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It's not leaving the US economy but it sure is going into a void. The defense contracting system, especially on large projects like submarines, is very ineffici

It's not leaving the US economy but it sure is going into a void. The defense contracting system, especially on large projects like submarines, is very inefficient. A lot of that $18 billion is probably in cost plus contractors where the contractors gorge themselves.

mpyne 12y ago
Actually the submarine program in question (the SSN-774-class procurement program) is one of the most successful defense acquisition programs in U.S. history, as far as cost performance and compliance with contractual deadlines and milestones.
- akiselev 12y ago
  > Actually the submarine program in question (the SSN-774-class procurement program) is one of the most successful defense acquisition programs in U.S. history, as far as cost performance and compliance with contractual deadlines and milestones. So what? The Virginia class procurement program is meant to maintain nuclear submarine capabilities in two shipyards instead of one so we get to pay for that inefficiency while GDEB and NNS regularly get applause for cutting costs in a program plagued with lots of low hanging fruit.
  - mpyne 12y ago
    Is this supposed to be like how the market for screwdrivers is inefficient by definition since I can buy a Craftsman or a Stanley? Either way, allowing your industrial base to atrophy to a sole source is one of the classic ways of increasing costs to the taxpayers, so I'm not surprised the Navy is trying hard to avoid it. Just look at all the trouble Russia has had trying to reboot their submarine programs.
anigbrowl 12y ago
I see your point, but in this context it's the wrong point (although I firmly agree that taxpayers should demand value for money). As far as economic activity goes, even if cost-plus contractors do gorge themselves, the monies they bill will be spent in turn, resulting in a normal money multiplier effect. What I was thinking of was the sort of istuationation Russia has to deal with; recently they ordered some new Mistral warships from France because Russia doesn't have the domestic expertise to build that quality of gear at home. So the money Russia spends on those if the deal goes ahead will leave Russia's economy completely rather than circulating within it and generating new activity as it is spent by shipbuilders.
- akiselev 12y ago
  The economic multipliers of the defense contractors are horrible compared to, say, DARPA/NASA and infrastructure investment. The trickle down of technology is slow and the industry has been growing more and more bloated since WWII. Manufacturing in the United States accounts for over $3 trillion of the GDP and dwarfs even China's industry. We don't need $500 billion or more a year of defense spending to keep our capabilities maintained and we certainly don't need nuclear submarine manufacturing capabilities in two shipyards.
javert 12y ago
People assume that the money just keeps circulating and that it doesn't matter. "So what, the contractors spend it," etc. I already see someone posting this fallacy. That's true, but that leads to a zero sum game, economic stagnation. To get economic growth, money needs to be invested were a productivity gain can be had. For instance, if you pay $100 to a landscaping man, he in turn spends it on food, and there is no growth in productivity. In constrast, if you pay $100 to an engineer, he in turn spends it on food, AND he figured out how to do X more efficiently, which lowers the cost of X. Or he invents a new Y that saves everyone time. Or pay $100 to a scientist, and he cures a disease. Where does tax money come from? The rich. All of their money is invested. If you take it from them, they don't spend less on personal luxuries. Rather, they invest less. That means less investments in engineering and science (and anything productive and thus profitable), and more investements in landscaping (to continue the running example). I am actually a big believer in national defense, so it's fine when the money is used on submarines wisely... but it is not fine when it is wasted. To think otherwise is a form of the broken window fallacy, which should be clear by now.
- jrock08 12y ago
  Yeah, that's not how economics works... If I pay $100 to a landscaping company, the company pays it's workers (even if we have a company with one person). The company keeps some portion of the money and invests in improvements for the company, e.g. better equipment or advertising. The employees use the money to pay other companies for services which, similar to the landscaping company, reinvest a portion. These companies grow to be bigger companies, thus employing more people who can afford yards which need landscaping. Growing the economy. Not the zero sum game you imply. You assert that investment in companies is a better use of money, but in reality if I or someone else buys a share of any large and widely traded company, I'm pretty likely buying that share from a shareholder who, after selling the stock, has no vested interest in the company. How is that exchange producing value for the economy? I likely bought the stock from someone who after selling the share, invested it in a different company, by buying a share from someone else in the market. The money doesn't enter the economy, it doesn't pay someone a salary, it just stays locked up in the stock market betting that the valuation of a company will go up. In the very unlikely scenario that I do buy a share from a company directly, and assuming that the company does not have significant cash reserves, the money from the share would be used to pay someones salary or reinvested in the company thus creating a net positive for the economy, but then we are back in the landscaping example, not the engineer or science example.

mpyne 12y ago

Actually the submarine program in question (the SSN-774-class procurement program) is one of the most successful defense acquisition programs in U.S. history, as far as cost performance and compliance with contractual deadlines and milestones.

akiselev 12y ago
> Actually the submarine program in question (the SSN-774-class procurement program) is one of the most successful defense acquisition programs in U.S. history, as far as cost performance and compliance with contractual deadlines and milestones. So what? The Virginia class procurement program is meant to maintain nuclear submarine capabilities in two shipyards instead of one so we get to pay for that inefficiency while GDEB and NNS regularly get applause for cutting costs in a program plagued with lots of low hanging fruit.
- mpyne 12y ago
  Is this supposed to be like how the market for screwdrivers is inefficient by definition since I can buy a Craftsman or a Stanley? Either way, allowing your industrial base to atrophy to a sole source is one of the classic ways of increasing costs to the taxpayers, so I'm not surprised the Navy is trying hard to avoid it. Just look at all the trouble Russia has had trying to reboot their submarine programs.

anigbrowl 12y ago

I see your point, but in this context it's the wrong point (although I firmly agree that taxpayers should demand value for money). As far as economic activity goes, even if cost-plus contractors do gorge themselves, the monies they bill will be spent in turn, resulting in a normal money multiplier effect. What I was thinking of was the sort of istuationation Russia has to deal with; recently they ordered some new Mistral warships from France because Russia doesn't have the domestic expertise to build that quality of gear at home. So the money Russia spends on those if the deal goes ahead will leave Russia's economy completely rather than circulating within it and generating new activity as it is spent by shipbuilders.

akiselev 12y ago
The economic multipliers of the defense contractors are horrible compared to, say, DARPA/NASA and infrastructure investment. The trickle down of technology is slow and the industry has been growing more and more bloated since WWII. Manufacturing in the United States accounts for over $3 trillion of the GDP and dwarfs even China's industry. We don't need $500 billion or more a year of defense spending to keep our capabilities maintained and we certainly don't need nuclear submarine manufacturing capabilities in two shipyards.

javert 12y ago

People assume that the money just keeps circulating and that it doesn't matter. "So what, the contractors spend it," etc. I already see someone posting this fallacy. That's true, but that leads to a zero sum game, economic stagnation. To get economic growth, money needs to be invested were a productivity gain can be had. For instance, if you pay $100 to a landscaping man, he in turn spends it on food, and there is no growth in productivity. In constrast, if you pay $100 to an engineer, he in turn spends it on food, AND he figured out how to do X more efficiently, which lowers the cost of X. Or he invents a new Y that saves everyone time. Or pay $100 to a scientist, and he cures a disease. Where does tax money come from? The rich. All of their money is invested. If you take it from them, they don't spend less on personal luxuries. Rather, they invest less. That means less investments in engineering and science (and anything productive and thus profitable), and more investements in landscaping (to continue the running example). I am actually a big believer in national defense, so it's fine when the money is used on submarines wisely... but it is not fine when it is wasted. To think otherwise is a form of the broken window fallacy, which should be clear by now.

jrock08 12y ago
Yeah, that's not how economics works... If I pay $100 to a landscaping company, the company pays it's workers (even if we have a company with one person). The company keeps some portion of the money and invests in improvements for the company, e.g. better equipment or advertising. The employees use the money to pay other companies for services which, similar to the landscaping company, reinvest a portion. These companies grow to be bigger companies, thus employing more people who can afford yards which need landscaping. Growing the economy. Not the zero sum game you imply. You assert that investment in companies is a better use of money, but in reality if I or someone else buys a share of any large and widely traded company, I'm pretty likely buying that share from a shareholder who, after selling the stock, has no vested interest in the company. How is that exchange producing value for the economy? I likely bought the stock from someone who after selling the share, invested it in a different company, by buying a share from someone else in the market. The money doesn't enter the economy, it doesn't pay someone a salary, it just stays locked up in the stock market betting that the valuation of a company will go up. In the very unlikely scenario that I do buy a share from a company directly, and assuming that the company does not have significant cash reserves, the money from the share would be used to pay someones salary or reinvested in the company thus creating a net positive for the economy, but then we are back in the landscaping example, not the engineer or science example.