The Military-Industrial Complex: 50 years later

The Tyranny of Defense Inc.
By Andrew J. Bacevich
Originally published in The Atlantic, January/February 2011 issue

In 1961, Dwight Eisenhower famously identified the military-industrial complex, warning that the growing fusion between corporations and the armed forces posed a threat to democracy. Judged 50 years later, Ike’s frightening prophecy actually understates the scope of our modern system—and the dangers of the perpetual march to war it has put us on.


American politics is typically a grimy business of horses traded and pork delivered. Political speech, for its part, tends to be formulaic and eminently forgettable. Yet on occasion, a politician will transcend circumstance and bear witness to some lasting truth: George Washington in his Farewell Address, for example, or Abraham Lincoln in his Second Inaugural.

Fifty years ago, President Dwight D. Eisenhower joined such august company when, in his own farewell address, he warned of the rise in America of the “military-industrial complex.” An accomplished soldier and a better-than-average president, Eisenhower had devoted the preponderance of his adult life to studying, waging, and then seeking to avert war. Not surprisingly, therefore, his prophetic voice rang clearest when as president he reflected on matters related to military power and policy.

Ike’s farewell address, nationally televised on the evening of January 17, 1961, offered one such occasion, although not the only one. Equally significant, if now nearly forgotten, was his presentation to the American Society of Newspaper Editors on April 16, 1953. In this speech, the president contemplated a world permanently perched on the brink of war—“humanity hanging from a cross of iron”— and he appealed to Americans to assess the consequences likely to ensue.

Separated in time by eight years, the two speeches are complementary: to consider them in combination is to discover their full importance. As bookends to Eisenhower’s presidency, they form a solemn meditation on the implications—economic, social, political, and moral—of militarizing America.

During Eisenhower’s presidency, few credited him with being a great orator. Yet, as befit a Kansan and a military professional, Ike could speak plainly when he chose to do so. The April 16 speech early in his presidency was such a moment. Delivered in the wake of Joseph Stalin’s death, the speech offered the new Soviet leadership a five-point plan for ending the Cold War. Endorsing the speech as “one of the most notable policy statements of U.S. history,” Time reported with satisfaction that Eisenhower had articulated a broad vision for peace and “left it at the door of the Kremlin for all the world to see.” The likelihood that Stalin’s successors would embrace this vision was nil. An editorial in The New Republic made the essential point: as seen from Russia’s perspective, Eisenhower was “demanding unconditional surrender.” The president’s peace plan quickly vanished without a trace.

Largely overlooked by most commentators was a second theme that Eisenhower had woven into his text. The essence of this theme was simplicity itself: spending on arms and armies is inherently undesirable. Even when seemingly necessary, it constitutes a misappropriation of scarce resources. By diverting social capital from productive to destructive purposes, war and the preparation for war deplete, rather than enhance, a nation’s strength. And while assertions of military necessity might camouflage the costs entailed, they can never negate them altogether.

“Every gun that is made,” Eisenhower told his listeners, “every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed.” Any nation that pours its treasure into the purchase of armaments is spending more than mere money. “It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children.” To emphasize the point, Eisenhower offered specifics:

The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities … We pay for a single fighter with a half million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people.


Yet in Cold War Washington, Eisenhower’s was a voice crying in the wilderness. As much as they liked Ike, Americans had no intention of choosing between guns and butter: they wanted both. Military Keynesianism—the belief that the production of guns could underwrite an endless supply of butter—was enjoying its heyday.

At the time, the idea that militarizing U.S. policy might yield economic benefits outweighing the costs seemed eminently plausible. The authors of the National Security Council report “NSC-68,” the 1950 blueprint for U.S. rearmament, had made this point explicitly: boosting Pentagon spending would “increase the gross national product by more than the amount being absorbed for additional military and foreign assistance purposes.” Building up the nation’s defenses could serve as a sort of permanent economic stimulus program, putting people to work and money in their pockets. The experience of World War II had apparently validated this theory. Why shouldn’t the same logic apply to the Cold War?

So Americans disregarded Ike’s brooding about a “cross of iron” and a trade-off between guns and butter. The 1950s brought new bombers and new schools, fleets of warships and tracts of freshly built homes spilling into the suburbs.

Eisenhower and his fellow Republicans were more than happy to pocket the credit for this win-win outcome. Yet the president, if not his party, also sensed that beneath the appearance of Ozzie-and-Harriet prosperity, momentous and not altogether welcome changes were taking place. The postwar boom in which the American middle class took such satisfaction was reconfiguring, redistributing, and redefining American power. Washington itself ranked as a principal beneficiary of this process—and, within Washington, the several institutions comprising what some were calling the “national-security state.”

This national-security state derived its raison d’être from—and vigorously promoted a belief in—the existence of looming national peril. On one point, most politicians, uniformed military leaders, and so-called defense intellectuals agreed: the dangers facing the United States were omnipresent and unprecedented. Keeping those dangers at bay demanded vigilance, preparedness, and a willingness to act quickly and even ruthlessly. Urgency had become the order of the day.

In his 1956 book, The Power Elite, C. Wright Mills, a professor of sociology at Columbia, dubbed this perspective “military metaphysics,” which he characterized as “the cast of mind that defines international reality as basically military.” Those embracing this mind-set no longer considered genuine, lasting peace to be plausible. Rather, peace was at best a transitory condition, “a prelude to war or an interlude between wars.”

Perhaps nothing illustrates military metaphysics more vividly than the exponential growth of the U.S. nuclear stockpile that occurred during Eisenhower’s presidency. In 1952, when Ike was elected, that stockpile numbered some 1,000 warheads. By the time he passed the reins to John F. Kennedy in 1961, it consisted of more than 24,000 warheads, and it rapidly ascended later that decade to a peak of 31,000.

As commander in chief, Ike exercised only nominal control over this development, which was driven by an unstated alliance of interested parties: generals, defense officials, military contractors, and members of Congress. True, Eisenhower had established “massive retaliation”—the threat of a large-scale nuclear response to deter Soviet aggression—as the centerpiece of U.S. national-security doctrine. Yet even as this posture was intended to intimidate the Kremlin, the president expected it to offer Americans a sense of security, thereby enabling him to rein in military expenditures. In that regard, he miscalculated badly.

During the Eisenhower years, military outlays served as a seemingly inexhaustible engine of economic well-being. Keeping the Soviets at bay required the design and acquisition of a vast array of guns and missiles, bombers and warships, tanks and fighter planes. Ensuring that U.S. forces stayed in fighting trim entailed the construction of bases, barracks, depots, and training facilities. Research labs received funding. Businesses large and small won contracts. Organized labor got jobs. And politicians who delivered all these goodies to their constituents hauled in endorsements, campaign contributions, and votes. Throughout the 1950s, unemployment stayed tolerably low and inflation minimal, while budget deficits ranged from trivial to non-existent. What was not to like? As a result, Pentagon budgets remained high throughout the Eisenhower era, averaging more than 50 percent of all federal spending and 10 percent of GDP, figures without precedent in the nation’s peacetime history.

For its beneficiaries, girding for war was a gift, and one they expected would never stop giving. The presumption that military capabilities qualifying as adequate today would surely not suffice tomorrow—the Reds, after all, weren’t standing still—generated a ceaseless quest for bigger, better, and more. Every ominous advance in Russian capabilities offered a renewed rationale for opening the military-spending spigot. Whether the edge attributed to the Soviets was real or invented mattered little. The discovery during the 1950s of a “bomber gap” and later a “missile gap,” for example, provided political ammunition to air-power advocates quick to charge that the nation’s very survival was at risk. Alarm bells rang. Congressional committees summoned expert witnesses. Newspapers and magazines nervously assessed the implications of these new vulnerabilities. Ultimately, appropriations poured forth. That both “gaps” were fictitious was beside the point.

None of these developments—the excessive military outlays, the privileging of institutional goals over the national interest, the calculated manipulation of public opinion—met with Eisenhower’s approval. Knowing at the time that the United States enjoyed an edge in bomber and missile capabilities, he understood precisely who benefited from threat inflation. Yet to sustain the illusion he was fully in command, Ike remained publicly silent about what went on behind the scenes. Only on the eve of his departure from office did he inform the nation as to what Washington’s new obsession with national security had wrought.

In 1961, as in 1953, his central theme was theft. This time, however, rather than homes or schools, Ike suggested the thieves might walk off with democracy itself.

The Cold War, he emphasized, had transformed the country’s approach to defending itself. In the past, “American makers of plowshares could, with time and as required, make swords as well.” But this reliance on improvisation no longer sufficed. The rivalry with the Soviet Union had “compelled” the United States “to create a permanent armaments industry of vast proportions.” As a consequence, “we annually spend on military security alone more than the net income of all United States corporations.”

The “economic, political, even spiritual” reach of this conglomeration was immense, Eisenhower explained, extending to “every city, every statehouse, every office of the federal government.” Although the president could not bring himself to question explicitly the need for this shift in policy, he warned of its implications. “Our toil, resources, and livelihood are all involved,” he said. “So is the very structure of our society.” With corporate officials routinely claiming the Pentagon’s top posts, and former military officers hiring themselves out to defense contractors, fundamental values were at risk. “In the councils of government,” Eisenhower continued,

we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted.

Having defined the problem, Eisenhower then advanced a striking solution: ultimate responsibility for democracy’s defense, he insisted, necessarily rested with the people themselves. Rather than according Washington deference, American citizens needed to exercise strict oversight. Counting on the national-security state to police itself—on members of Congress to set aside parochial concerns, corporate chieftains to put patriotism above profit, and military leaders to hew to the ethic of their profession—wouldn’t do the trick. “Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.”

Reaction to the president’s speech was tepid at best. The headline in TheBoston Globe reported “Ike Says Farewell After Half Century in U.S. Service” and left it at that. With the country agog over Jack and Jackie, the mood of the moment did not invite introspection. Eisenhower’s insistence that citizens awaken to looming danger attracted little attention. His valedictory qualified, at the time, as a one-day story.

So Ike departed, but military metaphysics survived intact and found particular favor in the upper echelons of the next administration. On the campaign trail, Kennedy had promised higher defense spending, enhanced nuclear capabilities, and a reinvigorated confrontation with Communism. Once in office, he proved as good as his word.

In the five decades since Eisenhower left the White House for his retirement home in Gettysburg, much has changed. The Soviet Union has disappeared. So too, for all practical purposes, has Communism itself. Yet in Washington, an aura of never-ending crisis still prevails—and with it, military metaphysics.

The national-security state continues to grow in size, scope, and influence. In Ike’s day, for example, the CIA dominated the field of intelligence. Today, experts refer casually to an “intelligence community,” consisting of some 17 agencies. The cumulative size and payroll of this apparatus grew by leaps and bounds in the wake of the September 11 attacks. Last July, TheWashington Post reported that it had “become so large, so unwieldy and so secretive that no one knows how much money it costs, how many people it employs, how many programs exist within it or exactly how many agencies do the same work.” Since that report appeared, U.S. officials have parted the veil of secrecy enough to reveal that intelligence spending exceeds $80 billion per year, substantially more than the budget of either the Department of State ($49 billion) or the Department of Homeland Security ($43 billion).

The spending spree extends well beyond intelligence. The Pentagon’s budget has more than doubled in the past decade, to some $700 billion per year. All told, the ostensible imperatives of national security thereby consume roughly half of all federal discretionary dollars. Even more astonishing, annual U.S. military outlays now approximate those of all other nations, friends as well as foes, combined.

In Ike’s day, competition with the Soviet Union provided the rationale for such outsized expenditures. Today, with no remotely comparable competitor at hand, devotees of military metaphysics conjure a variety of arguments to justify the Pentagon’s budgetary demands. One such, usually made with an eye toward China, is that relentlessly outspending any and all would-be challengers to U.S. preeminence will dissuade them from even mounting an attempt. A second transforms modest threats into existential ones, with the mere existence of a Mahmoud Ahmadinejad or Osama bin Laden mandating extraordinary exertions until the United States eliminates every last such miscreant—a day that will never come.

The threat inflation that led to the bomber and missile “gaps” of the 1950s remains a cherished Washington tradition. In memos written after September 11, then–Defense Secretary Donald Rumsfeld urged his staff to “keep elevating the threat” and demanded “bumper sticker statements” to gin up public enthusiasm for the global war on terror. The key, he wrote, was to “make the American people realize they are surrounded in the world by violent extremists.” What worked during the Cold War still works today: to get Americans on board with your military policy, scare the hell out of them.

In the meantime, the revolving door connecting the world of soldiering to the world of arms purveyors continues to turn. For those at the top, the American military profession is that rare calling where retirement need not imply a reduced income. On the contrary: senior serving officers shed their uniforms not merely to take up golf or go fishing but with the reasonable expectation of raking in big money. In a recent e-mail, a serving officer who is a former student of mine reported that on a visit to the annual meeting of the Association of the United States Army—in his words, “the Sodom and Gomorrah of the Military Industrial Complex”—he was “accosted by two dozen former bosses, now in suits with fancy ties and business cards, hawking the latest defense technologies.”

If anything, Eisenhower’s characterization of the cozy relations between the military and corporate worlds understates the contemporary reality. C. Wright Mills came closer to the mark when he wrote of “a coalition of generals in the roles of corporation executives, of politicians masquerading as admirals, of corporation executives acting like politicians.” Add to that list the retired senior officers passing as pundits (often while simultaneously cashing the checks of weapons manufacturers), policy wonks pretending to be field marshals, and journalists eagerly competing to carry water for heroic field commanders. Throw in the former members of Congress who lobby their successors on behalf of defense contractors, and the serving members who vote in favor of any defense appropriations that send money to their districts, and one begins to get a sense of the true topography.

With what result? Not peace, and not prosperity. Instead, American soldiers traipse wearily from one conflict to the next while the nation as a whole suffers from acute economic distress. What has gone amiss?

In the wake of 9/11, when the George W. Bush administration committed the United States to a global war on terror, it was blithely confident that the U.S. military could win such a conflict handily. Events in Iraq and Afghanistan have since demolished such expectations. The irrefutable lesson of the past decade is this: we know how to start wars, but don’t know how to end them. During the well-armed Eisenhower era, American weapons were largely silent. Today, engagement in actual hostilities has become the new normal, exacting a steep price. The wars in Iraq and Afghanistan have cost at least $1 trillion—with the meter still running. Some observers estimate that total costs will eventually reach $2 trillion or even $3 trillion.

Furthermore, military Keynesianism has proved to be a bust. In contrast to the 1950s, military extravagance is depleting rather than adding to the nation’s wealth. In the Eisenhower era, the United States, a creditor nation, produced at home the essentials defining the American way of life—everything from oil to cars to televisions. Today, we import far more than we export, with ever-increasing debt as one result. Furthermore, in the 1950s, we were mostly at peace; today we are mostly at war—and, as a result, more of the resources provided to the military go abroad and stay there.

Certain enterprises flourish, notably private security firms such as DynCorp, MPRI, and, of course, the notorious Blackwater (now known as Xe). At MPRI, they like to say “We’ve got more generals per square foot here than in the Pentagon.” But even if those generals are doing fine, the grandchildren of Ozzie and Harriet, coping with 9.8 percent unemployment and contemplating the implications of trillion-dollar deficits, see little benefit from our exorbitant Pentagon outlays. If paying Pashtun drivers to truck fuel from Pakistan into Afghanistan is producing any positive economic side effects, the American worker is not among the beneficiaries.

In short, the guns-and-butter trade-off that Eisenhower foresaw in 1953 has become reality. To train, equip, and maintain one American soldier in Iraq or Afghanistan for just one year costs a cool million dollars. Meanwhile, according to 2010 census figures, the number of Americans falling below the poverty line has swollen to one in every seven.

Thanks to its allies and abettors, the military-industrial-legislative war complex remains stubbornly resistant to change—a fact President Barack Obama himself learned during his first year in office. While reviewing his administration’s policy in Afghanistan, the president repeatedly asked for a range of policy alternatives. He wanted choices. According to Bob Woodward of TheWashington Post, however, the Pentagon offered Obama a single path—the so-called McChrystal “surge” of additional troops. As recounted in Woodward’s book Obama’s Wars, the president complained: “So what’s my option? You’ve given me only one option.” The military’s own preferred option was all he was going to get. (Just months before, Woodward himself had helpfully promoted that very option, courtesy of a well-timed leak.)

No doubt Dwight Eisenhower would sympathize with President Obama, having himself struggled to exercise the prerogatives ostensibly reserved to the chief executive. Yet Ike would hardly be surprised. He would reserve his surprise—and his disappointment—for the American people. A half century after he summoned us to shoulder the responsibilities of citizenship, we still refuse to do so. In Washington, military metaphysics remains sacrosanct. No wonder we continue to get our pockets picked.

Foreign Affairs: Sad View of Arab Potentates Controlled by the West

The brutal truth about Tunisia

Bloodshed, tears, but no democracy. Bloody turmoil won’t necessarily presage the dawn of democracy

By Robert Fisk, Middle East Correspondent
Published @ http://www.independent.co.uk/news/world/africa/the-brutal-truth-about-tunisia-2186287.html

The end of the age of dictators in the Arab world? Certainly they are shaking in their boots across the Middle East, the well-heeled sheiks and emirs, and the kings, including one very old one in Saudi Arabia and a young one in Jordan, and presidents – another very old one in Egypt and a young one in Syria – because Tunisia wasn't meant to happen. Food price riots in Algeria, too, and demonstrations against price increases in Amman. Not to mention scores more dead in Tunisia, whose own despot sought refuge in Riyadh – exactly the same city to which a man called Idi Amin once fled.


If it can happen in the holiday destination Tunisia, it can happen anywhere, can't it? It was feted by the West for its "stability" when Zine el-Abidine Ben Ali was in charge. The French and the Germans and the Brits, dare we mention this, always praised the dictator for being a "friend" of civilised Europe, keeping a firm hand on all those Islamists.

Tunisians won't forget this little history, even if we would like them to. The Arabs used to say that two-thirds of the entire Tunisian population – seven million out of 10 million, virtually the whole adult population – worked in one way or another for Mr Ben Ali's secret police. They must have been on the streets too, then, protesting at the man we loved until last week. But don't get too excited. Yes, Tunisian youths have used the internet to rally each other – in Algeria, too – and the demographic explosion of youth (born in the Eighties and Nineties with no jobs to go to after university) is on the streets. But the "unity" government is to be formed by Mohamed Ghannouchi, a satrap of Mr Ben Ali's for almost 20 years, a safe pair of hands who will have our interests – rather than his people's interests – at heart.

For I fear this is going to be the same old story. Yes, we would like a democracy in Tunisia – but not too much democracy. Remember how we wanted Algeria to have a democracy back in the early Nineties?

Then when it looked like the Islamists might win the second round of voting, we supported its military-backed government in suspending elections and crushing the Islamists and initiating a civil war in which 150,000 died.

No, in the Arab world, we want law and order and stability. Even in Hosni Mubarak's corrupt and corrupted Egypt, that's what we want. And we will get it.

The truth, of course, is that the Arab world is so dysfunctional, sclerotic, corrupt, humiliated and ruthless – and remember that Mr Ben Ali was calling Tunisian protesters "terrorists" only last week – and so totally incapable of any social or political progress, that the chances of a series of working democracies emerging from the chaos of the Middle East stand at around zero per cent.

The job of the Arab potentates will be what it has always been – to "manage" their people, to control them, to keep the lid on, to love the West and to hate Iran.

Indeed, what was Hillary Clinton doing last week as Tunisia burned? She was telling the corrupted princes of the Gulf that their job was to support sanctions against Iran, to confront the Islamic republic, to prepare for another strike against a Muslim state after the two catastrophes the United States and the UK have already inflicted in the region.

The Muslim world – at least, that bit of it between India and the Mediterranean – is a more than sorry mess. Iraq has a sort-of-government that is now a satrap of Iran, Hamid Karzai is no more than the mayor of Kabul, Pakistan stands on the edge of endless disaster, Egypt has just emerged from another fake election.

And Lebanon... Well, poor old Lebanon hasn't even got a government. Southern Sudan – if the elections are fair – might be a tiny candle, but don't bet on it.

It's the same old problem for us in the West. We mouth the word "democracy" and we are all for fair elections – providing the Arabs vote for whom we want them to vote for.

In Algeria 20 years ago, they didn't. In "Palestine" they didn't. And in Lebanon, because of the so-called Doha accord, they didn't. So we sanction them, threaten them and warn them about Iran and expect them to keep their mouths shut when Israel steals more Palestinian land for its colonies on the West Bank.

There was a fearful irony that the police theft of an ex-student's fruit produce – and his suicide in Tunis – should have started all this off, not least because Mr Ben Ali made a failed attempt to gather public support by visiting the dying youth in hospital.

For years, this wretched man had been talking about a "slow liberalising" of his country. But all dictators know they are in greatest danger when they start freeing their entrapped countrymen from their chains.

And the Arabs behaved accordingly. No sooner had Ben Ali flown off into exile than Arab newspapers which have been stroking his fur and polishing his shoes and receiving his money for so many years were vilifying the man. "Misrule", "corruption", "authoritarian reign", "a total lack of human rights", their journalists are saying now. Rarely have the words of the Lebanese poet Khalil Gibran sounded so painfully accurate: "Pity the nation that welcomes its new ruler with trumpetings, and farewells him with hootings, only to welcome another with trumpetings again." Mohamed Ghannouchi, perhaps?

Of course, everyone is lowering their prices now – or promising to. Cooking oil and bread are the staple of the masses. So prices will come down in Tunisia and Algeria and Egypt. But why should they be so high in the first place?

Algeria should be as rich as Saudi Arabia – it has the oil and gas – but it has one of the worst unemployment rates in the Middle East, no social security, no pensions, nothing for its people because its generals have salted their country's wealth away in Switzerland.

And police brutality. The torture chambers will keep going. We will maintain our good relations with the dictators. We will continue to arm their armies and tell them to seek peace with Israel.

And they will do what we want. Ben Ali has fled. The search is now on for a more pliable dictator in Tunisia – a "benevolent strongman" as the news agencies like to call these ghastly men.

And the shooting will go on – as it did yesterday in Tunisia – until "stability" has been restored.

No, on balance, I don't think the age of the Arab dictators is over. We will see to that.

More Wisdom from Peter Schiff

Home Prices Are Still Too High: They would have to decline another 20% just to get back to the historical trend line.

By Peter D. Schiff
Wall Street Journal
online.wsj.com/article/SB10001424052702304173704575578190261574342.html

Most economists concede that a lasting general recovery is unlikely without a recovery in the housing market. A marked increase in defaults and foreclosures from today's already elevated levels could produce losses that overwhelm banks and trigger another, deeper financial crisis. Study after study has shown that defaults go up when falling prices put mortgage holders "underwater." As a result, the trajectory of home prices has tremendous economic significance.

Earlier this year market observers breathed easier when national prices stabilized. But the "robo-signing"-induced slowdown in the foreclosure market, the recent upward spike in home mortgage rates, and third quarter 2010 declines in the Standard & Poor's Case–Shiller home-price index—including very bad October numbers reported this week—have sparked concerns that a "double dip" in home prices is probable. A longer-term view of home price trends should sharply magnify this fear.

Even those economists worried about renewed price dips would be unlikely to believe that the vicious contractions of 2007 and 2008 (where prices fell about 30% nationally in just two years) could return. But they underestimate how distorted the market had become and how little it has since normalized.

By all accounts, the home price boom that began in January 1998, when the previous 1989 peak was finally surpassed, and topped out in June 2006 was extraordinary. The 173% gain in the Case-Shiller 10-City Index (the only monthly data metric that predates the year 2000) in those nine years averaged an eye-popping 19.2% per year. As we know now, those gains had very little to do with market fundamentals, and everything to do with distortionary government policies that set off a national mania for real-estate wealth and a torrent of temporarily easy credit.

If we assume the bubble was artificial, we can instead imagine that home prices should have followed a more traditional path during that time. In stock-market terms, prices should have followed a trend line. When you do these extrapolations (see lower line in the nearby chart), a sobering picture emerges. In his book "Irrational Exuberance," Yale economist Robert Shiller (co-creator of the Case-Shiller indices along with economists Karl Case and Allan Weiss), determined that in the 100 years between 1900 and 2000, home prices in the U.S. increased an average 3.35% per year, just a tad above the average rate of inflation. This period includes the Great Depression when home prices sank significantly, but it also includes the frothy postwar years of the 1950s and '60s, as well as the strong market of the early-to-mid 1980s, and the surge in the late '90s.

In January 1998 the 10-City Index was at 82.7. If home prices had followed the 3.35% annual 100 year trend line, then the index would have arrived at 126.7 in October 2010. This week, Case-Shiller announced that figure to be 159.0. This would suggest that the index would need to decline an additional 20.3% from current levels just to get back to the trend line.

How has the market found the strength to stop its descent? No one is making the case that fundamentals have improved. Instead, there is widespread agreement that government intervention stopped the free fall. The home buyer's tax credit, record low interest rates, government mortgage-assistance programs, and the increased presence of Fannie Mae, Freddie Mac and the Federal Housing Administration in the mortgage-buying business have, for now, put something of a floor under house prices. Without these artificial props, prices would have likely continued to fall.

Where would prices go if these props were removed? Given the current conditions in the real-estate market, with bloated inventories, 9.8% unemployment, a dysfunctional mortgage industry and shattered illusions of real-estate riches, does it makes sense that prices should simply fall back to the trend line? I would argue that they should overshoot on the downside.

With a bleak economic prospect stretching far out into the future, I feel that a 10% dip below the 100-year trend line is a reasonable expectation within the next five years, particularly if mortgage rates rise to more typical levels of 6%. That would put the index at 114.02, or prices 28.3% below where we are now. Even a 5% dip would put us at 120.36, or 24.32% below current prices. If rates stay low, price dips may be less severe, but inflation will be higher.

From my perspective, homes are still overvalued not just because of these long-term price trends, but from a sober analysis of the current economy. The country is overly indebted, savings-depleted and underemployed. Without government guarantees no private lenders would be active in the mortgage market, and without ridiculously low interest rates from the Federal Reserve any available credit would cost home buyers much more. These are not conditions that inspire confidence for a recovery in prices.

In trying to maintain artificial prices, government policies are keeping new buyers from entering the market, exposing taxpayers to untold trillions in liabilities and delaying a real recovery. We should recognize this reality and not pin our hopes on a return to price normalcy that never was that normal to begin with.

Mr. Schiff is president of Euro Pacific Capital and author of "How an Economy Grows and Why it Crashes" (Wiley, 2010).