Really interesting discussion of a really interesting story — one which, while being very Wolfe-ish and, as you noted, quite well structured in its world-building, is unusually puzzle-free (unless I am missing something, although it seems like you two agreed, as did Marc Aramini in his write-up (which, by the by, includes a handy reconstruction of what he thinks the other side of the conversation is.))
I do, however, want to disagree with Brandon's reading, or at any rate his retelling, of the story as presented in the recap. Some of these may have been slips of the tongue; but in a few cases I think there's some misinterpretation. Not trying to give you a hard time or anything! But I thought it was worth spelling these out:
Contra Brandon, it wasn't the speaker who wanted to talk about weapons and not morality; he says explicitly: " “We were talking about morality, and I feel that is a more fruitful and interesting subject; but I can tell you very briefly how we constructed our weapons, if you want— provided you understand that we are going to return to the moral question afterward." This is important, I think, because it highlights and instantiates the degree to which (as he also states explicitly) that this speaker feels no shame; he is proud of what he did. He insists on talking about morality! He is quick to say that he "feel[s] no need whatsoever to justify myself"; this is not guilt. He simply wants to communicate "the imperatives of the situation."
Brandon says a few moments were the result of training which I think were clearly intended to be the result of combat. The cutting of the shirts, for instance, does not happen in training (again, possibly a slip of the tongue). Its role in the combat is suggested by the speaker's noting that " the braver someone was, the more torn up their shirts got". (Note also the speaker's pride when he notes that his own shirt—which was made into the flag—was entirely intact... in the back. i.e. he never turned around and ran.)
Similarly, what Brandon calls the "sexual component" takes place not during training but during actual combat, and is fairly explicitly meant to be rape. Nor did the yellows discourage this, nor did the blues/greens flee to the yellows to escape it. Rather, the yellows committed the rapes, and it was the raped blues and greens who (although he says he didn't think they liked being raped), " Still, they were the ones, mostly, who wanted to join us." They weren't joining to escape rape, but because they had been spiritually crushed by it. (Arguably very disturbing from a feminist pov, but put that aside.)
Similarly (and again, probably a slip of the tongue), it wasn't that some women and some men didn't want to fight; it was that some women didn't want to fight, and some men didn't want the women to fight. (“Some of the women didn’t want to, of course. And some of the men didn’t want to have them do it, either.")
Overall, the story is far, far more brutal than Brandon's recounting suggested: the protagonist's army is fighting a lot, and is raping, and is proud of it. (The story is also, arguably, rather sexist.)
It's less clear to me than the above, but one implication that I think was missed is that the narrator speculates that "They were monitoring a few selected individuals, I suppose, though we didn’t know it. She must have been one of them." is because they had killed so many others, in battle. Now we don't know if that's right, or if the timing was a coincidence, or what the experimenters were thinking — since we don't get their side of the conversation, we can imagine that perhaps this is in a horrific world in which they are trying to figure out how to martial murderous authority, and maybe they're even glad he feels no shame! Again, we just don't know. But I do think the import of the line about only monitoring a few individuals is to clarify that she was not the first one killed, not by a long shot.
It's interesting thinking about what inspired this story. Your context of the Milgrim experiments (those were the shock ones, from 1961, about a decade before the Stanford Prison experiments) and the Stanford Prison Experiment too is definitely part of this. There were other experiments along those lines, too. There were the experiments done by Jane Elliott in the late 60s dividing her class into blue & brown eyed students, which provoked prejudice; that got a lot of attention too, I believe. There's also the earlier Robbers Cave Experiment which divided pre-teen boys into two groups at random & had hostility spring up.
(By the way, one of the best recent novels I've read, Richard Powers's The Overstory—an environmentalist novel with a heavy focus on trees—has as one of maybe eight or ten protagonists one of the subjects of the Stanford experiments (fictional, of course). Just another example of its use in fiction, which I mention largely to plug this really awesome book.)
It's worth mentioning that the Milgrim and Stanford experiments can't be replicated partly because, in the wake of those experiments, increased controls on and ethical limits for experiments using human subjects were put in place. They're a part of why such guidelines were implemented (along with others, such as the Tuskegee experiments).
I also thought your speculation on the Cultural Revolution was interesting. One thing I don't know, however, is how much was known in the U.S. about the Cultural Revolution by 1975— remember Nixon had just opened China, and that was pretty ceremonial. Of course, if your thinking about dehumanization of Asians, and wondering how good people get turned into murderers, there is a closer example to hand in America's conduct in Vietnam, in particular the My Lai massacre, which was a few years before this story. (The My Lai massacre was hardly alone, as was made clear at the Winter Soldier hearings in 1970-1971 and elsewhere — see Nick Turse's book Kill Anything That Moves for a historical take on this — but of course it was the most famous example, and a lot of Americans thought of it as exceptional.) I don't know what Wolfe's attitude towards Vietnam was (nor Korea, for that matter), so I don't know if this was in his mind, but the timing fits.
I second the recommendation for Christopher Browning's Ordinary Men, one of the best history books on the holocaust that I know of (focusing on the perpetrators, not the victims, of course), and a really haunting read.
Oh, and it's interesting about the Klingons being based on the Asian Peril. I had always taken them as the stand-in for the Soviets (the main enemy), with the Romulans (mysterious, closed society) as the Chinese.
This is a really good story! I'm glad you guys covered it.