Defense Economics and Acquisition Reform

Something’s wrong with the system

– Secretary of Defense Donald Rumsfeld to the
Senate Appropriations Committee, April 27, 2005.

Traditional economics envisions a marketplace of many buyers and sellers. The discipline of the marketplace selects out vendors who cannot offer the prices or quality or features of their competitors. The defense “marketplace,” however, usually consists of one buyer and a small number of sellers. Market influences are even more restricted for big ticket items. Once such a major program enters EMD (engineering and manufacturing development, several years before a procurement go-ahead) the selected contractor has a monopoly. At this point, market forces cease entirely and “power games” become decisive. In such an environment, are there ways we can assure ourselves that we are buying the weapons the warfighter needs at prices that are reasonable?

8/20/06 The National Cake and Defense, by Victor O’Reilly. Economics, and life in general, is all about baking cakes and divvying them up. When it comes to defense, can we have our cake and eat it, too? What happens if we just pretend that we can?

8/24/04 Don’t Mind If I Do, Winslow Wheeler. How Congress shortchanges the troops, to the tune of $2.5 billion, while loading up on pork.

6/26/06 Is a Global Economic Deluge Increasingly Likely? By Gabriel Kolko

4/06/04 Report of the Task Force on a Unified Security Budget for the United States. The 2005 Budget proposes spending seven times as much on the military as on homeland security (including border and port security), law enforcement, diplomacy, and other instruments of national defense. This report proposes more balanced and likely more effective alternatives. (PDF 129KB)

11/25/03 The Cross of Iron, by Conn Hallinan. Why diverting money from Cold War weapons systems is proving so difficult.

Statement by Franklin C. Spinney Staff Analyst, Department of Defense, Before THE SUBCOMMITTEE ON NATIONAL SECURITY, VETERANS AFFAIRS AND INTERNATIONAL RELATIONS COMMITTEE ON GOVERNMENT REFORM, UNITED STATES HOUSE OF REPRESENTATIVES,” June 4, 2002. A succinct summary of why just throwing more money at the Pentagon won’t solve its problems, and recommendations for what might.

The FY2003 DoD Budget Request. An analysis by the Republican staff of the Senate Budget Committee.

DoD’s FY2003 budget request in historical perspective. If enacted, FY2003 spending will exceed the cold war average (in constant FY2002 dollars.)

Mr. Smith Is Dead: No One Stands in the Way as Congress Laces Post-September 11 Defense Bills with Pork,” by Spartacus

US News & World Report’s series on war profiteering, from the May 13, 2002 issue.

Congressional Staffer Lifts Veil On Post-Sept. 11 Defense Pork Projects,” by Elaine Grossman

Informed Budgeteer,” produced by the Congressional staff, October 1, 2001. As we rapidly add money to the DoD budget, how do we know it will be spent wisely? During WW II (see p. 2), the answer was a “Special Committee to Investigate the National Defense,” chaired by “an obscure junior senator from Missouri, Harry S. Truman.” (22K PDF file)

Major Management Challenges and Program Risks: Department of Defense” (GAO-01-244, January 2001) In this important and well researched report, the General Accounting Office (GAO) found that DoD’s business practices fail to approach the standards of excellence demanded of troops in the field. In particular, “power games” such as front loading (basing program decisions on unrealistic assumptions) waste money that could be used to improve readiness and support modernization. The report reiterates the importance of fixing DoD’s unauditable financial systems as the basis for reasonable decisions.

The latest DoD IG report on the unauditable state of the Pentagon’s financial management system (on the Financial Systems page).

“More Spending is not a Reform Strategy,” the Werther SITREP (Commentary 419). July 2001. Why chaos in the Pentagon’s review processes ensures that most of the 2001 and 2002 spending add-ons will be wasted.

Congressional Add-ons to the FY 2001 DoD Budget. From the Center for Defense Information. Documents $3.6 Billion in procurement items not requested by the Pentagon but added by Congress. This figure, by way of comparison, would equal 42% of the entire procurement budget of the United Kingdom.

The Plans/Reality Mismatch into the New Millennium. The upcoming train wreck between social spending (general health care, Social Security, Medicare) and defense can be avoided, but not ignored.

Defense Time Bomb,” Chuck Spinney’s 1996 study of how rising procurement budgets–as Cold War era weapons programs enter production–will devour money needed for pay, readiness, social security, and other priorities. To make matters worse, the enormous spending required for the F-22, JSF, V-22, F-18E/F, etc., will not even modernize the force (as GAO report in the next item confirms). Originally a staff study, then published in its current form in Challenge: The Magazine of Economic Affairs, July-August 1996, pp. 23-33. (70KB .pdf file)

Tactical Aircraft: Modernization Plans Will Not Reduce Average Age of Aircraft,” GAO Report GAO-01-163, February 2001. The 30-year service spending plans, even if perfectly executed (no slips, no overruns), will not modernize the force. Despite spending between $258 billion $338 billion on new aircraft, the average age of tactical aircraft in 2026 will be higher than it is today (currently, 13 years for the USAF, 10 for the Navy — both numbers higher than service goals). These plans do not include the $1,344 billion needed for structural mods to current aircraft. (808 KB .pdf file)

As Readiness Debate Rages, Pentagon Implement Budget Boost,” Adam Herbert, Inside the Air Force, September 1, 2000. More on the debate over the “Four Percent Solution.”

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