Monday, December 31, 2018

I, Interest Rate Interest rates simply reflect the truth; and it is a very sad day when telling the truth can foster such ill will. by Tom Mullen

It is often said, “Don’t kill the messenger,” but that is precisely what everyone seems to want to do in my case. I’m not sure why because the news I bring is neither good nor bad. It is simply the truth; and it is a very sad day when telling the truth can foster such ill will. There are some who go so far as to declare my very existence wicked simply for providing information people use to engage in a specific type of voluntary exchange that, although of immense benefit to society, has somehow acquired an unsavory reputation.
As you may have surmised, I am the rate of interest, the price difference between present goods and future goods. Now, many economists mistakenly identify me merely as the price of borrowing money over time, but that is only one of the many messages I carry. I also represent the price spread in the various stages of production, where capitalists purchase present goods in the form of factors of production in the hopes of selling what is produced by those factors for a higher price than what they spent. I am also this difference in price.
Nobody but me can gather the information I gather, for my message is determined by billions of individual transactions occurring simultaneously all over the economy. I consider the individual supply and demand schedules of hundreds of millions, sometimes billions of individual consumers and producers, along with the uncertainty involved in every time transaction, to determine the current price levels for transactions that involve time at any given moment.
In the case of individual borrowers, the uncertainty I mentioned includes that borrower’s previous behavior, which is generally called a “credit rating.”
While it is only one of the many prices I make available to the market, an inordinate amount of attention is paid to the price of borrowing money. That is likely for two reasons. One, as I said, is that most people erroneously believe it is the only information I impart. Two, people seem to be borrowing a lot more than they did previously in history for reasons I will explain shortly. As a result, it is regarding the price of borrowing money where I am most slandered and abused.
Because this price of borrowing is above zero, there are some who consider my existence alone as evil. They say I’m a party to a crime they call “usury,” which is a very strange concept. When everyone is acting honestly, money is a scarce commodity, so any loan by Person A to Person B requires a sacrifice on the part of A. Person A must forego consumption in the present in order to lend to B.
It is no different than if A were saving for a new car or some other expensive item for himself. He must forego eating out as much, or buying new clothes, or going on vacation this year in order to put aside money to buy the expensive item next year.
By loaning money to B, A is allowing B to skip this sacrifice and purchase the expensive item now. It seems a very peculiar notion that A should forego spending his own money on himself only to let B use it for free when needed. How did this obligation to serve B free of charge come about? Aren’t all men created equal?
Now, there are those who say it is not merely loaning money at interest but also charging exorbitantly high rates that constitutes usury. This makes no more sense than the previous definition. Is not the lender in every case charging a lower interest rate than any other willing lender is willing to accept for the given borrower? If that weren’t true, the borrower would simply borrow from the lender offering the lower rate.
How can this make him a criminal or a sinner, while the rest who would charge higher rates or not loan the needed money at all are considered virtuous? This version of the usury slander is as illogical as the first.

In fact, this so-called “usurer” may be the only lender willing to deal with the borrower in question at all. How can this make him a criminal or a sinner, while the rest who would charge higher rates or not loan the needed money at all are considered virtuous? This version of the usury slander is as illogical as the first.
Regardless, it is not I who collect money from B or even impose any obligation on B to pay A for the service. I am merely the messenger to both parties on what rate should be charged based on a plethora of information neither could possibly gather on his own.
Even many of those who don’t believe charging interest is a crime are hostile to me. To them, I am like a friend who tells you the truth rather than what you want to hear but is not appreciated for doing so. Everyone wants me to proclaim a much lower rate than the conditions warrant.
Well, not everyone. Savers like higher interest rates. Borrowers like lower ones. There just seems to be more of the latter than the former these days, and they’re a lot louder. So, forgive me if I sometimes think the borrowers represent everyone.
Borrowers are a diverse group. They include entrepreneurs seeking to expand production, consumers, and, of course, governments. This last group has two reasons for wanting me to lie.
First, they generally have borrowed large amounts of money in the past, resulting in an accumulated debt they cannot service at higher interest rates. Second, lower interest rates allow more borrowing by entrepreneurs to expand production. Expansion of production creates jobs, lowers unemployment, and makes society in general wealthier. Politicians generally take credit for the higher standard of living, dubious as those claims generally are.
Current economic conditions at any given moment compel me to say what I say. I can no more change my message than any of you can cease being a human being.

Unfortunately for them, I am incapable of lying directly. Current economic conditions at any given moment compel me to say what I say. I can no more change my message than any of you can cease being a human being. The politician, therefore, has developed a scheme to make me mislead market actors indirectly.
I said before that Person B’s borrowing requires Person A’s previous saving when everyone is acting honestly and money is scarce. Let me first explain how things work under these conditions.
When there are relatively higher savings rates over the entire economy, meaning there is a decrease in consumption, the demand for goods and services is lower related to supply, and consumer prices fall. Inventories of tangible goods are temporarily accumulated. Profits for producers at the lowest stage of production decrease or they incur losses, giving them an incentive to switch investment from lower stages and seek greater returns on investments in higher stages of production.
This series of cause-effect relationships makes expanding the productive structure self-sustaining. The accumulated inventories and lower prices help sustain consumers while the supply of consumer goods being delivered is temporarily decreased. The accumulated savings help entrepreneurs complete the expansion of existing production and new projects they have launched. When these undertakings are completed, the productive structure is permanently larger, meaning more consumer goods per capita are produced. With more products produced, lower prices become permanent, and real wages rise. All of society is rendered richer.
One would think it a perfectly reasonable proposition that consumption must decrease for production to expand. But for governments this is untenable. First, they seem completely incapable of decreasing their own consumption, no matter how large their deficits become. In addition, they have at least two reasons for not wanting their constituents to save.
One is they subscribe to a rather bizarre economic theory advanced by a school of economists who generally tell governments what they want to hear rather than the truth. Under this theory, wealth is created by consumption rather than production. When consumption falls, which I’ve just shown is the first necessary step toward expanding the productive structure, these economists say the government should override those millions or billions of individual decisions and spend more to offset what the public has not spent.
It isn’t difficult to understand why proponents of this theory would be heralded not only by governments but also by all those who wish for governments to expand in size and influence. They have constructed a theory that says government intervention into the economy is not only positive but also vital to sustaining economic well being. So, governments and these economists promote each other, working together to delegitimize any dissenting views.
Having falsely taken credit for previous expansions, they don’t want blame for temporary decreases in the supply of consumer goods even though it is necessary for long-term increases in supply.

The second reason governments resist the natural means for expanding production is they never want their constituents to experience even temporary, voluntary austerity. Having falsely taken credit for previous expansions, they don’t want blame for temporary decreases in the supply of consumer goods even though it is necessary for long-term increases in supply. They want their constituents to believe they can “have their cake and eat it, too,” and to take credit for this apparent economic miracle.
The chief impediment to promoting this fantasy is that money is scarce, when everyone is being honest. After all, one can’t both consume a scarce commodity and retain possession of it at the same time. So, they have concocted a scheme under which money is not scarce.
At one time, every “Federal Reserve Note” was exchangeable for a defined amount of gold, the word “note” itself meaning the written record of a debt. Dollars at one time worked much like the ticket you get from the laundromat. You “deposit” one shirt, and the laundromat gives you a claim check. Later, you return the claim check and the laundromat gives you one shirt.
Dollars once operated the same way. One ounce of gold was deposited in the bank, and $20 was issued. If $20 were presented to the bank, the bank owed the bearer one ounce of gold, just as the laundromat owes you one shirt. Unlike the laundromat, however, you wouldn’t get back the exact same ounce of gold initially deposited, as gold is fungible and shirts are not. Dollars were also exchangeable in the community for other items, without the gold ever moving from the bank vault. At any time, however, the current owner of your $20 was still entitled to exchange it at the bank for one ounce of gold.
As long as a certain amount of gold could be demanded for each dollar in circulation, money remained scarce. Now, bankers would lend out more dollars than they could exchange for gold from time to time, either with or without the government’s approval, as this greatly increased their earning potential. It was essentially a fraud, as the bank was loaning the same gold to one person it was legally obligated to pay on demand to another. Calling it “fractional reserve banking” made it sound technical and thereby more legitimate, but it was no less a fraud.
Fortunately, because of the risk that too many depositors might demand their money at the same time, this expansion of the money supply beyond its gold backing was very limited.
To expand banks’ ability to engage in this monetary inflation, the government created a central bank. At first, this central bank merely backstopped the rest of the banks under the same gold standard. But eventually, the exchangeability for gold was eliminated, making the name “Federal Reserve Note” an absurdity because a piece of paper that cannot be exchanged for anything specific is no longer a “note” in financial terms. But it solved the problem of loaning the same dollar out to a borrower while making it simultaneously available for withdrawal to the depositor. Since neither could exchange it for any specific tangible item, both borrower and depositor could merrily go on pretending this arrangement was viable.
They say ignorance is bliss, although you all participate in this fraud knowingly today. So, it is more a case of believing what you want to believe.
Eliminating the gold standard allowed the central bank to create and destroy money arbitrarily for the general purpose of trying to make me lie to the public, encouraging them to make economic decisions the government wants them to make rather than decisions economic conditions deem prudent.

Eliminating the gold standard allowed the central bank to create and destroy money arbitrarily for the general purpose of trying to make me lie to the public, encouraging them to make economic decisions the government wants them to make rather than decisions economic conditions deem prudent.
However, since it is impossible for me to lie, to announce a borrowing price based on anything other than current market conditions, central bankers must alter economic conditions instead. When they announce they are going to “lower interest rates,” what they really mean is they will increase the supply of money available to be lent. They accomplish this by purchasing securities, usually government bonds, from their member banks. In return for the securities, they give the member banks currency, created out of thin air.
As with an increase in available money due to savings, this monetary inflation decreases the price of borrowing, which in turn stimulates increased demand for borrowing. Governments borrow more; consumers borrow more, and entrepreneurs borrow more. This last group invests in higher order capital goods, expanding the productive structure just as they would if the increased money supply were due to savings. But it’s not.
Since the expansion is not the result of savings, none of the consequences of saving that make expansion self-sustaining occur. Consumption does not decrease, lowering the demand for consumer goods so consumer goods prices don’t fall. They either rise, stay the same, or fall less than they would have without the monetary inflation. Inventories are not built up. Overall, the lower prices, inventories, and cash on hand resulting from savings are not there to sustain the economy while entrepreneurs expand production.
Eventually, to combat the rising consumer goods prices they have stimulated by increasing the money supply, the central bank decreases the money supply. They do this by selling securities back to their member banks in exchange for money. This lowers the amount of money available to be lent out to the rest of the economy, which increases the price of borrowing.
Politicians especially claim stock market crashes and economic depressions are the results of “interest rates being raised too high or too quickly,” as if it is merely my telling the truth that causes all the economic problems.

I get all the blame when this cycle ends badly. Politicians especially claim stock market crashes and economic depressions are the results of “interest rates being raised too high or too quickly,” as if it is merely my telling the truth that causes all the economic problems.
Obviously, that’s not true. The problem isn’t what I tell markets but the bad decisions previously made by market actors based on artificially-created conditions. Entrepreneurs begin higher order production projects when the savings required to finish them are not there. They choose to start these projects under false pretenses, even if they are not consciously aware of it. While they may base their decisions purely on lower interest rates, lower rates are normally accompanied by savings, lower consumer goods prices, and inventories.
Consumers have also borrowed more based on the artificially lower rates. They took on debt burdens they would not have under natural market conditions when only their savings could have produced the lower interest rate in the first place. After all, one cannot consume more and less at the same time. And since they haven’t lowered their consumption, they don’t have the benefit of the lower consumer goods prices they would have enjoyed if expansion of production was fueled by their savings.
Not only consumer goods prices, but also the prices of all goods increase when the money supply is increased, other things being equal. The prices of stocks and houses are especially vulnerable to being bid up to artificially high levels.
In addition, capital is expended on producing capital goods for projects that won’t ultimately be profitable. When these projects are abandoned, any capital expended on capital goods that can’t be repurposed has been wasted, making society permanently poorer than it would otherwise have been.
Massive labor resources are also dedicated to these doomed projects. When the projects are abandoned, these people all lose their jobs. While they eventually can move to other projects, they are unemployed until new projects are launched and any new training they require is completed. While unemployed, they suffer personal hardship and the rest of society is rendered poorer than if they were productively employed.
Compounding the calamity is the opportunity cost of all these losses. Had labor and capital not been misdirected by artificially lower interest rates, all the misdirected resources would have been employed productively. All they would have produced during the artificial boom and subsequent bust represents another permanent loss to society.
It goes without saying that I abhor being even an involuntary party to any of this reprehensible behavior. And I must reiterate that the central bank has never made me lie outright. My price message to borrowers and lenders was perfectly accurate, based on the money supply conditions at every stage. It was the way those conditions were created by the central bank—from new fiat money creation rather than savings—that caused all the problems.
As I tell my story, it seems that yet another economic calamity looms. Already, I can hear my name being dragged through the mud as a party to the scheme that caused it. Along with my alleged guilt by association, many other innocent parties will be scapegoated to direct attention away from the real culprits, the government and its central bank. Supposed “deregulation,” lower taxes, and even the free market itself will be blamed.
Blaming the free market is especially despicable given that overriding market conditions with monetary inflation, resulting in interest rates lower than what the market would have me prescribe, is what caused the bubble in the first place.
Nevertheless, after creating the disease by overriding the market, politicians and central bankers will demand it be overridden again as the market tries to administer the cure—falling asset prices, bankruptcies, abandonment of non-profitable enterprises for profitable ones, and liquidation of debt. Instead, the central bank will use monetary inflation to prop up stock and housing prices, sustain bad debt, and continue unprofitable businesses, and the cycle will start all over again.
What can be done? As always, I will tell you the truth, even if you don’t want to hear it. Fix your monetary system. I don’t particularly care if your currency is backed by gold, diamonds, or some other scarce, fungible commodity. It need only be naturally scarce, its supply not subject to anyone’s whim, no matter how public-spirited or “independent” they claim to be.
Get rid of your central bank. Your country got along fine for 90 of your 243 years without one, while your previous two central banks had a hand in creating many of the crises cited as the excuse to create your present one.

Get rid of your central bank. Your country got along fine for 90 of your 243 years without one, while your previous two central banks had a hand in creating many of the crises cited as the excuse to create your present one. After getting rid of your central bank, don’t let the remaining independent banks lend out more money than they have. That’s the real root of the problem whether a central bank is there to exacerbate it or not.
Don’t make scapegoats of the bankers, either. You know they’re operating on a fractional reserve. As much as they want to generate revenues based on loaning money they don’t really have, you want to earn interest on money you know they’ve loaned out. Please be honest with yourselves and me.
Obviously, enforcing these disciplines will necessitate much less government spending, but that shouldn’t bother anyone. The government shuts down from time to time, and nobody really notices. Certainly, no sane person would argue a government running trillion-dollar deficits can afford non-essential personnel. Those should be the first costs cut, but there are plenty more.
No matter what you decide, I will go on telling you the truth; I can do nothing else. Now that you know I merely communicate a price level based on supply, demand, and uncertainty, you know it is how those underlying economic conditions are determined—naturally or artificially—that determines your economic fate. You can go on doing the same thing you are doing now—lying to yourselves and trying to get me to do the same—but you shouldn’t expect different results. Someone once said that’s the definition of insanity.

Why More States Should Establish State Defense Forces Authors: James Carafano, Colonel Martin Hershkowitz, Jessica Zuckerman and Brigadier General Frederic Smalkin

Abstract: Twenty-two states currently have volunteer state guard units. These units, formally known as state defense forces (SDFs), are today’s state militias. Authorized by the Constitution and built on a strong U.S. militia tradition, today’s SDFs offer a vital, low-cost force multiplier and homeland security resource. In July 2011, Arizona’s Senate Bill 1495 went into effect, authorizing Arizona’s governor to establish an SDF. Historically, state defense forces were often organized as light infantry and military police forces. This model is largely a relic of past security and defense needs. While SDFs are not necessarily required in states with low risk of natural disasters or terror attacks, several states that are at high risk for catastrophes have yet to create a modern state defense force. Such states can no longer afford to place establishment of an SDF on the sidelines. Four national security analysts, including two retired SDF officers, explain how SDFs work, and why they are invaluable to so many states—and to the country.
On July 27, 2011, Arizona’s Senate Bill 1495 (S.B. 1495) went into effect, authorizing Arizona’s governor to establish a state guard unit.[1] These units, formally known as state defense forces (SDFs), are today’s modern state militias. Authorized under the Constitution and by state and federal law, and built on a strong U.S. militia tradition, today’s volunteer state defense forces offer a vital, low-cost force multiplier and homeland security resource.[2]
It now stands with Arizona’s governor to establish the force. If established, Arizona’s state defense force would become the 24th active SDF of the United States (22 in other states, one in the Commonwealth of Puerto Rico). Obtaining statutory authorization to stand up the force, however, is only the first step. Arizona’s state leaders must now organize and train their newly authorized SDF and assign to it those missions most critical to the state.
Historically, state defense forces were organized along traditional unit lines, usually as light infantry and military police forces.[3] This model, however, is largely a relic of past homeland security and homeland defense needs. Today’s threats require a different mission. Modern SDFs now serve as auxiliaries to the National Guard units of their states, as well as force multipliers for state homeland security missions in disaster preparation, response, and recovery. This mission portfolio requires a different model than has been seen in the past, one that centers on building professional units capable of contributing substantial value added to the states and augmenting the National Guard’s capabilities.
Once Arizona’s governor formally authorizes the establishment of the state defense force, determining how to design and build the force will be the next challenge. In building a professional SDF, Arizona could learn from the experiences of other SDFs, and, in turn, serve as a model for other states. SDFs are not necessarily required in states with low risk of natural disasters or terror attacks. But several states that are at high risk for catastrophes have yet to create a modern state defense force, despite the SDFs’ role as cost-effective force multipliers and resources, especially when a state’s National Guard units are depleted by combat deployment, peacekeeping, or homeland defense missions. Such states can no longer afford to place the valuable national security asset that an SDF embodies on the sidelines.

State Defense Force: The Modern State Militia

State militias have been seen as an essential component of the defense of America since the time of its founding. Building on English and Colonial experience, and reflecting their concerns about maintaining a large standing federal army, the Founding Fathers inscribed their belief that a well-regulated militia was “the ultimate guardian of liberty” within the Constitution, proclaiming among the enumerated powers of Congress the following:
The Congress shall have the power…to provide for calling forth the Militia to execute the Law of the Union, suppress Insurrections and repeal Invasions;
To provide for organizing, arming, and disciplining, the Militia, and for governing such Part of them as may be employed in the Service of the United States, reserving to the states respectively, the Appointment of the Officers, and the Authority of training the Militia according to the discipline prescribed by Congress.[4]
With this language, the Constitution granted the federal government the power to call forth the militia of the United States, but left the states the freedom to man and train their militias as they saw fit.
Five years after the Constitution was ratified, state militia powers were more fully addressed by the Militia Act of 1792, which provided that the adjutant general (TAG) of each state would command the militia and that state militias would receive no federal funding.[5] By 1820, the Supreme Court would further solidify the powers of the states in commanding militia units. In Houston v. Moore, the Court ruled that states maintained concurrent authority with the President to mobilize the militia in the event of a natural disaster, civil unrest, insurrection, or invasion.[6] This decision helped to set the basis for the modern state-apportioned militia.
Today, 22 states and one territory have a state defense force, with the force strength of these units totaling around 14,000 members in 2005.[7] Authorized by Congress in Title 32 of the U.S. Code, SDFs are entirely under state control—unlike the National Guard, which can serve the state under Title 32 or the federal government under Title 10[8]—both in peacetime and otherwise.[9] (National Guard troops serve both in their state’s militia and concurrently as reserve personnel of the Army or the Air Force, the Navy and the Marine Corps having no National Guard components.) Hence, while the National Guard is a dually appointed force that can be called to federal service under Title 10, or remain a state force under Title 32, SDFs serve solely as Title 32 forces.
This status gives SDFs two important advantages. First, SDFs are continually resident within their respective states and can be called up quickly and easily in times of need. Also, SDFs are exempt from the restrictions of the Posse Comitatus Act,[10] which prohibits troops in federal service under Title 10 from engaging in domestic law enforcement activities.[11] While the Posse Comitatus Act has never proved to be a major obstacle to deploying federal forces for domestic emergency response, and does not apply to the Army National Guard or Air National Guard while serving solely in state status under Title 32, SDFs may enforce civilian criminal law uninhibited by legal obstacles, if given that power under state law.[12]
Typically, SDFs are under the control of the state’s governor, in his or her role as militia commander in chief; operational control and the chain-of-command typically run from the state’s adjutant general, through the state’s military department, to the commanding general of the SDF.[13] That is, the adjutant general, who is the state’s senior military commander and typically a member of the governor’s cabinet, commands the SDF on behalf of the governor. As the commander of the State Military Department, TAG is responsible for all training, equipment allocation, and decisions regarding the SDF’s strength, activity, and mission. The adjutant general is also the commander of the state’s National Guard and often directs state emergency response.[14] Through TAG and the state’s joint staff, the SDF can easily coordinate with other key components of the state emergency response.
In recent years, SDFs have proved their value as vital force providers to homeland security and emergency responses. After 9/11, for instance, the New York State Guard, the New York Naval Militia, and the New Jersey Naval Militia were activated to assist in response, recovery, and critical infrastructure security.[15]An estimated 2,274 SDF personnel participated in recovery efforts after Hurricane Katrina. SDF personnel were activated in at least eight states, including Texas, Maryland, Virginia, and Tennessee.[16] They assisted directly with recovery efforts or stayed in their states to fill the roles of the state National Guard units that were deployed to assist in the recovery.[17] SDFs have also offered critical infrastructure protection. In Operation Noble Eagle, a homeland defense and civil support operation after 9/11, the Alaskan SDF helped protect the Alaska oil pipeline.[18]

The Case of Arizona

In May 2007, Arizona’s state legislature passed S.B. 1132. The bill sought to create a “homeland security force” such that “after consideration of federal deployment of the national guard, if the governor determines that an emergency exists or that it is necessary to protect lives or property.”[19] While not outwardly stated, this “homeland security force” was widely accepted to mean an Arizona SDF. Passed in the Arizona Senate by a vote of 18 to 11, and in the House of Representatives by 34 to 21, the creation of this special volunteer homeland security force received clear support from the Arizona legislature and public. S.B. 1132, however, never became law, as it was vetoed by then-Governor Janet Napolitano.
In 2011, the Arizona legislature tried again, proposing and passing S.B. 1495. The bill, sponsored by Arizona Senator Sylvia Allen (R–Fifth District) and Representative Jack Harper (R–Fourth District), was signed by Governor Jan Brewer on April 28, 2011, and became law 90 days later. With the passage of this legislation, broader in scope of authorization than its failed predecessor, Arizona’s governor is now authorized to stand up a unit of the Arizona state guard, a state defense force, “if the national guard of Arizona or a major portion thereof is called into active federal service…or for any other reason the governor considers to be necessary...for the safety and protection of the lives and property of the state.”[20] In the case of border states, border security might very well be one of those reasons. As long as any SDF border-security contingents respect the three main tenants of volunteer activity—liability, accountability, and sustainability—states should be allowed to decide which missions their SDFs will fulfill.
Taking advantage of this newly granted statutory authority and creating an SDF in Arizona would add significant value to the state, particularly in terms of disaster preparedness. In 2010 alone, Arizona experienced six major natural disasters, ranging from severe storms and flooding to wildfires and winter storms.[21] In 2011, Arizona had the largest wildfire in state history as three major blazes burned simultaneously. The Wallow Fire alone scorched an estimated 835 square miles, forced the evacuation of roughly 10,000 people, and destroyed 32 homes.[22]
While the first tier of response to natural disasters is typically composed of state and local fire and police first responders, many of them volunteers, these resources and capabilities may quickly become stressed in the event of large-scale, catastrophic disasters. In such cases, National Guard troops may be expected to be called out for Title 32 service to aid response and recovery efforts. However, National Guard troops may be unavailable to respond in sufficient numbers, due to the Guard’s increasing commitments to active duty deployments. Additionally, because the Guard is typically organized along the needs of combat, sufficient expertise in particular fields (such as medical expertise and engineering) may not be available in its ranks to satisfy emergency requirements. Likewise, while direct federal support may be appropriate in the event of catastrophic disasters, such as Hurricane Katrina, federal assistance can take up to 72 hours to mobilize and arrive at the scene of the disaster.[23] SDFs, on the other hand, can be mobilized quickly to respond to disasters in their own states. SDFs are also likely to have significant “local knowledge”—intimate familiarity with the area and resources at hand—making SDFs vital for effective disaster response.
In the aftermath of Hurricane Katrina, at least eight states activated their SDFs to aid in the recovery efforts and to fill in for National Guard members deployed to Louisiana and Mississippi. State defense force personnel were involved in the operation and management of shelters, distribution centers, and warehouses; housing and transportation of victims; unarmed police assistance; and religious services. There was even an unprecedented swearing-in of over 100 emergency medical personnel on an Air Guard base tarmac to allow them to practice in the disaster areas, as allowed by multi-state Emergency Management Assistance Compacts.[24]
As another example, when flooding from Hurricane Alex in 2010 forced 850 south Texas residents to evacuate their homes, more than 750 Texas SDF members were mobilized to staff shelters.[25] An Arizona SDF could aid its state in disaster response in much the same way, quickly supplying boots on the ground to aid victims and help begin local recovery work.
Arizona could further benefit from an SDF after a terrorist attack. While none of the 43 publicly known thwarted terrorist plots against the U.S. since 9/11 has been aimed at Arizona, Phoenix has consistently been rated by the federal government as an urban area with one of the highest risks of a terror attack. This rating stems from the Urban Area Security Initiative (UASI) program, which is intended to provide funding to high-risk, high-density urban areas in order to help them build the capacity “to prevent, protect against, respond to, and recover from acts of terrorism.”[26] Phoenix has received a UASI grant every year since the program began in 2003, even after the program was scaled back from 63 to 31 cities in 2011.

The Need for the SDF

Today’s modern militia, the state defense force, has a long history in the United States, although its scope and design have changed over time, as the threats to the United States and each state have evolved. Throughout World War II, the Korean War, and the Cold War, the modern state defense force was organized to serve in traditional military roles, such as light infantry or military police. The initial SDF mission was largely to support the National Guard by protecting armories whenever the assigned state National Guard unit was not in attendance (when the Guard was mobilized en masse, as happened in World Wars I and II), to perform burial honors, to support local events as Color Guards in parades, to provide ushers and parking monitors for local events, and, when available, to provide first aid at local events. These were tasks, albeit of value, that obviously required minimal training and qualifications.
With the Cold War over, the nation and the states face different threats. Rather than preparing to fight Communism, the United States is now faced with an entirely different threat, that of radical Islamists who use terror as a weapon. This threat, coupled with the ever-present risk of natural disasters, has created an increased need among the states to strengthen and augment their homeland security capabilities. With the recent high mobilization rates among the nation’s National Guard forces, both as units and as individuals, due to the wars in Iraq and Afghanistan, forward-thinking governors and TAGs have begun looking to their SDFs as force multipliers, providing key elements of all-hazards homeland security for their states.
Force Design. Meeting this redefined mission set has required a new model. This model should rest on creating professional units within an SDF, units which add to existing capabilities and create a force that adds greater value to the TAG, National Guard, and state as a whole. Likewise, force design largely depends on the type and level of the missions and the extent to which the TAG is willing to integrate the SDF with the National Guard. In implementing force design, states should consider the risks posed by the following threat scenarios:
  • Natural disasters and their aftermaths;
  • Terrorist attacks against population, infrastructure, or facilities; and
  • Other hazards to public health and safety, such as outbreaks of contagious diseases.
Typically, a modern SDF is organized as a brigade, with a brigadier general in command, structured as follows:
  • commanding general (the brigadier general)
  • deputy commander
  • chief of staff
  • between two and five battalions
  • specialized professional components (directorates)
    • medical regiment
    • engineer regiment
    • judge advocate general (JAG)
    • chaplaincy
    • band
    • cavalry
    • constabulary training
Under the chief of staff are up to nine specialized staff functions providing organizational or operational input, bearing the letter and number designations commonly used for general staff elements of Army units:
  • G1 – personnel and administration
  • G2 – intelligence and security
  • G3 – operations
  • G4 – logistics
  • G5 – plans
  • G6 – signal, communications, information technology
  • G7 – training
  • G8 – finance, contracts, resource management
  • G9 – civil–military co-operation (CIMC), civil affairs
In the modern SDF, attention must be paid to the special professional components that will best meet the needs of the state. There are no field manuals or other set publications that describe “best practices” for an SDF. Nonetheless, interchanges among SDF personnel do occur, and an analysis of existing literature illustrates some specific “professional components” that form part of vibrant SDFs throughout the United States. These include:
  • Medical units. SDFs throughout the nation draw on the professional experience and qualifications of many medically trained personnel, who are organized into specialized medical units. In terms of disaster response, SDF medical units have been used to provide care for trauma victims, mental health support, and sanitary and other public health assistance, adding to states’ medical surge capacity.[27] Outside of disaster situations, SDF medical units have provided health care services to SDF and National Guard personnel, as well as to local residents. The Medical Brigade of the Texas State Guard (TXSG), for instance, runs free medical clinics as part of its training operation: Each year, Operation Lone Star provides medical care consisting of basic dental care, medical exams, blood pressure and diabetes screening, and child immunizations to roughly 12,000 patients.[28]

    The Maryland State Defense Force (MDDF) 10th Medical Regiment made a significant impact after Hurricane Katrina, and serves as an example to other states of the benefit of SDF medical units. Professionals from the Maryland Department of Health and Mental Hygiene, the Maryland Institute for Emergency Medical Services Systems, and the Maryland Emergency Management Agency were ready and willing to serve, but Maryland was without an effective means for transporting them to, and supporting them in, the disaster area. The solution was to induct each individual into the MDDF on the tarmac, which facilitated transportation and deployment under relevant legal authority.[29] The MDDF Medical regiment then arrived at an abandoned hospital, in which it set up headquarters. The mission, Operation Lifeline, with only 250 MDDF volunteers lasted for 18 days and aided 6,300 patients.[30] More than a hundred of these personnel remained in the MDDF after returning home, and form the core of its strong medical regiment. Among the many current missions of the MDDF’s medical regiment is the conduct of post-deployment health assessments of National Guard personnel returning from overseas, in an attempt to make sure that latent physical or psychological needs from their deployments do not go unmet.
  • Engineering units. In terms of engineering, the Maryland Defense Force has once again found itself a leader among the nation’s SDFs. Established in 2006, the MDDF engineer directorate, the 121st Engineer Regiment, has grown exponentially in size. By 2009, the regiment was executing 100 percent of all inspections of state military facilities across Maryland for the Maryland Army National Guard (MDARNG). Similarly, other SDFs could aid their states’ military department and emergency management agency through the creation of engineering units, not only through inspection of facilities, but also through critical infrastructure and disaster assessments.[31] These units can draw on the professional experience of members with graduate-level studies or professional engineering experience, as well as seek to recruit members to meet this need. All personnel are screened to make sure they have the level of state licensure and experience commensurate with their SDF billets, and like other professional personnel must maintain proper licensure.
  • JAG units. Another key area of specialization is found in the legal profession. Whether working quietly in advising the commanding general and his staff, or representing and advising individuals, JAG units are today considered indispensable by commanders. Brigadier General Roland Candee provides insight into the legal status of the militia and how the militia fits into the total force, but does not detail the role of SDF lawyers.[32] Because SDF lawyers and allied professional personnel (such as paralegals) are licensed to practice in their SDF’s state, they can represent members of the National Guard and their families pro bono in civil matters that are not able to be addressed by active duty JAGs. These matters have included, for the MDDF, helping deployed personnel with child custody issues, home foreclosures, and a myriad of other legal matters about which a deployed National Guard member and his or her family should not have to worry. Also, the complexity of the constitutional and statutory framework within which SDFs operate, as noted earlier in this paper, requires that commanders have access to expert legal advice, which can be furnished only by lawyers who have a firm grasp of both lawyering and soldiering.
  • Communications units. After Hurricane Katrina, the communications infrastructure was one of the most heavily hit critical infrastructures. Some 2,000 cell towers were destroyed, land mobile radio communications were crippled, and 911 emergency phone access was debilitated. While the severity of the damage was great, at landfall Hurricane Katrina was only measured as a category 3 storm. Although the catastrophe was exacerbated by the strong surge, levee breach, and flooding in the wake of the storm, it is likely the area will experience another storm of the same, or greater, magnitude.[33]

    SDFs can help prepare state communications systems for future disasters by building mobile communications systems to add to state capabilities during response and recovery work. The South Carolina State Guard (SCSG), for instance, contains a Division Communications Section. This section consists of two mobile communications trailers, containing radios capable of high frequency, VHF/UHF, and general mobile radio service (GMRS) transmission, in addition to air-to-ground radio capabilities, repeater systems, and an assigned Federal Communications Commission (FCC) frequency. The SCSG has reached out to amateur-radio clubs to coordinate communication and to recruit club members for State Guard membership, even establishing its own South Carolina State Guard Amateur Radio Club and applying for an FCC club license.[34]Maryland is also developing a signals unit along these lines.
  • Chaplaincy units. Another way that SDFs can add significant value to the states and their National Guard units is through the provision of chaplains. Military chaplains not only conduct services, they also provide counseling services and cultural and religious education.[35]

    The U.S. Army Reserve and National Guard employ approximately 1,200 chaplains, yet as of July 2011, the Reserve Components of the Army were still short roughly 300 chaplains. While the Army estimates that the Chaplain Corps’ billets will be completely filled by 2014, SDFs can help the National Guard fill this gap.[36] Chaplains at SDFs do not only serve the spiritual needs at their own SDFs, but aid the National Guard by providing temporary additional duty (TAD) chaplains to National Guard units that either lack a chaplain or whose chaplain has been transferred to a deploying unit.[37] In emergencies, chaplains can also provide nondenominational counseling to affected responders and citizens.
Recruitment. Of course, force structure means nothing without the effective recruitment of members. Typically, SDF recruiting is a collection of approaches put together by the G1 staff element responsible for personnel matters, based on input from its own staff and others on the general staff. Any recruiting plan becomes unique to the SDF unit itself. It cannot be overemphasized, however, that the key to building a strong professional force is to recruit a “key” person as its commander. This person may be a leader in his or her professional field and in the community, such as a prominent physician, a judge or well-known lawyer, or a leading cleric or engineer. These people are connected with the network needed to effectively communicate the SDF story to their peers and have access to the channels and language essential to reach out broadly to potential recruits.
An SDF recruiting plan is typically aimed at:
  • Retired military—looking for a way to continue serving their country and communities, and retain a sense of military camaraderie;
  • Military personnel electing not to serve further in the active or reserve forces, but wanting to retain that sense of camaraderie;
  • Those who choose not to serve in the active or reserve forces, but want to provide some form of service for their state and community;
  • Veterans’ associations, such as the American Ex-Prisoners of War, the American Legion, AMVETS, Catholic War Veterans, Disabled American Veterans, Jewish War Veterans of the USA, Military Officers Association of America, Non-Commissioned Officers Association, Retired Enlisted Association, and Veterans of Foreign Wars (VFW);
  • Recruiting advertisements and brief civilian style “after action” articles on completed missions in support of the state or local community in community newspapers;
  • Recruiting by means of visits to professional organizations (such as those for lawyers, engineers, medical personnel, or chaplains) whose members—especially those with former military service—are often very willing to join an SDF;
  • States may also offer state tax exemptions or state tuition reimbursement as an added incentive for service in the SDF;[38] and
  • A strong and inviting website, with easy-to-access links, including a link for use by potential recruits to obtain more information, talk with a recruiter, or to obtain an application. The website should clearly spell out qualifications for membership and the opportunities in the SDF.
Age and physical health requirements for joining an SDF differ from those required for federal service, whether active duty or not. Strict active-duty standards are not necessary, as SDF members are not expected to be able to perform the full range of military duties in a combat environment. Appropriate weight and grooming standards are typically set by regulation, while state law may establish age requirements in the SDF-enabling legislation. When setting age and physical health requirements, it is important to take into account that SDFs are composed largely of retired military personnel and other seasoned professionals who tend to be older than deployable National Guard troops, and, hence, cannot be expected to meet the same physical (today, essentially “active duty”) standards. Nonetheless, their years of professional and military experience can be absolutely invaluable and must not be discounted. “In many cases it is not uncommon in a group of four or five SDF officers to find 100 plus years of military experience.”[39] Thus, allowances are typically made to customary military standards of weight and fitness, but members who wish to wear military uniforms are customarily required to meet physical and grooming standards that assure their military appearance in uniform. Some SDFs (such as Maryland’s) may allow members who do not conform to their military uniform-wearing criteria to wear a “non-military uniform,” such as khaki slacks and a logo polo shirt, or logo “scrubs” for medical personnel.
Background Screening. Due to the nature of the state defense force in terms of its representation of the governor and TAG (and the fact that members of some SDFs may be armed while on duty) it is usually required that, at a minimum, a criminal background check be performed prior to induction. Thus, states should consider a requirement that both federal and local criminal record checks be conducted, as well as a local background check in the localities surrounding the individual’s home and work locations. It is essential to obtain the recruit’s consent to this screening beforehand.
Finance. The SDF is a volunteer military organization. There is no general requirement for a budget to cover such costs as salaries, facilities, equipment, training, travel, and general and administrative expenses. Each state legislature determines precisely what will be covered, at what cost, and for how long. For example, some SDFs:
  • Offer payment for activated troops according to their grade, some pay them a fixed amount for all grades, some do not pay their troops anything unless they have been activated for a specific event;
  • Cover transportation costs (although most do not); some also arrange for passes to permit free use of state-owned toll highways, bridges, and tunnels;
  • Use federal surplus warehouses for uniforms and equipment (many do not); some also accept state surplus enlisted uniforms and office equipment; and
  • Use National Guard armories as their drill sites.[40]
While states are not required to budget for SDFs, there are ways in which SDFs can obtain support funds or equipment:
  • Establish a chapter supporting the State Guard Association of the United States. Approximately one-half of the SDFs have such a chapter. Since these chapters are IRS 501(c)(3)-certified, they can seek donations and grants to provide a variety of support for their SDFs. Maryland has such a chapter, as well as its own dedicated 501(c)(3) foundation, which has proved immensely useful.
  • Petition their National Guard for access to surplus equipment, training material, and training facilities.
  • Prepare grant requests for special purposes, such as medical supplies and equipment, training material and audio-visual equipment, communication equipment, or a trailer to house a disaster mobile communication center.
  • Establish a working relationship with selected state agencies requiring technical support that the SDF can provide. Under these conditions the SDF can use the agency’s material and equipment for itself for the duration of their working relationship.
  • Associate with a local Medical Reserve Corps, receiving visibility, recognition, and temporary additional medical staff and needed medical resources.
Training. The backbone of any professional military force is training, both general military training and job-specific training. A well-run SDF is no exception. Therefore, there must be an established schedule of training for all personnel who want to be active members of their assigned units. Each member should undergo basic SDF coaching before starting duty. This will include general education in military customs and courtesies, as well as in SDF roles and responsibilities. Specialized professional directorates, such as chaplaincy, JAG, and medical regiment, have memberships that are already accustomed to continuing professional education, and they should be required to participate in continuing professional education unique to SDFs, as well. It is also vital that all SDF personnel be trained in the National Incident Management System’s (NIMS) Incident Command System (ICS) for command and control of emergency situations, which is readily available through FEMA or a state’s emergency management agency. This will allow SDF personnel to fit seamlessly into a larger strategy for handling a domestic emergency.
Enhancing the Strength of the Nation’s SDFs
Despite the tremendous advances in the role and stature of SDFs in recent years, forward thinking shows that more can be done to solidify and strengthen SDFs. Suggested future actions for states and Congress include:
  • States should promote the creation of SDFs in high-risk states. Presently, 28 states have chosen not to authorize an SDF, including several states at high risk of natural disasters or terror attacks. The hesitation of many states to create an SDF makes little sense, given that SDFs offer near-zero-cost force multipliers for homeland security efforts. There are, as outlined herein, a number of vibrant SDFs that can serve as models for new ones throughout the states, and whose command and staff elements could act as valuable advisors in the start-up process.
  • States and federal policymakers should integrate SDF units into state and federal emergency management planning. States, the Department of Defense, and the Department of Homeland Security should seek to integrate SDFs into existing and future emergency management plans to ensure that all players in state emergency response are aware of the resources provided by their state’s SDF. Further, emergency management plans and exercises will provide the SDF with greater guidance on its role in state response in the event of a disaster. It is essential that all SDF personnel be drilled in NIMS-ICS protocols, both upon entry into service and on a continuing basis.
  • Congress should amend Title 32 of the U.S. Code to provide unmistakable permission for joint training between the National Guard and the SDF. In November 2011, the National Guard Bureau (NGB) revised its principal regulation covering SDFs, NGB Reg. 10–4, to eliminate many antiquated provisions. Contained in the revised version was a provision recognizing that “state [National Guard] may train or conduct exercises and maneuvers in conjunction with SDFs,” provided that no federal funds or equipment are used.[41] While this is a good first step in facilitating joint training between National Guard and SDF units, more can be done. Congress should amend Title 32 to provide unmistakable authority for joint training between National Guard and SDF units. Specifically, the law should be amended to allow the National Guard to provide assistance to all auxiliary forces, including the SDF, the Civil Air Patrol, and Coast Guard Auxiliary.[42] Such an amendment would not only allow the National Guard to provide assistance in the form of technical training, administrative support, and equipment, but also allow the National Guard and the SDF to better share best practices for emergency management and state homeland defense.
  • State and federal policymakers should enhance state resource allocation and federal in-kind support. One of the many merits of the SDF is its nature as a near-zero-cost homeland security resource for its state. With states not required to fund their state defense forces, SDFs themselves often seek funds and support through such activities as the creation of 501(c)(3) foundations. Yet, adequate state support and resources would increase the quality and capability of the SDF. Additionally, while SDFs, by their nature as state military forces, should remain primarily funded by the states, these forces would greatly benefit from receiving federal in-kind support, such as excess federal equipment and supplies, from the Department of Defense.
  • States should develop the State Defense Force Intelligence Mission. The intelligence function, falling within the G2 staff area, is often overlooked by a SDF, with the exception of its own security needs. Strictly military intelligence (in the sense of ascertaining national defense information) is obviously an exclusively federal function. There are, however, intelligence-related missions that would benefit the command of the SDF. Most SDFs have at least one activity that provides excellent support to their National Guard or their governor in critical-infrastructure risk assessment, disaster mitigation, emergency management, use of technology, and knowledge of where to obtain additional resources, both human and materiel. These activities provide essential information to commanders in emergency situations, which is the kind of “local knowledge” operational intelligence that can be a huge boost making emergency missions successful. 

    A related, emerging area for SDF utilization is their potential as resource-providers for combating cyberwarfare, an increasingly grave threat that would not only affect the defense and defense-related industrial assets of the nation, but also ordinary citizens and businesses, whose activities could become paralyzed. SDFs have the potential to attract computer experts who could, at a minimum, assist in recovery operations in their states after a cyberattack.
Arizona: The Chance to Be an Example
With the passage of S.B. 1495, Arizona stands ready to authorize and establish a state defense force unit. Once authorized, Arizona’s state leaders will be faced with determining how best to organize and train their newly authorized SDF. By building on best practices throughout the nation and seeking to establish a force focused on creating professional units, Arizona can establish a state defense force that meets the needs of its population—and serves as an example and an inspiration to states across the country.
Jessica Zuckerman is a Research Associate in the Douglas and Sarah Allison Center for Foreign Policy Studies, a division of the Kathryn and Shelby Cullom Davis Institute for International Studies, at The Heritage Foundation. Colonel Martin Hershkowitz is Chairman of the Board of Directors and Executive Vice President of the Citizen Soldier Treatment Center, Inc., chief editor at the SDF Publication Center, Associate Director of Military Programs (Special Projects) for the Aleph Institute, and Executive Consultant for Hershkowitz Associates. He is retired from the Maryland Defense Force (MDDF), where he served as Special Advisor to the Commanding General, and to the commander of the 10th Medical Regiment. Brigadier General Frederic N. Smalkin currently serves as a Special Advisor to the MDDF Commanding General, a position he previously held himself. He is a retired chief judge of the U.S. District Court for Maryland, a faculty member at the University of Baltimore School of Law and at the Johns Hopkins University School of Medicine, and a member of the American Law Institute. He has also served as chairman of the Maryland State Emergency Management Commission. James Jay Carafano, Ph.D., is Deputy Director of the Kathryn and Shelby Cullom Davis Institute for International Studies, and Director of the Douglas and Sarah Allison Center for Foreign Policy Studies, a division of the Davis Institute, at The Heritage Foundation.