Defense Investment Bow Wave

I have been thinking of this for some years now. I heard this at a site I still visit, and I think readers here may have some ideas.

A bit of the economics of our military “investment process”.

In 2007, military procurment is about $84.2B. This is nearly 63% (constant dollars) of what was spent in 1986 at the height of the Reagan build up. The 2005 procurement funds were closer to 75% of the Reagan build up advancing from about 40% in 2001.

If a typical weapon system costs 15% of its total life cycle cost to design and test, another 20% to produce, and the remaining 65% to operate and sustain to keep the force trained and ready to go to war. This is historical record. I would expect to see the operations and maintenance budget about twice the size of the procurement and R&D budgets. Not the case.

The 2007 defense budget is about 37% to buy new equipment (procurement and R&D), 37% to operate and support the equipment we have, with new stuff arriving all the time. The remaining 25% for the military personnel costs.

To keep the new and old equipment in good shape and ready to use in war, the department should spend a lot more (twice in operating funds to procurement funds in my opinion) than roughly the same amount as procurement it spends now.

This divergence may be an emphasis on new stuff over keeping what we have in prime condition. This reflects the fact that more money is made by the military industrial complex by selling new stuff than maintaining the stuff we have.

The industrial complex does not make much money developing things as that is usually cost plus a modest profit. The industry does not make much money repairing things because that is also cost plus modest profit.

Industry makes a good profit on fixed price production where the costs are not related to the price and so margins can be widened.

The new stuff comes out and is like the B-2 broke most of the time. Theoretically, it is referred to as infant mortality. More things break on new things especially when the design and production processes are not so good.

As we continue to buy more new stuff, we build a tidal wave of support costs which in the future will compete for funds with “needs” to buy new stuff.

Eventually something gives and it is ability of all the stuff we have to do the job, because we deferred repairs and training so that we could buy new stuff which is soon to be left to rust as even newer things are bought.

Reduced training and huge down time, means there is no real need for the stuff.

Things that are broke all the time, because we never spent enough to keep them up, are then a justification for new things and the bow wave ebbs and flows. Never enough money to keep the stuff running, but always enough to buy new things which won’t be running either.