In Pursuit of Higher Revenues, Weapons Contractors Exaggerate Impacts of Inflation

Not surprisingly, weapons contractors want as much taxpayer money as the political market will bear. Part of their job is to maximize revenue, profits, and share value. That’s why the nation’s civilian leadership in the Pentagon and Congress are supposed to ride herd on the arms industry to avoid overcharges and misplaced priorities that lead to excessive spending and greater insecurity. But of late Congress and the Department of Defense have failed in their responsibility to the taxpayers and the citizenry writ large.

The latest examples of flawed oversight are the moves by the House and Senate to add between $3737
billion and $45TESTR
billion to the budget for the Pentagon and nuclear weapons work at the Department of Energy beyond what those agencies even asked for. While the rhetoric driving the increases cites challenges from RussiaRUSSIA
and China, the underlying motivation is clear – pork barrel politics, or the placement of weapons contracts in the states and districts of key members of Congress.

This privileging of special interests over the national interest is the result of the activities of what longtime defense analyst Gordon Adams has described as the “Iron Triangle” of the military, contractors and Congress, or the Military-Industrial- Congressional Complex, as others have called it. It’s all about the money – jobs, profits, campaign contributions, astronomical defense CEOCEO
salaries, and more.

Now the weapons industry is making another money grab, in the form of a new white paper from the National Defense Industrial Association that claims that Pentagon buying power will diminish by $11
10 billion from Fiscal Year 20212021
FUTR
to Fiscal Year 2023 due to inflation. In line with this assertion, the NDIADIA
A
calls for adding $4242
billion to the Pentagon’s Fiscal Year 2023 budget request; adding ample inflation adjustments should there be a stopgap continuing resolution to keep the government open until a final budget agreement can be reached; and renegotiating existing contracts to make inflation adjustments.

Inflation is an issue, to be sure, but when it comes to the Department of Defense it must be put in context. The Pentagon has received massive increases in the past few years, to the point that its budget is now substantially higher than at the peaks of the Korean or Vietnam wars or the height of the Cold War. And unfortunately, much of this money is being wasted due to price gouging on basic items, cost overruns on major weapons systems, and a failure to keep track of expenditures that is an invitation to waste, fraud and abuse.

Cases in point include the Transdigm Group, which has overcharged by as much as 3,800 percent for spare parts, to the tune of $20.8 million in overcharges on just a small sampling of its business dealings with DoD: $1313
billion aircraft carriers, and the notorious F-35, which is the most expensive program in the history of the Pentagon and may never be ready for prime time, as documented in a series of analyses by the Project on Government Oversight; and the fact that the Pentagon is the only major federal agency that has never passed an audit.

As an analysis by the Brown University Costs of War Project has pointed out, Pentagon spending has never tracked precisely with inflation. Some years spending exceeds inflation, and some years it lags behind. Furthermore, the items most subject to inflation, like fuel, are a minuscule part of the DoD’s overall budget. The Brown study rightly suggests that higher fuel prices should spur more efficient use of energy, not substantial spending increases. Last but not least, military spending is a unique category that doesn’t mirror the Consumer Price Index. Inflation adjustments for Pentagon programs should be done on a case-by-case basis, not through across-the-board increases. And they should be made in the context of more effective procurement processes that curb price gouging and cost overruns, like recent reforms proposed by Senator Elizabeth WarrenWRN
(D-MA).

As Senator Warren has noted, blindly adding funds to the Pentagon’s already enormous budget based on questionable inflation arguments “invites defense contractors to pick taxpayers’ pockets…The American people are willing to pay to defend this country but they’re not going to sit still for being gouged by hugely profitable defense companies.”

All of this is occurring against the backdrop of an overly ambitious “cover the globe” military strategy that attempts to prepare for conflicts with Russia and China while simultaneously maintaining a global counter-terror and power projection network that includes over 750 military bases and counter-terror operations in at least 85 countries.

A more restrained strategy that focuses on defense rather than preparing for perpetual war, emphasizes diplomacy over the use of force, and encourages allies to do more in their own defense could save a minimum of $1 trillion over the next decade, as set out in studies by the Center for International Policy’s Sustainable Defense Task Force, the Cato Institute, and the Congressional Budget Office. Relative to these sums, defense inflation is a sideshow at best. The Pentagon needs more spending discipline and a smarter strategy, not tens of billions of dollars in additional funding on top of its already enormous budget.