New shovel-ready defense spending?

Posted: August 23, 2011 in Songs of Space and Nuclear War
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Defense spending is one of the most shovel ready programs in government existence.  The F-22, when it was capped at 187 planes, was fully shovel-ready for more “stimulus” money.   None appeared.

The Boeing Dreamliner is also shovel ready.  It doesn’t even need public borrowing, but an inexcusable NLRB ruling has cast sand into the Vaseline.

So is this how things are to be or can aerospace and defense spending make a difference with regard to jobs?  The answer is they can make a difference, but…will they? 

Loren Thompson, writing at Forbes, has teased out some possible truths (along with plausible speculation) from the recent White House budget office guidance:

…there was a hidden message of hope for contractors in [White House budget Director Jacob] Lew’s memorandum, because it urged budget planners to identify programs in their requests that contribute to economic growth or operational efficiency. Lew hinted such programs might get increased funding, even as the rest of the budget is falling.

Of course, the aforementioned “hope” for contractors is not a strategy.  But Thompson proceeds to unpack what happened to Oshkosh, who was suffering mightily (their stock went from $48/share to $4/share) during the recession:

With its back to the wall, Oshkosh management turned to the one customer that had enough cash to save it: the U.S. military. In 2009 it bid aggressively to win two big Army truck contracts — so aggressively that it managed to dislodge 17-year incumbent BAE Systems from the larger of the two, a five-year, $3.5 billion contract to build over 23,000 medium trucks and trailers.

How’d that all turn out?  Not good: it’s kind of like being a crack-fiend who only has one dealer (or better, a crack dealer with only one customer).

One of the two truck programs that Oshkosh won in 2009 — for combat vehicles used in Afghanistan — is winding down, and the other, bigger program is losing money. Having shifted its business mix so that it now relies heavily on military sales, the future of Oshkosh depends in large part on receiving new Pentagon orders and securing the kind of contract terms that permit steady profits.

But even the crack-fiend/crack-dealer analogy deserves more explanation:

What makes Oshkosh a little different from big defense contractors like Lockheed Martin and Northrop Grumman is that its culture remains oriented mainly to civil and commercial markets, where it is an acknowledged leader in many vehicle categories. Defense markets don’t operate the way civilian markets do, because the monopsony buyer is part of a political system that often acts in arbitrary or capricious ways.

Yes, the political system is subject to crony capitalism (AKA reverse NIMBY), regulatory capture, and decision fatigue.   Thompson’s summary:

In a weak economy, the Pentagon’s budget is just too tempting for many politicians to resist.

While I understand Thompson’s logic (it is historically and factually based, after all), I doubt very much that plus-ups will provide any sort of soft-landing to the defense community.  It isn’t a peace dividend we’re looking at; its deficit reduction.  Expect very real cuts.

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