucracies' minima being distributed to each of the three based on their relative bargaining power.
Another way of visualizing this process is to think of each bureaucracy attempting to get as large a piece of the budget "pie"
as possible. Using this imagery, the bargaining power parameters help determine the portion each of the three spending bureaucracies can capture, while the total spending authorities use their bar
gaining power to attempt to control the size of the entire pie.
Turning, in the following section, to the implementation of the scenario, the focus will be on alterations in the bargaining power of these four budgeting authorities.
As will be explained in the following section, changes in the bargaining power parameters alone were not adequate for repre
senting the Reagan budgeting process. Two other aspects of the budgeting model which also required either structural or parametric changes were: (1) the determination of desired total government expenditures; and (2) the determination of the government's level of target revenues.
The total spending authorities enter into the final reconcilia
tion phase described above with an aspiration level reflecting the maximum they are willing to spend. This desired level is concep
tualized as having two components: "their base propensity for balancing the budget and the scope of their desire to counter cyclical imbalances in some part of the economy" (Cusack, 1987:364).
It is the parameter controlling the "propensity for balancing the budget" which will be altered in this scenario to reflect the apparent, increased willingness of the Reagan administration, rela
tive to its predecessors, to run deficits.
The final part of the budgeting model to play a role in this scenario is on the revenue side. The process of revenue determi
nation begins with the fiscal authorities setting a target total
revenue level, which is generally a function of the expected level of societal income, the government debt burden, and levels of past resource extraction. This target level is then evaluated to ensure that it falls within a "reasonable range." The maximum and mini
mum of this range are based upon the nation's historical propensi
ties to extract resources and form, in a sense, a cone within which the level of government revenues will always fall. Changes in this structure which will be detailed in the following section were necessary to reflect the type of revenue policies implemented by the Reagan administration.
IMPLEMENTATION OF THE SCENARIO
In order to reflect within the formal structure of GLOBUS changes in the two dimensions of American national security policy discussed above, I will begin by increasing the bargaining power of the defense bureaucracy within the budgetary process, and harden
ing the American foreign policy position toward the Soviet Union in order to make it more conflictual and less cooperative. To imple
ment such policy changes within the model required alterations in the two sectors discussed above: government budgeting and foreign policy.
CHANGES TO THE AMERICAN BUDGETING PROCESS
As already alluded to in the description of the government resource allocation model, my intention was to represent the Reagan-like changes in the budgetary process by altering the bar
gaining power parameters in order to give more power to the defense bureaucracy. And, since the sum of the bargaining power parameters for the three spending bureaucracies plus the fiscal authorities must equal one, it is impossible to change one bureau
cracy's bargaining power without making off-setting changes else
where. It was therefore decided that the increase in the bargaining power of the defense sector would be offset by decreases in the bargaining power of both the civilian bureaucracy and the fiscal authorities. The results of such parameter changes should produce shifts in spending patterns which are similar to what has been observed under the Reagan administration: increased defense spending, decreased civilian expenditures and reduced control over the total level of spending.
While it is often relatively straight-forward to determine which parameters should be altered to represent a specific policy change, it is difficult, sometimes impossible, to know the degree to which those parameters should be either increased or decreased. On the budgeting side, however, this task is made easier because five years (1981 to 1986) of historical data on the budgeting behavior of the Reagan administration are available. Therefore, to calibrate
the changes in the budgeting process I selected the following five indicators: defense spending, civilian expenditures, total spending, total revenues, and government debt.9 By comparing the average annual growth rates over the 1981 to 1986 period for the historical series with the simulated data, I will have a set of benchmarks against which to judge how well the model is doing in simulating a budgeting process that reflects the Reagan experience. As will be shown below, having a set of benchmarks such as these is an invaluable aid in determining the degree to which model parameters and/or structures should be changed when attempting to introduce a historically-based scenario.
These benchmarks quickly provided evidence that the above- mentioned changes in the bargaining power parameters could not by themselves represent the Reagan budgeting behavior. Specifically, they pointed to two aspects of the budgeting process which were not being captured. First, it was necessary to take into account Reagan's refusal to increase government revenues. This involved a structural change in the target revenue equation. Revenues would no longer be determined by the normal process described earlier, but rather would now always be held to the minimum permissible level of extraction. The second change necessary was to reflect the Reagan administration's apparent willingness to run more of a deficit than has been the case in previous administrations. This was accomplished by increasing, in the equation determining desired total expenditures, the parameter which controls the fiscal authori
ties basic propensity to run deficits. With these two changes, along with the previously mentioned changes in the bargaining power parameters, the model produces a very good picture of the Reagan budgeting behavior.
Table 1 presents the observed growth rates in the five benchmarks over the 1981 to 1986 period and compares them with the values obtained from the Reagan scenario.10 The simulated growth rates for defense, civilian, and total government spending are very close to the observed rates. While the growth rates in total revenues and government debt are somewhat lower than the observed rates, the overall profile of budgeting behavior in the scenario run is close enough to what has been observed in the first five years of the Reagan administration that I am confident that the parameter and structural changes that have been made do
9 All data are from the Economic Report to the President, 1987.
10 These results were produced by changing the bargaining power parameters for the defense, civilian, and investment bureaucra
cies from 0.104, 0.401, and 0.013 to 0.400, 0.137, and 0.013.
The bargaining power of the total fiscal authorities was reduced from 0.482 to 0.450. The parameter which controls the propen
sity to run deficits in the desired total spending equation was raised from 1.106 to 1.25. The final change, which involved a structural alteration in the determination of target revenues, was described above.
Table 1
SELECTED GOVERNMENT BUDGETING INDICATORS Average Annual Growth Rates, 1981-1986
Indicator Historical Simulated by
Reagan Scenario
Defense Spending 6.9% 6.4%
C ivilian Spending
(including transfers) 1.0% 1.2%
Total Spending
(excluding debt payments) 2.7% 2.8%
Total Revenues 0.9% 0.5%
Government Debt 10.9% 7.2%
indeed formally reflect the types of policy changes instituted by Reagan in the government budgeting area.
CHANGES TO AMERICAN POLICY TOWARD THE SOVIETS
In terms of observable behavior, the "harder line" in America's Soviet policy initiated by the Reagan administration should be reflected by an increase in the hostility and a decrease in the cooperation sent by the United States to the Soviet Union. While there are several places in the model where one could intervene to produce such a alteration in behavior, it is equally important that the changes implemented are justifiable given the substantive interpretation of the parameters. Therefore, the Reagan-like modifications in American foreign policy will be captured by changing the constants in the equations determining the desired level of cooperation and conflict sent by the United States to the Soviet Union. Recalling the discussion in the previous section, these parameters represent the institutionalized predisposition of one nation to send either cooperation or conflict to another. It is argued here that it was Reagan's world-view, differing sharply from
his predecessors', which changed American conflictual and coopera
tive predispositions toward the Soviets; and in terms of the model's structure, that new policy is best represented by changes in these two parameters.
Again, the difficult part is determining the degree to which these parameters should be changed, and here the task is made somewhat more difficult because data on conflict and cooperation in the superpower dyad during the Reagan administration was not available.11 Lacking the historical data with which to calibrate such changes, another approach was pursued.
In the process of empirically grounding the model of foreign policy behavior for the Soviet-American dyad, a series of estima
tions were made which provided estimates of the hostile and coop
erative constants for the 26 overlapping three-year intervals in the 1951 to 1978 period.12 Therefore, these 26 estimates can be thought of as a sample of the values for these parameters over almost the entire post-war period. The question then becomes:
given this sample, where does one place the Reagan administration?
Does, for instance, the hostile disposition of the Reagan adminis
tration toward the Soviets lie above the post-war mean? And if it does, how much above? Does Reagan represent an extreme value when judged against the entire post-war period, or is his Soviet policy only significantly different from the more recent past?
For the purpose of this scenario, I assumed that when judged against this distribution, the parameter values under Reagan lie above the mean with respect to hostility and below the mean for cooperation. Therefore, in terms of representing the Reagan policy, the hostile constant will be increased while the cooperative con
stant is decreased. But again the question becomes the degree to which these parameters should be either increased or decreased. I experimented with two values: in the first case the constants were changed by one standard deviation, and in the second case by two standard deviations. Substantively, what is being implied by these changes is that, in the case of a one standard deviation change, Reagan's Soviet policy represents a significant, though not extreme, change relative to the sample of estimates. Alternatively, a change of two standard deviations implies that the Reagan position is very extreme — even when seen against the entire post-war period.
When the cooperative and hostile constants are altered by two standard deviations, hostility in the Soviet-American dyad reaches levels unseen in the entire post-war period, while coopera
tive relations become almost non-existent. Alternatively, changes of one standard deviation lead to a significant, though not extreme or dangerous, increase in the level of tension in the dyad. As will be shown in the next section, the state of relations produced is roughly equivalent to that which existed in the mid-1960s. While I believe that the Reagan policy has pushed Soviet-American rela
11 The COPDAB data set which was used ends in 1978.
12 For a complete explanation of this series of estimations, the reader is referred to Smith, 1987a:Chapter 4.
tions to a significantly more hostile level, he has not pushed them off the scale. Therefore, in the implementation of this scenario, the hostile constant will be increased by one standard deviation and the cooperative constant will be decreased by one standard deviation.13 The substantive implication of these changes is that Reagan represents a significant, but not extreme, change in America's post-war Soviet policy.
PRESENTATION OF RESULTS
Three runs were necessary to explore the various effects of these Reagan-like changes in American national security policy.
The purpose of the first run, in which there was no exogenous intervention, was to generate a reference case, against which the changes introduced in the second two runs could be measured. In this run, American policies both before, as well as after, 1981 remained the same. Because the model's parameters were estimated with data from the 1960s and 1970s, the policies represented in this reference run can be thought of as historical averages, and so this first run provides, in a sense, a baseline against which to compare the two intervention runs. It provides, in a sense, a counterfactual, for it assumes these Reagan-like policies were never implemented.
The only difference between the two intervention runs is the length of time the set of foreign policy and budgeting changes described above remain in effect. In this manner the differential effects produced by assuming that the Reagan policies are perma
nent versus assuming that they are only a temporary aberration can be investigated. That is, are these permanent changes in American defense and foreign policies, or are they simply a departure from the historical average to which the United States will eventually return? In both the second and third runs, the above-noted changes in parameters and structures are initiated in 1981 by pro
grammed interventions during model execution. However, in the second run the change is assumed to be temporary, lasting until 1988, the end of Reagan's term, after which the policies, and therefore the parameter values, return to their historical average levels. The third, or permanent revision, run assumes that these changes in American policy are permanent — beginning in 1981 and lasting until 2010, the end of the simulation run.
In all of the time plots to be presented, the three runs of the model are labeled in the following manner:
13 The one standard deviation changes in the American parameters entail an increase in the hostile constant from 216.3 to 402.5 and a decrease in the cooperative constant from 23.9 to -22.6.
NO REVISION TEMPORARY PERMANENT
no policy change (the reference run) temporary policy change (1981-1988) permanent policy change (1981-2010) All three runs are identical through 1980. For the next eight years (through 1988) only two lines appear on the time plots, because during this period both the temporary and permanent policy change runs produce the same results. It is only after 1988, when the temporary run returns to the "historical average," that three sepa
rate time paths appear.
The results to be examined in this section can be divided into four broad categories. First, certain aspects of the two superpowers' national security situations will be presented. Second, the effect of the scenario on American budgeting policy will be investigated. Third, the link from the political to the economic will be examined in terms of structural and welfare changes within the American economy, and finally, the focus will be expanded to examine the regional and systemic effects of the Reagan scenario.
EFFECTS ON THE NATIONAL SECURITY OF THE TWO SUPERPOWERS This section will begin by examining the effects of the Reagan scenario on the international political relations between the United States and the Soviet Union. This will be followed by an analysis of the effects on defense spending in the two nations, and how changes in military spending alter the American-Soviet balance of power.
International Political Relations
To illustrate the effect of the scenario on the superpowers' international political relations, Figure 6 presents their dyadic climate, which is defined as the sum of hostility exchanged within the dyad divided by the sum of cooperation exchanged. This com
posite indicator is meant to represent the overall tenor, or state, of relations between any two countries. If the amount of hostility exchanged is equal to cooperation exchanged, then the value of the dyadic climate variable would be one, indicating a balanced rela
tionship. The dyadic climate in 1980 is about 1.9, meaning that the levels of dyadic hostility are slightly less than twice as great as the levels of cooperation. With the introduction of the Reagan- like policies, the climate becomes significantly more hostile, jumping to over 3.0 by 1982.
This very sharp rise immediately following the introduction of the scenario is caused by two factors. The first is a result of the speed at which the foreign policy bureaucracy can implement a desired policy change. In the earlier discussion of the structure of this model and the implementation of the scenario, it was noted
FIGURE 6
□ NO REVISION + TEMPORARY o PERMANENT that the Reagan intervention would directly change the desired levels of American cooperative and hostile behavior toward the Soviet Union. However, the speed at which that new desired level produces actual changes in behavior will depend on how quickly the bureaucracy can adjust its behavior. Based on empirical estimates, it is known that the adjustment speeds which determine changes in foreign policy behavior are much faster than those found in other sectors of the GLOBUS model. The result is that the policy process adjusts quickly to changes in its desired level of behavior produc
ing rapid alterations in the dyadic flows of cooperation and conflict which compose the dyadic climate indicator. The second reason for the sharp rise in the first two years is due to the fact that during this period the level of hostility exchanged between the two superpowers is rising rapidly, while the amount of cooperation is falling. Since the dyadic climate indicator is the ratio of the two types of behavior, such changes produce the sharpest increases in this indicator.
The observed decline in the dyadic climate after 1982 (implying relatively more cooperative relations) illustrates the operation of the model's feedback processes. By this time the sig
nificantly more hostile state of relations has begun to affect poli
cies (via the reactivity function described earlier) on each side.
Though the levels of hostility within the dyad are still rising, they are doing so at a much slower rate than during the first couple of years of the scenario. However, the level of cooperation, rather than falling as it did during the first few years of the scenario, is now rising. This is a response on the part of the Soviets to the increased level of tension within the dyad. Specifically, increases in the dyadic climate have a positive effect on the Soviets' coop
erative reactivity to behavior received from the United States.
Even though the more hostile dyadic climate has the opposite effect on America's cooperative reactivity toward the Soviet Union, the net result, due to the model's action-reaction dynamic, is an overall increase in the level of dyadic cooperation. In an effort to moder
ate the increasingly hostile state of superpower relations, coopera
tion therefore begins to rise, resulting in the post-1982 decline in the dyadic climate.
After 1988, the dyadic climate under the temporary scenario falls rapidly and is actually below the no revision level by 1990, indicating a more cooperative set of Soviet-American relations. So, despite the very hostile interlude introduced by these policies, the only lasting effect of the temporary Reagan scenario is a positive one: the state of Soviet-American relations is somewhat better in the long run. However, in the case of the permanent revision scenario, one finds a very different superpower relationship by the end of the run. After about 1990, the dyadic climate begins to rise again, becoming increasingly hostile through the rest of the simula
tion.14
Since these dyadic climate values have little intuitive mean
ing, it is worth briefly examining them in light of the historical levels for the American-Soviet dyad. Values for this indicator in the range produced by this scenario (2.5 to 3.0) typified the 14 An investigation of each nation’s reactivities indicates that this increasingly hostile relationship is due to changes in their overall balance of power. By the early 1990s, the ratio of military capabilities (including both strategic and conventional) has begun to move against the United States. The maintained hypothesis (supported by empirical estimations) for the relationship between military capabilities and foreign policy behavior is based on Ashley's "compensatory dynamic" (1980;
also see Smith 1987b). Briefly, this hypothesis states that as the balance of power goes against the weaker state, it will compensate for that weakness by becoming more hostile and less cooperative. In the model this translates into a decrease in United States' cooperative reactivity toward the Soviets and an increase in its hostile reactivity. Given that the Soviets are getting stronger, their policy process reacts in the opposite manner. So, with changes in reactivities and the resulting flows moving in different directions, depending on the dyadic relationship and its strength, the net result is an increase in the overall hostile relationship between the United States and the Soviet Union.
superpower relationship in the mid-1960s. Therefore, these results would characterize Reagan's policy as turning back the clock by about 20 years to a period after the height of the Cold War, but clearly before detente. While this shift in policy produces a very significant change in American-Soviet relations relative to the most recent past, it cannot be characterized as either extreme or dangerous when viewed against the entire post-war period.15
Military Spending in the United States
This more threatening international environment that both the United States and Soviet Union must face should have, holding all other things equal, a positive impact on their desired defense spending.16 As a nation feels itself more threatened, which is a function of the relative level of hostility it receives from each nation weighted by their military capabilities, pressure will exist to increase military expenditures. And, though not shown here, the scenario does produce significant increases in the threat perceived by both the United States and the Soviet Union. In the Soviet case, threat increases by about 30% by 1988 while the threat per
ceived by the Americans has increased by about 20%. The question now becomes: how does this sharply increased tension in their international environment translate into increased defense spending?
In Figure 7, one finds a sharp rise in real defense spending by the United States when the Reagan-like scenario is introduced in 1981. It must be remembered, however, that this change is a func
tion of two factors — one a direct effect of the the scenario and the other indirect. The direct effect is the result of the increased bargaining power given to the defense bureaucracy within the bud
geting process, while the indirect effect is caused by the more con- flictual international environment produced by the Soviet's more hostile response to the change in American foreign policy. A com
bination of effects - - some internal to the budgeting process and some external to it — interact to produce the increases in defense spending shown in this figure.
15 Over the 1948 to 1978 period, the superpower climate had a mean of 4.0, but a skewed distribution due to very large values in the late-1940s to mid-1950s. During this 31-year period the dyadic climate peaked in 1950 with a value over 18. Examining only the 1960 to 1978 period, the summary statistics look considerably different with the mean for these 19 years being 2.6. Hence, even when one's perspective is reduced to this more recent period in Soviet-American relations, one finds the Reagan scenario producing a climate somewhat more hostile than average.
16 A full explanation of the impact of international conflict and cooperation on, first, desired defense spending and, ultimately, the final outlays is provided in Cusack (1987).
FIGURE 7
□ NO REVISION + TEMPORARY o PERMANENT Over the first eight years of the scenario, the results are as one would predict. The average annual growth rate over the 1981 to 1988 period is 5.6%, with the larger increases coming at the beginning of the period. In the no revision run, which assumes that the Reagan-like policies were not implemented in 1981, the average annual growth rate for that same period was 3.7%.
However, the most intriguing aspect of the permanent revision result begins to become evident around the end of the 1980s. At that point one sees the slope of the line, indicating the growth rate in defense spending, falling rapidly when compared with the slopes of the other two runs, and by 2002 the reference run is actually producing higher levels of military spending than the permanent revision scenario. Over the last 20 years of the simulation (1990 to 2010), the reference run increases at an average rate of 2.2%
per year, while the permanent revision scenario can only manage an annual average growth rate of 0.9%.
Given that in the permanent revision scenario the defense bureaucracy has more bargaining power and is facing a more threatening international environment than in the no revision run, how can this occur? Both of these changes should lead to signifi
cantly higher levels of military outlays in the permanent revision scenario. Recall, however, that the Reagan scenario also introduced
a revenue constraint in order to represent the extraction side of Reagan's budgeting policy, and it is this change that is responsible for the permanent revision scenario producing, over the long run, the lowest levels of defense spending. Since the desired level of total outlays is directly related to expected government revenues, a constraint on revenues causes a long-run decline in total spending, despite the fact that the government is more willing to run deficits under the Reagan scenario. Even though the bargaining power of the defense bureaucracy is considerably stronger under Reagan, military outlays are eventually affected by this constraint, produc
ing very low rates of growth after about 1990.
In the temporary revision scenario one finds that after 1988 the trajectory for defense spending parallels that for the reference run, although the Reagan interlude has shifted the level of expen
ditures upward by about 10%. This parallel tracking is to be expected, since after 1988 all policies and structures are identical across these two runs. So, even when the Reagan-like policies remain in effect for only eight years, they do have a long-term impact on military spending, as evidenced by the upward shift in the schedule relative to the reference run.
These results point, over the long run, to a basic incompati
bility between two of the most cherished goals on the Reagan agenda - - revenue restraint and military strength. By increasing government debt and cutting civilian expenditures, it was possible over the short-term to both build up the military and hold down revenues. However, over the long-term choices between these two conflicting goals must be made. High levels of military spending can only be maintained if revenues are allowed to increase more rapidly.
Military Spending in the Soviet Union
In a result which may at first glance seem incongruous, the Reagan-like policies have only a marginal effect on Soviet defense spending. Despite a much more threatening international environ
ment, the increase in Soviet defense spending between the reference and permanent revision runs peaks at only 2.7% in 1992. For the Soviet Union, therefore, a doubling of threat, coupled with a sig
nificant decrease in support from its allies, is converted into only a very modest increase in military expenditures. While the movement is in the expected direction, why is the Soviet response to a sig
nificantly increased external threat so meager? First, it is impor
tant to remember that no changes have been made in Soviet policy.
Externally, they are facing a more threatening international envi
ronment, but internally — in terms of their policy-making pro
cesses — nothing has been altered. In the government budgeting model, there are two steps in the determination of final military outlays. The first step is the determination of a target (minimum) level of spending, which is based on both the bureaucratic inertia inherent in the defense sector and the influence of the interna-
tional environment. In the second step, that target level is final
ized in competition with other spending bureaucracies and the fiscal authorities, in much the same manner as has already been described for the United States.
The two possible explanations as to why the Soviets are not increasing their military expenditures to counter this more hostile international environment correspond to the two steps in the bud
geting process. The first possibility is that these changes in the international environment are producing correspondingly large increases in the target level of defense spending, but because of budget constraints, this is not being translated into real outlays.
The other alternative is that in the determination of the target level, the impact of the international environment is largely ignored, implying that the target level is determined almost solely by bureaucratic inertia.
We find that aspects of both of these explanations are cor
rect. Bureaucratic inertia obviously plays a very significant part in determining the target level of defense spending, although the more hostile international environment is not being ignored. Taking the 1988 values as representative, the target level increases, rela
tive to the reference run, by 7%. While it is a considerably dampened response, it is clear that the Soviet defense bureaucracy is trying to, at least partially, counter the deteriorating security position in which it finds itself. However, in the next step in the process, the level of actual defense spending, relative to the reference run, increases by only 2%. The difference between these two values indicates that there are fiscal constraints which prevent the military bureaucracy from reaching its target level. Aspects of both explanations therefore play a part in explaining this lack of response in Soviet military spending. First, changes in the international environment are heavily discounted in the defense bureaucracy's determination of its target spending level, and, second, fiscal constraints within the Soviet budget inhibit the expansion of military spending. Both the desire, as well as the ability, to respond have a role in explaining why these Reagan-like policies produce only a marginal increase in Soviet military expen
ditures.
One of the oft-heard arguments at the beginning of the Reagan administration was that increasing American defense spend
ing would force the Soviets to follow suit. And given the overall weakness of their economy, such an arms race would ultimately break the economy and bring the government to its knees. The results from this scenario, however, indicate that this may be a vain hope. Based on past Kremlin policies, the Soviets respond only slightly to very significant and threatening changes in their external environment. And while these Reagan-like policies create only a marginal effect on Soviet government spending and, in turn, their national economy, the effects on the United States are often dramatic, as will be demonstrated in a later discussion of the domestic economic effects of these policies.
