Common Cents

Taps of the trade

Ralph Murphy

(8/2019) On 18 March, the White House submitted its annual budget proposal for fiscal year 2020. In it the document sought a limiting legislative role, which would " rein in reckless Washington spending" characterized by " waste, fraud, and abuse." It went on to promote a 10-year plan to maintain a standard of control implied by 2017 limiting laws that broadly question the validity of the unchecked national debt while not yet providing an exact legal control of the executive groups outlays. For the first time in generations there’s enough political play that both can be resolved with clarity of costs given program need the only real obstacle.

The budget allocation process and spending have historically been bulk grants for forecast programs as issued by the Executive Office of Management and Budget. It is then sent to Congressional budget committees both House and Senate who either approve it or delay passage. If not approved the previous years resolution rolls over into that fiscal year. Traditionally the relevant legislation was traced to a New York advisory group which controlled banking, commerce, labor and security but have fallen afoul of viable direction amid bonding anomie and denigrated to base elements leaving OMB in charge.

That national debt it afforded, so intimidating at now over $22 trillion for scant services perhaps best symbolizes their overcharge. It was used to justify interest payments which were gained through taxes and amounted to over $200 billion annually but again was an otherwise empty obligation. It’s not owed or enforceable and amounted almost complete and felonious fabrication. The older leverage included senior intelligence enforcement which has moved to almost open opposition in the current leadership environment.

That debt provided for alleged funding needs but can now be scrutinized better as can the outlays, which are traceable but often manipulated. A strong sales " pitch" can be convincing if not reduced to base cost and those can be traced. Close scrutiny to government programs linked to the Executive cabinet show very limited likely annual recurring costs especially to more settled programs such as agriculture, interior departments, or even security beyond startup fees salaries and maintenance. The bulk grants made available to key programs as defense, energy, or health and human services simply have no correlation with the actual program expenses upon review. There has to be more accountability and contractor overcharges seem the primary loss source beyond their often-essential service.

The major expense to the varied programs revealed by evaluation of the private sectors bills show profit margins often beyond 300% of value or that associated with a conventional owners likely gain for that type service. It is relatively simple to track components for a good or service in what economists refer to as variable input costs. They they are routinely bought on the open market and subject to conventional competition which limits overcharge in a free market. To assess a contractor’s likely cost even for defense is just to add the VICs for the product and question the bloated and unchecked profit margin if there’s a discrepancy.

The problem with government markets seems while there’s usually a limited need for physical goods beyond some type of emergency, those which do cater to it can provide the very unusual pattern of a single buyer known as monopsony to economists. That is common only to the defense contractors as it’s often a classified and restricted procurement type and use limited for lethal exchange. Monopoly or oligopoly (very few) sellers can meet a monopsony buyer and there’s again limited accountability but the overcharge is capital loss. It used to be hard to trace before the federal legal authorities stepped in given illegal source and use changes and the willingness to enforce the law.

Scrutiny to underlying costs is relatively easy, then justifying the profit margin beyond that related to a similar good or service simply requires objective detachment. Defense systems here to the United States are linked to commercial enterprises like Boeing, which has a defense subcontractor division of real weight. The acting defense secretary who was just replaced spent almost his entire career there. Others as Lockheed Martin are also principally involved in aviation linked systems but have very limited private sector dealings. Money forwarded to that type industry such as shipping contractors to include principally Northrop Grumman have very low loss ratios for their products themselves. There have been shore incidents but no large American flagged vessel for example has sunk in combat in over seventy years.

The higher cost is more in the research and development and then specific capital used in multi good construction known as fixed costs. Much of it is easily transferable and can even be shared with proven allies.

Boeing’s role in the America’s aviation programs is very similar to Europe’s Airbus SE as both are engaged in commercial and defense roles, but lack cost reviews and are the source of gross fund redirects tied to bloated profits. Germany, France, and Spain share ownership rights among undisclosed private investors with the production hub in Germany. The others provide parts or sale cover as Berlins trade diplomacy can be gruff though products strong. There’s a very limited warship industry there catering to shore defense but it is independent technology and production facilities offer export potential for nations with similar interests and needs. HDW subcontractor is owned by ThyssenKrupp which is broadly invested but more the American pattern of disguised funding likely traceable to taxes or simple access to primary banks. Secondary systems requiring advanced technology no matter the name header almost always employ American, German, or Japanese firms and training even if they’re hidden.

The main industries that are of concern to unchecked profit margins are defense hardware but notably, space and computer technology as well as those in the private sector. The divisions blur uncomfortably with the government contractors and others in the same company working in classified or open areas. It’s especially noteworthy to intelligence and defense corporations since their access interchanges can prove costly. Microsoft was actually charged for information sharing in a little publicized " Azure Government" program. Storage groups concluded their files could be considered open source data and that reinforced by mid level intelligence which aided the dispersal until the Justice Department stepped in to close it.

The contractors often have cross border allies. Computers are relatively insular but for some reason Microsoft and Apple among others felt comfortable starting up in China. Try to remember all technology-linked exports there have a foreign joint venture partner until recent control measures reversed the trend as too costly in aiding the communist government. Japan seems to have actually helped Boeing as a parts supply source though unlike Germany, their own commercial plane industry is discouraged. Boeing’s access and funding were largely guaranteed until again that New York control group became non competitive relative to producers’ interests. They may have even floated foreign defense and space programs as the host cultures otherwise so primitive.

Other ministries like education, agriculture, or interior departments generally require non funding legal changes if any annual review role is needed rather than the budget discretion. The costs are usually just salaries and building fees, but the bulk grants as $56 billion afforded education doesn’t even address the local taxes covering salaries. That probably best symbolizes the waste bemoaned in the White House budget proposal. Other programs as FEMA and defense system overlap may get in the way of real disaster relief programs so should be reviewed given the multi billion dollar pricing. Even transfer payment programs if undertaken would be the outlay plus overhead. It’s now many times that.

Internal audits with published price justification in classified as well as more common programs could easily be achieved here and abroad.. There have been positive steps in that direction but again much of it involves just justifying the expenditure relative to its cost in a likely outlay for its value compared to other markets. Self policing hasn’t worked in broad requisition, now it can.