The Pentagon is missing trillions and nobody cares
Greedy contractors, lying generals, fraud, and pointless aggression add up fast
Welcome to another edition of Contention! This one will take about five minutes to read, and it’s worth sharing! Put it somewhere on social media where it will annoy all the right people:
For the fifth year in a row, the U.S. Department of Defense failed its financial audit. “We failed to get an ‘A’,” Pentagon comptroller Mike McCord said last month. “I would not say that we flunked.”
If that’s true, the department is grading itself on a dramatic curve. The Pentagon disclosed that it can’t keep track of 61% of its $3.5 trillion in assets. So where did the money go? Is it just missing and the Pentagon doesn’t know where it is, or is the money actually gone?
The answer: both, with the military failing to keep track of much of what they have, plus massive and longstanding overbilling by contractors. But the political power of these businesses and the strategic importance of warmaking for the U.S. system means that nothing is likely to change.
The first problem rests in the Defense Logistics Agency, a massive procurement wing of the Pentagon employing tens of thousands of people to process 100,000 orders a day for everything from food and firetrucks to missiles. The DLA is like a military Walmart, but Congress and independent watchdogs have blamed poor management at an agency run by generals and admirals – few of whom are looking for a bargain – for out-of-control waste and inventory piling up that nobody knows how to find or remembers they ordered in the first place.
Hundreds of millions of dollars in spending have no documentation whatsoever. The Pentagon can’t even keep track of where hundreds of its buildings are, nor how many contractors it employs.
Those contractors then bilk the Pentagon. Lockheed Martin’s F-35 Joint Strike Fighter, which has ballooned to a total project cost of $1.7 trillion, is the most well-known military program to go over budget. But there are lots of little programs that add up.
The Pentagon regularly buys over-inflated aircraft parts -- contractors soak the agency for more than $1 for every $3 it spends.
It buys way too many spare parts for the V-22 Osprey, a transport aircraft that can transform from a helicopter to an airplane.
Every one of the Navy’s last 10 warships were more expensive than planned at the outset.
Embezzlement and fraud on military bases is rife including million-dollar kickbacks for HVAC machines and $33 million annual profits to private slumlords falsifying maintenance records on toxic military housing.
The Navy’s new SSN(X) attack submarine is also expected to cost at least $1-1.5 billion more than the $5.6 billion first estimated, according to the Congressional Budget Office. That’s a small portion of the total lifetime cost of submarines which require regular maintenance. The existing Virginia-class submarine’s maintenance costs have been at least twice the initial estimate – which was “systematically” underplayed by the Navy when proposing the vessel as part of an “aggressive notional maintenance assumed in the acquisition phase,” according to the Rand Corporation.
Translation: admirals lied to Congress about how much the subs would cost.
Nor is the spending slowing down. The just-passed National Defense Authorization Act for 2023 hit a record $858 billion including $2.7 billion to boost munitions production “amid the war in Ukraine” and a Taiwan weapons financing package. In 2021, as the United States struggled with a pandemic, overall revenue for America’s top 100 military contractors rose 8% year-over-year.
On average, this budget has grown steadily since the Korean War at an annual rate of 5%, with new “threats” arising when the budget begins to fall below that line. There was the “missile gap” of the 1960s and then worries about Soviet wonder weapons in the 1980s, onward past the post-9/11 surge to the now-purported threat from the Chinese military. That China spends significantly less on its military than the United States, hasn’t deployed military force since 1979, and has a strategy aimed at keeping American warships away from threatening its shores, is still presented by the Pentagon as a large-scale adversary requiring “more lethal” force.
“While [China’s] leaders have ramped up military spending in the past two decades, the investments being made are not suited for foreign adventurism but are instead designed to use relatively low-cost weapons to defend against massively expensive American weapons,” stated the Project on Government Oversight (POGO), which tracks wasteful military spending.
As for the blown audit, “passing” would not mean wise spending, just that the Pentagon could account for all the dollars being spent -- but they can’t even do that. This does not matter, because the agency loses nothing if it “fails.” The service branches have even tried to throw their own internal auditors overboard as the Navy did in 2021. This gives the “independent” auditors a big incentive to tell the brass what they want to hear.
The relationship is like a system of patronage, so the final result may appear like a clean record, with auditors helping mask financial statements to appear more accurate than they are, either deliberately or through a convergence of interests. “It’s an absurd system,” POGO stated. “The incentives are fundamentally misaligned.”
Next time you hear we can’t afford something that helps struggling families, remember the trillions missing somewhere in the belly of the U.S. war machine. Fiscal discipline is never a priority when it comes to its violence.
Disclaimer
Our only investment advice: The spending will continue until the morale improves.
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