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What The Candidates Should Know: Government Spending

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I once wrote a piece about new Presidents and their inability to stop institutional government spending and waste.  I could do an audit of government spending and deliver the same services for 50% of what we are spending today.  The built-in waste/fraud in our procurement process is something that a new President seriously needs to understand.  We do not need new taxes, we need new courageous and bold policy.

I also pointed out in that piece that a new President will always be at his/her level of incompetence immediately upon taking office.  No human has the capability to understand all the complicated issues even if the cabinet members can help.  Most of the appointees are cronies in one form or another and just wont cut it. 

Below is a chapter from a book by Adam Cash: How To Do Business "Off The Books." It was written in 1985 and is a must read for what all of us need to know about government spending.

Why Government Spending Will Not Decrease

By
Adam Cash

Nowadays, few can fail to be aware that the government wastes their tax money, but the true extent of this waste is astonishing - and even worse is how waste is actually built into the system!  We have read how the Department of Defense has paid hundreds of dollars for such items as screwdrivers and hammers, which are available in any hardware store for a few dollars each, or even cheaper.

It clearly doesn't matter which party is in power.  Put very simply, the candidates on both sides tell the same tired lies year after year, and many voters still believe them. It is not exclusively an American problem, either, as voters in France, Britain, and other Western countries repeatedly elect the same sort of politicians that we Americans do.

The real problem is deeper than the mediocre quality of our elected officials.  Despite strident accusations by some, these are for the most part not evil men, intent on worsening the lot of the people who put them into office.  Instead, they are marginally competent men, unable to understand the large issues, lost in the mass of immediate details, and trying to find a compromise between conflicting needs.

Let's look at "defense" spending, to get an insight into why our "national security" threatens to destroy our economy with its voracious appetite for ever more and more expensive weapons.

A common slogan is, "War is good for business."  This is true, in the sense that the need for large numbers of weapons and support items do bring large government contracts and create jobs in the areas where the factories producing these weapons are located.  However, the basic fact is that our national resources are limited.  This is the most powerful industrial nation in the world, but it is still not quite able to produce both guns and butter, despite the assurance of various Presidents that it can.  Money spent on weapons has to come from somewhere, and this means one or more of these sources: Taxpayers, who pay higher rates.  This absorbs a lot of the overtime pay that defense industry workers enjoy diverting from other government projects, such as building and maintaining our highway systems.  One result of this is the increasing deterioration of our roads, which will become critical during this decade unless the trend reverses.

The national debt is out of hand, has been for several decades, and despite the promises of our current President, plans for reducing it are mostly fantasy. A good example of why our defense spending keeps increasing is the B-1 bomber.  The last version of the B-17 "Flying Fortress" heavy bomber produced in WWII cost $276,000 each.  Since, bombers have become more "sophisticated," which is governmentalese for complicated, and their prices have gone up to the sky, literally.

When the B-1 was first proposed, the projected price was about $20 million apiece. This was to be the most sophisticated, versatile, and capable weapons system in our arsenal and, of course, it had its price.  The already existing systems, did not seem like a very good deal  to President Carter, and he cancelled the program in 1977, after the projected price of each aircraft had gone to about $90 million. President Reagan took another look at it, and decided that the Air Force should have it, but the price in 1981 was at $200 million apiece.  By 1983, when the bomber was included in the procurement budget, the price had gone up to $553 million each.

We can't blame inflation or union demands for all these price increases.  The reasons lie in the method of procurement, and the nature of technology itself.  Each armed service must compete with the other services for a share of the defense dollar.  To do so, the service chiefs try to present attractive pictures of their needs, and to understate the costs.  For example, when an Air Force General quotes a price for the B-1, he's likely to be giving the price of the airplane alone, not mentioning the cost of new bases and other facilities needed to service the plane, the costs of training the people who will fly and maintain it, the costs of ancillary weapons systems it will carry, and the cost overruns which he anticipates.

This is bad enough, and the eventual cost of each aircraft could easily exceed one billion dollars, when we count all the expenses that will go with it.  However, there's worse.
We occasionally buy "interim models" - weapons that are not really suitable for the job.  Sometimes, this is simply due to a mistake.  More often, it's deliberate policy, which is hidden from the voters and taxpayers.

Not counting the prospect of bribes to generals and admirals and the expense-paid trips that companies lavish upon them, there is a serous purpose to buying inferior models of weapons.  The purpose has to do with research and development, and lead times.

It is impossible to build a modern complicated weapon from scratch.  There has to be a design team, and a factory with the proper equipment.  In order to procure the weapon, the Pentagon has to buy it from a company that can make it.  If a company does not get enough government contracts to keep it going, it will go out of business.  The skilled workers will find employment elsewhere, and perhaps be lost to the industry as a whole.

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www.paradigmventure.com

Sheldon Drobny was the co-founder of Nova M radio and Air America Radio. He has supported many philanthropic causes. Mr. Drobny specializes in business and tax matters and is admitted to practice before the U.S. Tax Court as a non-attorney. Less (more...)
 
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