Saturday, December 22, 2012

Running on the Third Rail

It is past time conservatives start running their campaigns with a "third rail" issue - the supposed politically untouchable - as a centerpiece. We're all fully knowledgeable that government spending is fraught with waste, fraud, and abuse. Our spending levels on government programs that are nothing but wealth redistribution whose costs far outweigh the value received and are completely unsustainable as we saddle future generations with more and more debt.

"Wait!", I hear you say, "Aren't conservatives already fully on board with entitlement spending reform?" Of course they are, for the most part. That isn't what I'm talking about. I'm talking about defense spending.

That's right, defense spending. If conservatives are going to truly and honestly stand for fiscal sanity and to win spending arguments in the future, fiscal policy proposals and narratives are going to have to include not just touching a third-rail of conservatism, but seizing it enthusiastically.

Our nation deserves it, our children who are being saddled with more and more debt deserve it, and most importantly, the brave men and women who wear the uniform of our Armed Services deserve the best of each and every dollar we give them to defend us with.

Defense spending is a conservative sacred cow. It's a toss-up as to what would be a more toxic position for a GOP politician these days: being open to raising some taxes or cutting defense spending. The defense funding sequestration built into the Budget Control Act of 2011 is seen by conservatives and Republicans as a disaster to our military and our national security - and it might well be. However, that completely camouflages a disturbing trend in defense spending: the cost of defense procurement far outstripping historic rates of inflation. We must insist that we get value for the money spent on defense, especially since it is ripped out of the private sector by taxation.

Back during the recent Presidential campaign and after President Obama's crack about bayonets in the third debate, I noted the 50th anniversary of the youngest B-52 bomber being delivered to the United States Air Force. In that, I gave some perspective on the relative cost of the Air Force's bombers:
The Air Force's fact sheet for the B-52 says each aircraft cost $53.4 million in constant 1998 dollars. There are two other bombers currently in the Air Force's inventory: the B-1B Lancer and the B-2 Spirit. How do they compare financially using the same 1998 dollars?
  • B-1B Lancer, 66 in inventory: $283.1 million each
  • B-2 Spirit, 20 in inventory: $1,157 million (that's $1.157 billion) each
Each B-1B cost the Air Force 5.3 times as much as a B-52H. Each B-2? Well, that has a price tag 21.67 times higher than the venerable B-52H. 
The B-1B and B-2 certainly have their roles, and are both vital to our defenses, but the cost escalation vs. a fifty year-old aircraft that is still an unmatched weapon of war in today's aerial battlefields is indicative of larger problems. Inflation alone can't explain the cost escalation, even given the gigantic technological differences between the planes when they were introduced. Did the Air Force really get 5.3 times the aircraft value out of a B-1B than they got out of the B-52? I doubt it. Some may want to chalk this up to the "military industrial complex" or some other whacko conspiracy theory.  I think the answer is simpler: complacency. Our government has become such poor stewards of public monies and too focused on the spend rather than the value that they can't accurately evaluate anything anymore.
As it turns out, and this should be no surprise, the "cost vs. value" equation is way out of whack across the board. Many will remember the examples from the Reagan years of exorbitant defense charges for mundane items like toilet seats and hammers, yet even those pale in comparison to the amount we are likely over-spending on (properly, being over-charged for) real weapons and weapon systems.

The United States Navy recently inactivated the aircraft carrier USS Enterprise (CVN-65) after fifty-one years of service in defense of our Nation. In 1961, the Enterprise cost $451.3 million to construct. Correcting for inflation to 2012, her price tag was $3.475 billion. The final Nimitz-class carrier, USS George H.W. Bush (CVN-77), cost $6.653 billion in the same 2012 dollars. Is our Navy really going to get 91.4 percent more value over the service lifetime of the Bush than they got from the Enterprise? Perhaps if the Bush (commissioned 2009) sails until 2104 they will, but I'm doubtful even if that happens.

What of the Enterprise's replacement, the future USS Gerald R. Ford (CVN-78)? That ship is expected to cost $13.5 billion by the time she is commissioned, projected for sometime in 2015. That's almost four times more than the Enterprise cost, and twice as much as her immediate predecessor! There is logically no way that we taxpayers can get a return on their investment unless the ship serves for two centuries.

Now, I anticipate that the counter argument to my questioning the value of our aircraft carrier spend will be, "The new ships have new technology; of course they'll be more expensive because today's high tech simply costs more than when even a carrier was built in the first decade of the 21st century." Oh, really?

If that's true, why is it that defense - no, government procurement in general - is the only sector of our economy where it seems that new and improved technology drives costs up? Just for comparison, look at the Apple iPad. The archetypical tablet computer is on its third generation since the initial release on April 10, 2010. The iPad's price points have been governed by the capacity of storage contained in the device: $499 for 16GB, $599 for 32GB, and $699 for 64GB (WiFi only devices). Those prices didn't change as each new generation was introduced. So, correcting for inflation to 2012 and looking just at the 16GB models:
Does anyone question that the newest iPad is an advancement over the original? That it provides more value to the user? Improved display aside, the latest has double the processing capability (1-GHz single core CPU vs. 1-GHz dual-core CPU) and four times the RAM (256MB vs 1,024MB) at the same price point of $499 and a real price reduction of $27.84 when you take inflation into consideration. Technology updates should unquestionably provide more value at an equivalent price. If price escalated in line with technology and stayed constant for inflation, a new 16GB iPad today would probably be around $999. That's the price behavior we see for an aircraft carrier, after all.

Part of the problem is single-source producers. Of the fifteeen aircraft carriers that have been commissioned by the Navy since 1961, all but two were built at the Newport News shipyard currently owned and operated by Huntington Ingalls Industries. USS Kitty Hawk (CV-63) was built by New York Shipbuilding Corporation, Camden, New Jersey - they went out of business in 1967. USS Constellation (CV-64) was built by the Navy itself at the New York Naval Shipyard in Brooklyn; that facility closed in 1966. Newport News is the only shipyard to ever build a nuclear-powered aircraft carrier in this country, and will be the builder of all carriers for the foreseeable future.

The Navy, which means the American taxpayer, has no other place to go if they want to have a new aircraft carrier built. There is simply no other vendor that has the facilities or the expertise to build one without a major investment on their part for infrastructure and to hire the talent required. Where is the incentive for the present builder to provide any enhanced value in the production of the product? They have no competition. They can charge essentially whatever they want - witness the cost escalation of an aircraft carrier from $3.475 billion to $6.653 billion to $13.5 billion - and we, the taxpayer, has no choice but to foot the bill unless we expect our Navy to do without aircraft carriers (stipulate that they are needed; set a strategic discussion of power projection aside for the time being, please).

And Huntington Ingalls Industries have the American taxpayer hook, line, and sinker for the other large-hull type ship our Navy has as well: multipurpose amphibious assault ships. They're built only at Huntington Ingalls' shipyard in Pascagoula, Mississippi. The last ship of the Wasp-class, the USS Makin Island (LHD-8), considered a prototype for future ships, was delivered to the Navy in 2009 for a cost of around $750 million. The large amphibious ship currently under construction, the USS America (LHA-6), has a current price tag of $3.4 billion; a 325% price increase in just three years for a ship of near identical size and capability. Who can look at that and say we're not getting royally screwed?

The screwing continues when it comes to aircraft.

  • The most recent aerial refueling tanker purchased by the Air Force is the McDonnell Douglas KC-10 Extender, a militarized version of the civilian DC-10-30 airliner. The plane has a maximum fuel capacity of 356,000 pounds and in 2012 dollars cost $124.9 million per plane. The new tanker under development for the Air Force, the Boeing KC-46 (based on the 767), will have a fuel capacity of 212,299 pounds and a price tag of $195.5 million per plane. We're about to pay 56.5 percent more for a plane that is 40.3 percent less capable of performing its primary mission of refueling other aircraft. Or, to look at it another way, the Air Force's cost-per-pound of refueling capacity is jumping from $350.72 in the KC-10 to $921.02 for the KC-46 - a rise of 163 percent.
  • Corrected for 2012 dollars, the price tag of the last three generations of Air Force air superiority fighters has grown by 861 percent. McDonnell Douglas F-4 Phantom II (1965), $17,540,648. McDonnell Douglas F-15 Eagle (1998), $42,230,723, 141% of the F-4. Lockheed Martin F-22 Raptor (2005), $168,569,396, 299% of the F-15.
  • The carrier-capable version of the Lockheed Martin F-35 Lightning II for the Navy and Marine Corps has a current price tag of $236.8 million per aircraft. Lockheed Martin claims that it will have four times the air-to-air capability of the aircraft it will replace and eight times the air-to-ground. Let's hope they're right. Cost in 2012 dollars for the McDonnell Douglas F/A-18C/D Hornets the Lightning II will replace? $67.2 million each.

I bet if we dug into programs and acquisitions across the Department of Defense's budget, we'd find example after example after example. I shudder to think what the actual value we are getting out of the $533 billion dollar 2012 budget for our military. We'd be lucky if we get back fifty cents on the dollar, I fear.

Fortunately, there have been some of bursts of sanity seen in the last decade when it comes to canceling programs that are just shoveling cash into the proverbial furnace. Here's just one example.

In May 2002, then Secretary of Defense Donald Rumsfeld cancelled the United States Army's next generation self-propelled artillery piece, the XM2001 Crusader. At the time, the Crusader was projected to have a unit cost of $25 million each, and over $1 billion had been spent on research and development! The howitzer the Crusader would have replaced, the M109A6 Paladin, had a unit cost of $1,792,377.91 in 2002 dollars. Would the Army have gotten 14 times more value out of every Crusader than each Paladin had the project been continued? No way.

There are others that follow the pattern of the Crusader. Far more things get through and are never examined closely for their value proposition.

Amazingly though, for another Army and Marine Corps artillery piece, we are getting value for our tax dollars. The M198 towed howitzer was first fielded in 1979 and stayed in production through 1992. It weighs 15,772 pounds, requires a large truck to pull it, and is manpower-intensive to operate. Unit cost for this howitzer (2012): $865,318. The new M777 howitzer is less than half the weight of the M198, fires faster, is made of more advanced materials, requires fewer crew members, includes digital fire control systems, and can be towed by a vehicle as small as a HMMWV. The most recent batch in 2012 was purchased by the Department of Defense for $698,925 each. That's real savings of $166,393 per gun versus the predecessor - and massive logistical and tactical advantage on today's battlefields for our Soldiers and Marines. A value! Our tax dollars being spent effectively! Just call the M777 the iPad of artillery, I suppose.

In the GOP Presidential Candidates' Debate on October 18, 2011, former Speaker of the House Newt Gingrich responded to a question about defense cuts as follows:
I'm a hawk, but I'm a cheap hawk.
All conservatives should well heed Mr. Gingrich's words. The future of the United States depends on us getting our fiscal house in order. The security of the United States, and that of the cause of liberty throughout the world, requires that we have effective land, sea, and air forces that both provide the qualitative advantage over our enemies that we have thus far enjoyed and that are affordable.

We can not preach a message of fiscal restraint and responsibility unless we are willing to tackle defense spending and the incredible cost escalation that permeates throughout the budget. I'm confident that these same acquisition cost patterns far in excess of inflation could be found within every department or agency's budget. All Federal office holders - Republicans as well as Democrats - are culpable for letting our tax dollars be spent with no relationship whatsoever to the value received for them in each and every area of expenditure.

Politicians and government officials alike are going to have to stand up to all vendors who do business with the government. The unlimited well of spending has to be capped, and we've got to get value for each and every dollar that is spent. We're going to have to keep them accountable, even if we have to grab a "third rail" or two...or two hundred.

Conservatives are going to have to break free of mass media characterizations and stereotypes if we are ever going to regain a governing majority. Getting away from the idea that every defense dollar spent is a good one would be a great place to start.

We are indebted to each and every one of our Soldiers, Sailors, Airmen, Marines, and Coast Guardsmen for our safety and security. The treasure of their lives must always be protected and equipped with the best resources and products our country can bring to bear, and those items must actually be worth what has been spent on them or else we are selling those same brave men and women way short.


  1. Anonymous5:42 PM

    A really fine essay.

    For me, this is a real eye opener about military hardware costs. I'm sure there is similar bloat in operations costs, particualrly in the "nation building" costs, with their attendant waste, graft, and outright theft.

    I wish you could circulate this to all members of the House, but especially to members of Defense, Budget, and Appropriations comittees.

  2. Thanks for taking the time to read it. I'm very glad you found it interesting, please pass it around, and please keep coming back to read more!



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