When the Pentagon is captured by its vendors

By Felix Salmon
May 24, 2011

Companies from General Motors to Coca-Cola have long had a complex relationship with their suppliers — it’s important for those vendors to do well, but at the same time no one likes getting ripped off to the point at which the vendors are doing spectacularly well and the big organization doing the buying is seeing its expenses rise dramatically year after year.

Unless, of course, you’re the Pentagon:

The Pentagon is very encouraged by Wall Street’s response to aerospace companies and arms makers, even as U.S. defense spending flattens, the top U.S. weapons buyer said on Tuesday.

“We are monitoring the health of our industry as it is seen by the financial community,” said Ashton Carter, undersecretary of defense for acquisition, technology and logistics. “And the information there is very encouraging to us.” …

The median stock price for the industry’s to 20 aerospace and defense contractors is about 92.5 percent of their 52-week trading highs, he said.

Trading at this level, Carter said, shows “continuing confidence in the health of our industry that is higher than it is for global information, automotive, steel, energy, telecom and information technology sectors.”

Carter is the man in charge of spending a huge chunk of the Pentagon’s mind-bogglingly huge $750 billion budget. It’s his job to get value for money; if defense-contractor stocks are rising even in the face of defense spending which is purportedly flattening, alarm bells should be ringing. But Carter seems to be mistaking them for some kind of congratulatory jingle.

Brett ArendsMW-AI615_dfense_20110211154303_MD.jpg had a good column on this in February, which included the chart at right. We’re spending more on defense than at any point in US history, bar the height of WWII — and even that level isn’t far off now.

In 1960, when President Dwight Eisenhower was leaving office, military spending in today’s money totaled just $350 billion.

Half of what we spend today.

In 1970, when the Vietnam War was raging, we spent $450 billion. The most Ronald Reagan spent on defense was about $550 billion. Even in 1942, the year after Pearl Harbor, we only spent $350 billion.

Today, $750 billion.

Actually, the figure is much higher if you include veterans’ benefits, the cost of the wars in Afghanistan and Iraq, and the interest on the debt to fight those wars. As Arends notes, even the most fiscally conservative lawmakers seem incapable of suggesting that America’s current defense spending is out of control, or even needs any cuts at all. After all, it would be downright unpatriotic were America’s arms manufacturers to make anything other than record profits this year and for years to come.

But one can’t help but hold out some wistful hope that the people spending the billions don’t consider excess profit at defense contractors to be a point of pride. Was it ever thus? Or is this new?

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