The difference between using a Laffer Curve for defense and taxation is that taxation can be measured without a disaster, while defense, if you get it wrong, will turn into a disaster.
Add to this that, while none of the very measurable things are very important, none of the very important things are very measurable.
$15 Billion carrier, $100+ Million aircraft, $5 Billion submarines, $1.4 Billion frigate (if we can ever get one built). Rhymes with Tiffany to my ears.
The other problem is that of complexity. The Laffer curve is based on economics, which no one truly understands. And defense spending is even more of a black art.
I was remembering why it was called the Dismal Science back in college. As with math, some things I remember, some things I do not. This post by Sal is an example of why I've read and listened to him for so many years.
Much of economic theory is only good for explaining how things in general work Even simple things like supply and demand curves, for example, are useful for that, but trying to use actual numbers, even approximations, produce mostly fantasy and wishful thinking. Does anyone really believe those ten year budget projections, based on (more or less)sound economic theory, the CBO etc. inflict on us?
Let me give you a radical economic concept, one which, to the best of my knowledge, the economists have never grasped. This is that the very rich inhabit a different and parallel fiscal universe, one which touches ours just enough to allow them to reach down and scoop out enough to live pretty well actually. It is also one where the notion of taxing them is laughable, and where their function in the tax system is tax farmer, not tax payer.
David Cay Johnston, for many years the NYT's tax reporter, wrote long and well on just this insight of yours. TVM is at the core of the freedom the rich possess to act as they do. Johnston showed how anything that delayed the actual payment of assessments (such as fines and tax liability) gave the rich the time to grow their assets such that debts were effectively reduced to zero (or beyond). Thus, the endless lawsuits, non-payment of judgments, and extended payout schedules. Even when penalties are assessed and interest accrues, investment gains over the same time period can and will produce a net gain for the rich. The key is having the ability to stay in the game indefinitely which only the rich can.
Not exactly what I mean. I mean that it is simply impossible to tax them. We can get them to stroke a check, yes, but what backs the check isn't their largely notional wealth but our real wealth. Looked at differently, the state, given fiat currency, spends what it will and taxes not to generate its own income, but to bid down our spending power to avoid the kind of inflation that gets pols and bureaucrats decorating lamp posts. We could be required to shop up in front of those 87000 IRS agents, selected largely on their willingness to shoot people, present a 1040 and cash to cover it, and burn it in front of the agent, and it would be exactly the same.
Looked at still another way, the ultra rich are not in competition with the state for the same assets, as a general rule. We are.
Note, importantly, that derivatives , more than fourteen years ago, were about 20 to 24 times global GDP. And it's since grown. Hmmm....let me cut and paste a conversation I had with a German friend, reserve LTC and investment banker at DBank:
Me:
The thing bugging me had to do with money supply. There are several things we call part of the money supply, sometimes referred to as M0, M1, M2, etc. I'm not sure how many there really are, though I think Niall Fergusson mentioned more than 4 M types in The Ascent of Money. The other M types refer to things like travellers' checks, loans for which there is no actual money in the banks, just about everything involved in modern creative finance.
Okay, so we all know that when the government prints money it creates inflation, thus robbing all of us of our wealth. Well, what about when Mr. Schweitzerischenjudenzahnaertzlichgold creates some new financial instrument that has nothing backing it except Mr. S's reputation for turning a profit? Does that – or notional money derived from that – not also enter into the stream of commerce, competing with our dollars and euros and yen and renmimbi for the same goods and services, driving up the price and reducing our purchasing power? I find it preposterous to believe that it does not. And, while Rousseau and his philosophical – you should pardon the expression – derivatives might hold that property is theft, an equally preposterous notion, this IS theft. This is not creating something from nothing, this is lifting something from us and pretending it's created from nothing.
Him:
Since Governments a hundred years ago made it possible (for themselves of course) to print money without gold backing, the concept of money has more than ever become a matter of trust & belief.
Paper money and of course even more non-physical ("book-" or "digital") money depend on the belief that when you give it you'll get something materiel in exchange. Nowadays a miracle has happened.
WHY the heck aren´t we entering into a hyperinflation? According to every money theory we should have been there already two or three years ago.
Me:
And I don't know why. That's why I asked YOU.
However, I think I do know why now. Did you know that even five (now 14) years ago the derivatives market dwarfed the global economy. I’m not talking is a little bit bigger. I mean it was twenty to twenty-four times bigger than the global gross domestic product. Since GDP includes government goods and services, some of which are, themselves, only redistributionism, hence represent zero values added, that “global GDP” is highly suspect, and probably highly inflated, anyway. Seriously, when the west collects fifty-four billion in extra taxes to send to Africa as aid, and fifty-two billion of it is syphoned off and sent to foreign bank accounts, can anyone claim with a straight face that that represents GDP?
By the way, I believe the spread between the real economy and the derivatives has become still more extreme in these last five (14) years.
But the reason we haven’t gone into an unprecedented bout of hyperinflation, given this market that is twenty-four times greater than the world economy? Simple: There are at least two important economies in the world and they do not touch much. One of those economies is ours, the economy of the producers of goods and services. Ours is real and limited. The other economy is the economy of the derivatives, of the hyper rich, of Olympian bankers, which is to say the parasitical economy of those who reach down from those Olympian heights and scoop out just enough from our real economy to live quite well, actually.
These two economies cannot be allowed to touch much, because if some of the hyper rich were to scoop out much more than they already are, others would, too, and our economy would be ruined by it, which is to say by the inflation that would result. The collapse of our economy, which is, at least, real, would be followed by the collapse of theirs. Mass hangings thereafter would be optional, but quite likely. I think they know both of these things.
There is an at least partial parallel to this in the Souk al Manakh, Kuwait’s unregulated stock market of the early 1980s. Note the absence of real value. Note the presence of a barrier between the market and reality. Note how it all came crashing down with the presentation of a single postdated check before it was due, which broke the barrier. That, however, was just for tiny Kuwait, though diluted out over the entire world. It was also perhaps a few hundred billion in today’s values. It was, in other words, quite survivable from the global point of view. But 1.2 quadrillion? Survive that being of effect in our economy? One doubts.
There is other evidence of the split and of the necessity of the split. Baen writer, John Lambshead, once observed that high end London real estate has become the world currency of the hyper rich. I suspect that that may be a little narrow minded, given how real estate prices had risen all over the highly desirable and decadent (California, I am especially looking at you) west. It’s not just that, though. Precious metals have been soaked up. Collector cars have become the best investment, as a class, there is. These are not the kinds of things, barring a limited interest in precious metals, that the working class – which ranges from seven figure surgeons and high end lawyers down to hamburger flippers at Burger King – worry about overmuch. No, these are the hedges of the hyper rich, because these kinds of assets are the only real, material hedges they can have that will not break the barrier between the two economies.
There seems to be a misperception about debt among conservatives.
Debt is neither good nor bad. It's all a matter of what you are borrowing for and your ability to pay it back.
There is a difference between borrowing money to go to medical school and become a surgeon vs. borrowing money to have a good time in Las Vegas.
There is a difference between borrowing money to repair US95 from Miami to New England vs borrowing money to turn Afghanistan into a Jeffersonian democracy complete with Pride Week.
As for liberals, they assume that debt is never a problem because you can always print money to pay it off and anyway life is beautiful in Georgetown, Aspen and Martha's Vineyard.
What if your intention (or fate) is NEVER to pay back that debt? You understand—where others focused on more traditional loan/repayment schemes do not—that rather than making payments comprised of both principal and interest (P&I), you can instead float truly enormous quantities of debt FOREVER by simply paying the carrying costs of the debt (I only) and never even attempting to bring down the amount borrowed (P total). Where things get really interesting is when you're forced (and allowed) to borrow the resources needed to pay just the interest on that growing mountain of debt (P+P(I only)). A perpetual money machine than can run forever?
Refinancing debt may not be a bad thing in a growing economy where money is borrowed to create new assets. Likewise, for personal debt. It all depends.
What you are describing is a nightmare scenario of a nation that does not keep faith with itself by printing money, borrowing recklessly, canceling debts for political purposes, and obtains tribute from the rest of the world by make its currency the reserve currency.
Paying debt forward inevitably leads to 1920’s Germany, and financial collapse. Historically, financial collapse leads to revolutions and/or dictatorship, simply because there aren’t enough good people in the right places.
If your system depends on good people being in the right place at the right time, that system's failure is assured. The trick is to design the system such that even the knaves fear the consequences of subverting it and act at least neutrally if not beneficially in performance of their duties.
"The trick is to design the system such that even the knaves fear the consequences..." Brilliant. That sounds like a wonderful solution to all that ails us.
I think that I heard Victor Davis Hanson first state that ~"The problem is that those making the decisions do not suffer the consequences of their actions."
There seems to be a misconception about conservatives among some folks. Conservatives know, at least as well as any other group, the difference between "good" and "bad" debt. I will wager you will find no lack of home mortgages, car loans, etc. among conservatives.
1. The "Laffer Curve" is far too deterministic. In actuality , there are numerous influential factors and the interact in a complex adaptive manner so that there can be multiple competent maxima when considering defense. Nonetheless, the curve in the post makes the point usefully.
2. Defense systems - Cost, Schedule, Performance -- pick two. You can pick all three, but not the way that we do acquisition today. We start out by defining performance at the bleeding edge of the possible if not beyond. We eventually get that performance (or almost all of it), but much later than we wanted and at much higher cost. The F-35 is a classic example. LM got there, but at continuing cost overruns (not all their fault -- the system incentivizes low balling bids). It was also years late. There is an alternative, but the DoD is going to have to make a major mental shift.
- Instead of "building one and they will come" plan for a five to seven year cycle for airplanes and weapons -- but do not allow any technology that has not been fully prototyped unrelated to the system being procured.
- Fund technology programs aimed at prototyping so that the technology can be proven in an operational sense. Doesnʻt have to be integrated into a system -- simply proven. SLAM-ERʻs deployable wings were done that way asa was the improved land attack warhead.
- For ships, set. up two interlocking cycles, one for the hull, propulsion and one for the weapons and electronic/digital systems. Design the hull to permit rapid upgrades to those subsystems. No more of this cutting the hull apart to install new stuff.
- Donʻt permit common logistics to become of risk of service-wide single point failure. If the Navy had five different TMS carrier aircraft with five different onboard systems and five different OS, the problem for the bad guys becomes five times harder as opposed to a deck full of one TMS (yes, I know Iʻm hyperbolizing)
We tend to demand bleeding-edge performance because old hardware is replaced only when the situation becomes desperate. A more rational replacement cycle would allow greater maturity in the systems.
If you want to fix procurement, take DOD-5000 out back and shoot it. Embalm, cremate, and scatter the ashes at sea. A small team, working outside the normal procurement bureaucracy, can work wonders. I've DONE it myself.
It isnʻt just DODD 5000, but the entire FAR and DFAR needs to be revised to move more rapidly. Thereʻs good stuff in it, but itʻs written for someone who has all the time in the world -- not for people who need to get stuff down right now.
You have outlined the “drum” I have been beating for the past four decades. I have not studied the current Italian Navy plan in this regard, but back in the 80’s they would build a small number of ships (3-5 ?) in a given class and then upgrade successive classes one element at a time. Those upgrades were what I would call “cousin” developments - not “throw the baby out with the bath water” mods. Improvements were thus made without making logistics a nightmare. The other critical commodity that is improved by this model is that of design experience. My naval architectural career was quite unusual in that I was part of four new ship design teams (3 combatants, 1 auxiliary). Most people in my line of work get to work one or two designs their entire career, resulting in a severe loss of institutional knowledge. More designs, stronger design skills.
In addition to interlocking hull/propulsion/weapons/electronics cycles, I strongly suggest that we partner more closely with our Coast Guard brethren. They are building some very good cutters these days (with no slam to previous designs) that have design goals (range, speed, payload weight) similar to those of the Navy.
This topic is related strongly to the Hendrix-Salamander Curve as regards ship/aircraft/fleet resilience in the face of unknown future threats. We will never have perfect knowledge of the equipment or tactics we will face in a future conflict, so trying to achieve that perfect maximum on the curve is a false goal. In designing ships, and in scheduling overhauls, I never tried for “perfect”. At every step in the process, I aimed for the 80% solution, knowing that my ultimate goal was always a moving target, with continuing 80% targets. This cycle was my version of RADM Wayne E. Meyers’ “Build a little, test a little, learn a lot” mantra. Trying for “perfect” usually results in a very brittle solution, the opposite of what we need.
Alan, Thanks very much for your reply. As an AEDO, my focus was airplanes and we have the same issue that you raise -- guys get one shot at design. After retiring, I worked for Boeing, and the CTO, John Tracy, asked why we didn't have engineers like Don Douglas or Joe Heinemann any more. Well, John, thatʻs because those guys had experience in the design of 20 or 30 airplanes and our engineers to day get one -- maybe.
The B-52 is still operational - not because it fulfills any specific mission any lore, but because it has range, payload capability, volume, electrical power, and weight capacity. I suspect that those are exactly the same traits that make a ship useful for decades. The systems I can change if Iʻve designed them that way from the git go.
Mike Kennedy wrote a great book years ago, Product Development for the Lean Enterprise. Itʻs aimed at commercial development, but it holds true for defense work too. Donʻt ever publish a schedule that includes, "Invent X here." We (I, my relief, and our team) developed SLAM-ER on cost, on schedule and passed ALL operational and technical tests on the first try. All the upgrades to SLAM had been prototyped and proven before we signed the DT&E contract. Voila!!
I'd imagine there are difficulties I am not seeing, but I've always thought building one electric weapons elevator as an operational test bed and leaving the other 7 or so hydraulic might have been a great learning experience for the Ford without betting the whole basket of eggs. I'm not sure that would have been feasible for a cat, but also a thought.
"national fascination with high-tech weapons systems has led to a defense culture where the exquisite has become the enemy of the “good enough.”
Some Soviet general is alleged to have made similar observation,.... the enemy of good enough.
There is a rumor from late in G H W Bush's only term. He is alleged to have observed we have a "peace dividend", so we spend less but spend wisely. He proposed designing things like F-22, build a few and fly them to see what to improve. This idea was contrary to the fact Lockheed makes a lot of money selling planes not doing fixes. I do not know if this ide got out among the industry and caused loss of support giving the US 8 years of Clinton....
Now we have F-35 20 odd years into full scale development 1000 jets deliver, we can't keep them ready and need a new engine! With a 1000 or so more on order.
CDR Sal, spot on once again. Remember what happened to Cassandra...
Knowing CNAS and its origin story, knew the bias of the author, but...that doesn't mean he / she / other(s) should be disregarded. I would argue that a strong economy is necessary for a strong defense, as it provides the funding for that defense. BUT, spending that funding on what you need to defend your nation requires the ability to assess your defense requirements, then fund and procure said requirements. Even with a strong economy and at first glance adequate funding, you can botch the requirements and acquisition process (JCIDS) and end up with very poor return on investment. We have seen decades of "admiring the problem" studies (my bookshelf was full of the binders) and seen readiness rates decline at an accelerating rate. The Military Industrial Complex (TM) contributes "not to worry" silver bullet proposals that will "make the problems go away" with exquisite, technically bleeding edge (or worse) marginally feasible, powerpoint deep solutions at budget busting cost. The Congress loves the jobs and political donations, and enthusiastically endorses the "silver bullet solutions", but doesn't raise the budget to pay for it. DoD at senior levels, perhaps with an eye to future board positions (perhaps, perhaps) sacrifices readiness and operational funding to mine for "silver bullets". How long have we been doing this? Ten years? Certainly. Since the wall came down is a fair starting point guess for a seismic shift and "revolution in military leadership affairs" that has led us to this current state of...unreadiness.
First saw the term in a speech by Eisenhower (as he left the presidency, IIRC...could be misremembering). Sad to say he saw what was coming that long ago...
I believe that was the first time I read/heard of the term. Ike knew what the deal was. Some of his speech reminded me of Washington's farewell speech. We never really heeded much of eithers warnings.
Ike originally termed it the "Military-Industrial-Congressional Complex" but dropped the latter leg of the stool for reasons best known only to him. DDE was notable for holding his cards close to the vest—he was an avid and very capable bridge player. Nixon said of Ike: "He was a far more complex and devious man than most people realized, and in the best sense of those words." (The "best sense" of 'devious'?)
DoD's success in fielding technology is becoming more dismal and less cutting-edge. Plus, once we latch onto something that did well 'that last war' or 'back in WWII', we must fail mightily to curtail our infatuation. Like the Ukrainians are doing now and our SOF did 20 years ago, adapt using civilian technology. Oh, and Presidents don't unnecessarily jack up defense budgets like Congress does. It's a feeding frenzy on the Hill.
American-style bipartisanship is designed to divide up the spoils, not produce better outcomes. We don't need bi-partisan defense consensus, we need better leadership.
Crony capitalist-style bipartisanship. Our Founders railed against political parties because they inevitably lead to partisanship, which begets bi-partisanship. Graft and horse trading. The Representative or Senator, by necessity, can no longer weigh a proposal by its merits as they see them. The considerations of the party position in the matter much be thrown into the equation. Bi-partisanship means that commonality of the two party's positions must be considered as well.
Since this is a naval-centric blog, and in 1807 both Congress and the Executive Branch was still largely populated by the Revolutionary generation, let's take a look at this formal inquiry by Congress into the Administration's gun boat request.
On Wednesday, February 5th, 1807 The House passed a resolution and the Speaker sent it to the Administration requesting details on procurement of gun boats, their appropriateness in defense of the Republic, and notional deployment to specific ports.
Considering the request over a five day period, which included a weekend, President Thomas Jefferson formally replied the following Monday, February 10th, 1807.
Of course, the decision to shift the funding to gunboats would be illustrated as a disastrous policy by summer when HMS Leopard would kick USS Chesapeake in the britches and lay off Cape Henry until hurricane season got into full swing and she retired.
Here we see the difference between a vibrant young Republic and the sclerotic empire that we've become. Action, decisiveness, analysis, and course correction. All in a matter of weeks and months.
Three decades on from the Summer of '76, political parties were still in their infancy and not the machines they would become. Politicians could be corrupt because that is the fallen nature of humanity, but the corruption was still of a more personal nature and not yet systemic.
Back in the Dark Ages of the Cold War, a semester of US Military History was required for commissioning in Army ROTC. Methinks a class in economics should have been required as well.
I had a conversation with Admiral Foggo over a decade ago where I made a similar point: every major staff needs a uniformed line officer who has a PhD in economics. We are wasting an opportunity by only having (I believe we still do) PhD in econ paths for PMP programs, hidden away at USNA.
A Ph.D. would be a waste of resources. At most a Masters degree would be useful. But, as you say, "A" uniformed officer. More than one would generate too much disagreement over the correct economics. Economics is not really a "science", and any accuracy or precision is purely accidental, though it is pretty dismal.
Seriously, there are only a dozen such professors remaining in traditional (non-military) academic institutions, hardly any of which are top-rated schools. Which begs the question: where did those teaching such history in the military academies and institutions get THEIR training...?
This bears more than a passing resemblance to my studies at NWC (Many a year ago) concerning "How much is enough?". Those studies led me to the opinion that "Analysts" know every cost down to the penny but the actual value of nothing.
Since the original COMSAL article was posted ten years ago, inflation and the continuing lack of an robust industrial base in the US complicate the problem of getting the most for our money in buying military systems.
Alas, my enhanced version of the original graphic that I posted in a comment ten years ago has disappeared into the bit bucket somewhere.
Anyway, as a substitute topic of discussion in the absence of that lost graphic, I will remark that who we choose in November for our next president will play an important part in how, or whether, we solve these problems.
A preview of the upcoming Trump-Harriis debate in September, as presented on the Alec Lace Show, might shed some light on what each candidate's positions will be concerning these issues.
In this half-hour preview of the debate, Shawn Farash takes on the role of Donald Trump, Estee Palti takes on the role of Kamala Harris:
1. Manpower costs. "Cheap and simple" systems are often just as manpower-intensive as high-end hardware. A corollary to this is that you may want to use the technology to reduce operating costs, instead of improve performance. Yes, I know how foul a taste LCS has left in people's mouths...but I also know that Admiral Metcalfe was raising hell about NAVSEA's overmanned ship designs 40 years ago. And the JMSDF's Mogami-class ships are doing quite nicely with a crew of 90.
2. Logistics costs. This has been one of the biggest selling points for the CVN, as opposed to its non-nuclear counterpart. Those non-nuclear ships aren't so cheap once you account for the fleet train to keep them fueled.
I think much of it is institutional inertia. Back in the Age of Sail, you needed a helmsman to wrestle the rudder full-time - maybe two, in heavy weather. Plus sail trimmers, etc. - and an officer of the watch to make decisions. Metcalf's argument was that if you took a look at USN ships in the early 1980s, there was still that Age of Sail mentality.
Today? Merchantmen do quite nicely with 25-30 people. Any crew above 30 need to be manning weapons, operating sensors, or doing other fighting tasks.
Mogami seems to be the Japanese version of LCS, but slightly larger tonnage with approx. the same crew size. I am skeptical that they do "quite nicely".
The difference between using a Laffer Curve for defense and taxation is that taxation can be measured without a disaster, while defense, if you get it wrong, will turn into a disaster.
Add to this that, while none of the very measurable things are very important, none of the very important things are very measurable.
Excellent point, the last. Nice curve, please show me just where we are on it at present...
$15 Billion carrier, $100+ Million aircraft, $5 Billion submarines, $1.4 Billion frigate (if we can ever get one built). Rhymes with Tiffany to my ears.
The other problem is that of complexity. The Laffer curve is based on economics, which no one truly understands. And defense spending is even more of a black art.
And defense is against some enemy, where the enemy is entitled to a vote.
I was remembering why it was called the Dismal Science back in college. As with math, some things I remember, some things I do not. This post by Sal is an example of why I've read and listened to him for so many years.
Much of economic theory is only good for explaining how things in general work Even simple things like supply and demand curves, for example, are useful for that, but trying to use actual numbers, even approximations, produce mostly fantasy and wishful thinking. Does anyone really believe those ten year budget projections, based on (more or less)sound economic theory, the CBO etc. inflict on us?
Let me give you a radical economic concept, one which, to the best of my knowledge, the economists have never grasped. This is that the very rich inhabit a different and parallel fiscal universe, one which touches ours just enough to allow them to reach down and scoop out enough to live pretty well actually. It is also one where the notion of taxing them is laughable, and where their function in the tax system is tax farmer, not tax payer.
David Cay Johnston, for many years the NYT's tax reporter, wrote long and well on just this insight of yours. TVM is at the core of the freedom the rich possess to act as they do. Johnston showed how anything that delayed the actual payment of assessments (such as fines and tax liability) gave the rich the time to grow their assets such that debts were effectively reduced to zero (or beyond). Thus, the endless lawsuits, non-payment of judgments, and extended payout schedules. Even when penalties are assessed and interest accrues, investment gains over the same time period can and will produce a net gain for the rich. The key is having the ability to stay in the game indefinitely which only the rich can.
Not exactly what I mean. I mean that it is simply impossible to tax them. We can get them to stroke a check, yes, but what backs the check isn't their largely notional wealth but our real wealth. Looked at differently, the state, given fiat currency, spends what it will and taxes not to generate its own income, but to bid down our spending power to avoid the kind of inflation that gets pols and bureaucrats decorating lamp posts. We could be required to shop up in front of those 87000 IRS agents, selected largely on their willingness to shoot people, present a 1040 and cash to cover it, and burn it in front of the agent, and it would be exactly the same.
Looked at still another way, the ultra rich are not in competition with the state for the same assets, as a general rule. We are.
Note, importantly, that derivatives , more than fourteen years ago, were about 20 to 24 times global GDP. And it's since grown. Hmmm....let me cut and paste a conversation I had with a German friend, reserve LTC and investment banker at DBank:
Me:
The thing bugging me had to do with money supply. There are several things we call part of the money supply, sometimes referred to as M0, M1, M2, etc. I'm not sure how many there really are, though I think Niall Fergusson mentioned more than 4 M types in The Ascent of Money. The other M types refer to things like travellers' checks, loans for which there is no actual money in the banks, just about everything involved in modern creative finance.
Okay, so we all know that when the government prints money it creates inflation, thus robbing all of us of our wealth. Well, what about when Mr. Schweitzerischenjudenzahnaertzlichgold creates some new financial instrument that has nothing backing it except Mr. S's reputation for turning a profit? Does that – or notional money derived from that – not also enter into the stream of commerce, competing with our dollars and euros and yen and renmimbi for the same goods and services, driving up the price and reducing our purchasing power? I find it preposterous to believe that it does not. And, while Rousseau and his philosophical – you should pardon the expression – derivatives might hold that property is theft, an equally preposterous notion, this IS theft. This is not creating something from nothing, this is lifting something from us and pretending it's created from nothing.
Him:
Since Governments a hundred years ago made it possible (for themselves of course) to print money without gold backing, the concept of money has more than ever become a matter of trust & belief.
Paper money and of course even more non-physical ("book-" or "digital") money depend on the belief that when you give it you'll get something materiel in exchange. Nowadays a miracle has happened.
WHY the heck aren´t we entering into a hyperinflation? According to every money theory we should have been there already two or three years ago.
Me:
And I don't know why. That's why I asked YOU.
However, I think I do know why now. Did you know that even five (now 14) years ago the derivatives market dwarfed the global economy. I’m not talking is a little bit bigger. I mean it was twenty to twenty-four times bigger than the global gross domestic product. Since GDP includes government goods and services, some of which are, themselves, only redistributionism, hence represent zero values added, that “global GDP” is highly suspect, and probably highly inflated, anyway. Seriously, when the west collects fifty-four billion in extra taxes to send to Africa as aid, and fifty-two billion of it is syphoned off and sent to foreign bank accounts, can anyone claim with a straight face that that represents GDP?
By the way, I believe the spread between the real economy and the derivatives has become still more extreme in these last five (14) years.
But the reason we haven’t gone into an unprecedented bout of hyperinflation, given this market that is twenty-four times greater than the world economy? Simple: There are at least two important economies in the world and they do not touch much. One of those economies is ours, the economy of the producers of goods and services. Ours is real and limited. The other economy is the economy of the derivatives, of the hyper rich, of Olympian bankers, which is to say the parasitical economy of those who reach down from those Olympian heights and scoop out just enough from our real economy to live quite well, actually.
These two economies cannot be allowed to touch much, because if some of the hyper rich were to scoop out much more than they already are, others would, too, and our economy would be ruined by it, which is to say by the inflation that would result. The collapse of our economy, which is, at least, real, would be followed by the collapse of theirs. Mass hangings thereafter would be optional, but quite likely. I think they know both of these things.
There is an at least partial parallel to this in the Souk al Manakh, Kuwait’s unregulated stock market of the early 1980s. Note the absence of real value. Note the presence of a barrier between the market and reality. Note how it all came crashing down with the presentation of a single postdated check before it was due, which broke the barrier. That, however, was just for tiny Kuwait, though diluted out over the entire world. It was also perhaps a few hundred billion in today’s values. It was, in other words, quite survivable from the global point of view. But 1.2 quadrillion? Survive that being of effect in our economy? One doubts.
There is other evidence of the split and of the necessity of the split. Baen writer, John Lambshead, once observed that high end London real estate has become the world currency of the hyper rich. I suspect that that may be a little narrow minded, given how real estate prices had risen all over the highly desirable and decadent (California, I am especially looking at you) west. It’s not just that, though. Precious metals have been soaked up. Collector cars have become the best investment, as a class, there is. These are not the kinds of things, barring a limited interest in precious metals, that the working class – which ranges from seven figure surgeons and high end lawyers down to hamburger flippers at Burger King – worry about overmuch. No, these are the hedges of the hyper rich, because these kinds of assets are the only real, material hedges they can have that will not break the barrier between the two economies.
I would love to read all that, but my attention span is not that long. Perhaps there is an executive summary?
Sadly, that IS the short version.
An executive summary, Tim? Simply put: BFYTW.
"This is that the very rich inhabit a different and parallel fiscal universe,"
Or, more generally, the very rich inhabit a different and parallel universe.
They always have, they always will.
PS
As F. Scott Fitzgerald wrote, "The rich are different from you and me". And I am sure he wasn't the first.
So what? I fail to see your point.
1. That it is impossible actually to tax them.
2. That this is an area with right and left collaborate in fraud.
So they've cheated taxes. How do they cheat death?
." That it is impossible actually to tax them."
Not that it has anything to do with a military Laffer curve, but I fail to see why not.
" We can get them to stroke a check, yes, but what backs the check isn't their largely notional wealth but our real wealth. "
That sentence makes no sense to me. What, for example, is "notional" wealth? Or "stroke" a check?
There seems to be a misperception about debt among conservatives.
Debt is neither good nor bad. It's all a matter of what you are borrowing for and your ability to pay it back.
There is a difference between borrowing money to go to medical school and become a surgeon vs. borrowing money to have a good time in Las Vegas.
There is a difference between borrowing money to repair US95 from Miami to New England vs borrowing money to turn Afghanistan into a Jeffersonian democracy complete with Pride Week.
As for liberals, they assume that debt is never a problem because you can always print money to pay it off and anyway life is beautiful in Georgetown, Aspen and Martha's Vineyard.
What if your intention (or fate) is NEVER to pay back that debt? You understand—where others focused on more traditional loan/repayment schemes do not—that rather than making payments comprised of both principal and interest (P&I), you can instead float truly enormous quantities of debt FOREVER by simply paying the carrying costs of the debt (I only) and never even attempting to bring down the amount borrowed (P total). Where things get really interesting is when you're forced (and allowed) to borrow the resources needed to pay just the interest on that growing mountain of debt (P+P(I only)). A perpetual money machine than can run forever?
Refinancing debt may not be a bad thing in a growing economy where money is borrowed to create new assets. Likewise, for personal debt. It all depends.
What you are describing is a nightmare scenario of a nation that does not keep faith with itself by printing money, borrowing recklessly, canceling debts for political purposes, and obtains tribute from the rest of the world by make its currency the reserve currency.
I think we are living that nightmare scenario
Paying debt forward inevitably leads to 1920’s Germany, and financial collapse. Historically, financial collapse leads to revolutions and/or dictatorship, simply because there aren’t enough good people in the right places.
If your system depends on good people being in the right place at the right time, that system's failure is assured. The trick is to design the system such that even the knaves fear the consequences of subverting it and act at least neutrally if not beneficially in performance of their duties.
"The trick is to design the system such that even the knaves fear the consequences..." Brilliant. That sounds like a wonderful solution to all that ails us.
There has to be consequences, and everyone knows there are none of those anymore... lol
I think that I heard Victor Davis Hanson first state that ~"The problem is that those making the decisions do not suffer the consequences of their actions."
"...Kings fear..." fixed it for you. :)
"...good people..." in government? Nah, not anywhere a majority so they are neutered into nothingness.
It might work in private business though.
It's never "worked" in any business I've been involved with. People are people, alas.
Aye, there's the rub.
We largely did, and then we ignored the rules written down in favor of ever-expanding central power.
Debt, taken for productive reasons, buying a home, a car perhaps, funding expansion of businesses is good.
Debt taken to repay the interest on older debt? Very, VERY bad. And that's the debt the US is running up right now.
There seems to be a misconception about conservatives among some folks. Conservatives know, at least as well as any other group, the difference between "good" and "bad" debt. I will wager you will find no lack of home mortgages, car loans, etc. among conservatives.
has anyone ever had someone ask them for help in making something more complicated?
Two items:
1. The "Laffer Curve" is far too deterministic. In actuality , there are numerous influential factors and the interact in a complex adaptive manner so that there can be multiple competent maxima when considering defense. Nonetheless, the curve in the post makes the point usefully.
2. Defense systems - Cost, Schedule, Performance -- pick two. You can pick all three, but not the way that we do acquisition today. We start out by defining performance at the bleeding edge of the possible if not beyond. We eventually get that performance (or almost all of it), but much later than we wanted and at much higher cost. The F-35 is a classic example. LM got there, but at continuing cost overruns (not all their fault -- the system incentivizes low balling bids). It was also years late. There is an alternative, but the DoD is going to have to make a major mental shift.
- Instead of "building one and they will come" plan for a five to seven year cycle for airplanes and weapons -- but do not allow any technology that has not been fully prototyped unrelated to the system being procured.
- Fund technology programs aimed at prototyping so that the technology can be proven in an operational sense. Doesnʻt have to be integrated into a system -- simply proven. SLAM-ERʻs deployable wings were done that way asa was the improved land attack warhead.
- For ships, set. up two interlocking cycles, one for the hull, propulsion and one for the weapons and electronic/digital systems. Design the hull to permit rapid upgrades to those subsystems. No more of this cutting the hull apart to install new stuff.
- Donʻt permit common logistics to become of risk of service-wide single point failure. If the Navy had five different TMS carrier aircraft with five different onboard systems and five different OS, the problem for the bad guys becomes five times harder as opposed to a deck full of one TMS (yes, I know Iʻm hyperbolizing)
Jesʻ thinninʻ
We tend to demand bleeding-edge performance because old hardware is replaced only when the situation becomes desperate. A more rational replacement cycle would allow greater maturity in the systems.
If you want to fix procurement, take DOD-5000 out back and shoot it. Embalm, cremate, and scatter the ashes at sea. A small team, working outside the normal procurement bureaucracy, can work wonders. I've DONE it myself.
It isnʻt just DODD 5000, but the entire FAR and DFAR needs to be revised to move more rapidly. Thereʻs good stuff in it, but itʻs written for someone who has all the time in the world -- not for people who need to get stuff down right now.
You have outlined the “drum” I have been beating for the past four decades. I have not studied the current Italian Navy plan in this regard, but back in the 80’s they would build a small number of ships (3-5 ?) in a given class and then upgrade successive classes one element at a time. Those upgrades were what I would call “cousin” developments - not “throw the baby out with the bath water” mods. Improvements were thus made without making logistics a nightmare. The other critical commodity that is improved by this model is that of design experience. My naval architectural career was quite unusual in that I was part of four new ship design teams (3 combatants, 1 auxiliary). Most people in my line of work get to work one or two designs their entire career, resulting in a severe loss of institutional knowledge. More designs, stronger design skills.
In addition to interlocking hull/propulsion/weapons/electronics cycles, I strongly suggest that we partner more closely with our Coast Guard brethren. They are building some very good cutters these days (with no slam to previous designs) that have design goals (range, speed, payload weight) similar to those of the Navy.
This topic is related strongly to the Hendrix-Salamander Curve as regards ship/aircraft/fleet resilience in the face of unknown future threats. We will never have perfect knowledge of the equipment or tactics we will face in a future conflict, so trying to achieve that perfect maximum on the curve is a false goal. In designing ships, and in scheduling overhauls, I never tried for “perfect”. At every step in the process, I aimed for the 80% solution, knowing that my ultimate goal was always a moving target, with continuing 80% targets. This cycle was my version of RADM Wayne E. Meyers’ “Build a little, test a little, learn a lot” mantra. Trying for “perfect” usually results in a very brittle solution, the opposite of what we need.
Alan, Thanks very much for your reply. As an AEDO, my focus was airplanes and we have the same issue that you raise -- guys get one shot at design. After retiring, I worked for Boeing, and the CTO, John Tracy, asked why we didn't have engineers like Don Douglas or Joe Heinemann any more. Well, John, thatʻs because those guys had experience in the design of 20 or 30 airplanes and our engineers to day get one -- maybe.
The B-52 is still operational - not because it fulfills any specific mission any lore, but because it has range, payload capability, volume, electrical power, and weight capacity. I suspect that those are exactly the same traits that make a ship useful for decades. The systems I can change if Iʻve designed them that way from the git go.
Mike Kennedy wrote a great book years ago, Product Development for the Lean Enterprise. Itʻs aimed at commercial development, but it holds true for defense work too. Donʻt ever publish a schedule that includes, "Invent X here." We (I, my relief, and our team) developed SLAM-ER on cost, on schedule and passed ALL operational and technical tests on the first try. All the upgrades to SLAM had been prototyped and proven before we signed the DT&E contract. Voila!!
It's almost as if the B-52 were designed to be "modular"!
I'd imagine there are difficulties I am not seeing, but I've always thought building one electric weapons elevator as an operational test bed and leaving the other 7 or so hydraulic might have been a great learning experience for the Ford without betting the whole basket of eggs. I'm not sure that would have been feasible for a cat, but also a thought.
"Cost, Schedule, Performance -- pick two."
For the past 20 years plus, we have been very lucky to get one, and sometimes not even that
" The "Laffer Curve" is far too deterministic."
Most economics is far too deterministc. It is more descriptive than deterministic.
"national fascination with high-tech weapons systems has led to a defense culture where the exquisite has become the enemy of the “good enough.”
Some Soviet general is alleged to have made similar observation,.... the enemy of good enough.
There is a rumor from late in G H W Bush's only term. He is alleged to have observed we have a "peace dividend", so we spend less but spend wisely. He proposed designing things like F-22, build a few and fly them to see what to improve. This idea was contrary to the fact Lockheed makes a lot of money selling planes not doing fixes. I do not know if this ide got out among the industry and caused loss of support giving the US 8 years of Clinton....
Now we have F-35 20 odd years into full scale development 1000 jets deliver, we can't keep them ready and need a new engine! With a 1000 or so more on order.
Pursing perfection rarely delivers "good enough".
CDR Sal, spot on once again. Remember what happened to Cassandra...
Knowing CNAS and its origin story, knew the bias of the author, but...that doesn't mean he / she / other(s) should be disregarded. I would argue that a strong economy is necessary for a strong defense, as it provides the funding for that defense. BUT, spending that funding on what you need to defend your nation requires the ability to assess your defense requirements, then fund and procure said requirements. Even with a strong economy and at first glance adequate funding, you can botch the requirements and acquisition process (JCIDS) and end up with very poor return on investment. We have seen decades of "admiring the problem" studies (my bookshelf was full of the binders) and seen readiness rates decline at an accelerating rate. The Military Industrial Complex (TM) contributes "not to worry" silver bullet proposals that will "make the problems go away" with exquisite, technically bleeding edge (or worse) marginally feasible, powerpoint deep solutions at budget busting cost. The Congress loves the jobs and political donations, and enthusiastically endorses the "silver bullet solutions", but doesn't raise the budget to pay for it. DoD at senior levels, perhaps with an eye to future board positions (perhaps, perhaps) sacrifices readiness and operational funding to mine for "silver bullets". How long have we been doing this? Ten years? Certainly. Since the wall came down is a fair starting point guess for a seismic shift and "revolution in military leadership affairs" that has led us to this current state of...unreadiness.
Thanks for using MIC vs DIB. It is like the PC crowd now using Mpox instead of Monkey Pox, I guess the Monkeys got mad.
First saw the term in a speech by Eisenhower (as he left the presidency, IIRC...could be misremembering). Sad to say he saw what was coming that long ago...
I believe that was the first time I read/heard of the term. Ike knew what the deal was. Some of his speech reminded me of Washington's farewell speech. We never really heeded much of eithers warnings.
Ike originally termed it the "Military-Industrial-Congressional Complex" but dropped the latter leg of the stool for reasons best known only to him. DDE was notable for holding his cards close to the vest—he was an avid and very capable bridge player. Nixon said of Ike: "He was a far more complex and devious man than most people realized, and in the best sense of those words." (The "best sense" of 'devious'?)
DoD's success in fielding technology is becoming more dismal and less cutting-edge. Plus, once we latch onto something that did well 'that last war' or 'back in WWII', we must fail mightily to curtail our infatuation. Like the Ukrainians are doing now and our SOF did 20 years ago, adapt using civilian technology. Oh, and Presidents don't unnecessarily jack up defense budgets like Congress does. It's a feeding frenzy on the Hill.
American-style bipartisanship is designed to divide up the spoils, not produce better outcomes. We don't need bi-partisan defense consensus, we need better leadership.
Crony capitalist-style bipartisanship. Our Founders railed against political parties because they inevitably lead to partisanship, which begets bi-partisanship. Graft and horse trading. The Representative or Senator, by necessity, can no longer weigh a proposal by its merits as they see them. The considerations of the party position in the matter much be thrown into the equation. Bi-partisanship means that commonality of the two party's positions must be considered as well.
Since this is a naval-centric blog, and in 1807 both Congress and the Executive Branch was still largely populated by the Revolutionary generation, let's take a look at this formal inquiry by Congress into the Administration's gun boat request.
On Wednesday, February 5th, 1807 The House passed a resolution and the Speaker sent it to the Administration requesting details on procurement of gun boats, their appropriateness in defense of the Republic, and notional deployment to specific ports.
https://picryl.com/media/congress-to-thomas-jefferson-february-5-1807-harbor-defenses-by-gunboats
Considering the request over a five day period, which included a weekend, President Thomas Jefferson formally replied the following Monday, February 10th, 1807.
https://avalon.law.yale.edu/19th_century/jeffgun.asp
Of course, the decision to shift the funding to gunboats would be illustrated as a disastrous policy by summer when HMS Leopard would kick USS Chesapeake in the britches and lay off Cape Henry until hurricane season got into full swing and she retired.
https://www.usni.org/magazines/naval-history-magazine/1993/june/norfolk-war-scare
Here we see the difference between a vibrant young Republic and the sclerotic empire that we've become. Action, decisiveness, analysis, and course correction. All in a matter of weeks and months.
Three decades on from the Summer of '76, political parties were still in their infancy and not the machines they would become. Politicians could be corrupt because that is the fallen nature of humanity, but the corruption was still of a more personal nature and not yet systemic.
It's a lot easier to deploy "good enough" platforms if voters are willing to accept higher casualties if war does break out.
The most expensive thing in the world is the SECOND-best military.
Back in the Dark Ages of the Cold War, a semester of US Military History was required for commissioning in Army ROTC. Methinks a class in economics should have been required as well.
Good idea. But leftists are doing the teaching.
You should see some of the new hires/hiring process at USNA, especially in their humanities/history department. Oberlin on the Severn.
I am surprised Rickover hall hasn’t been renamed in honor of Saul Alinsky.
I had a conversation with Admiral Foggo over a decade ago where I made a similar point: every major staff needs a uniformed line officer who has a PhD in economics. We are wasting an opportunity by only having (I believe we still do) PhD in econ paths for PMP programs, hidden away at USNA.
A Ph.D. would be a waste of resources. At most a Masters degree would be useful. But, as you say, "A" uniformed officer. More than one would generate too much disagreement over the correct economics. Economics is not really a "science", and any accuracy or precision is purely accidental, though it is pretty dismal.
Military history? What the heck is THAT?
Seriously, there are only a dozen such professors remaining in traditional (non-military) academic institutions, hardly any of which are top-rated schools. Which begs the question: where did those teaching such history in the military academies and institutions get THEIR training...?
Not enough right side tail there, Sal
This bears more than a passing resemblance to my studies at NWC (Many a year ago) concerning "How much is enough?". Those studies led me to the opinion that "Analysts" know every cost down to the penny but the actual value of nothing.
Since the original COMSAL article was posted ten years ago, inflation and the continuing lack of an robust industrial base in the US complicate the problem of getting the most for our money in buying military systems.
Alas, my enhanced version of the original graphic that I posted in a comment ten years ago has disappeared into the bit bucket somewhere.
Anyway, as a substitute topic of discussion in the absence of that lost graphic, I will remark that who we choose in November for our next president will play an important part in how, or whether, we solve these problems.
A preview of the upcoming Trump-Harriis debate in September, as presented on the Alec Lace Show, might shed some light on what each candidate's positions will be concerning these issues.
In this half-hour preview of the debate, Shawn Farash takes on the role of Donald Trump, Estee Palti takes on the role of Kamala Harris:
https://www.youtube.com/watch?v=2mlmreTsaVY
This preview of the debate is so on the mark we might not even need to watch the actual debate when it takes place in September.
Nice video:)
Two things to keep in mind:
1. Manpower costs. "Cheap and simple" systems are often just as manpower-intensive as high-end hardware. A corollary to this is that you may want to use the technology to reduce operating costs, instead of improve performance. Yes, I know how foul a taste LCS has left in people's mouths...but I also know that Admiral Metcalfe was raising hell about NAVSEA's overmanned ship designs 40 years ago. And the JMSDF's Mogami-class ships are doing quite nicely with a crew of 90.
2. Logistics costs. This has been one of the biggest selling points for the CVN, as opposed to its non-nuclear counterpart. Those non-nuclear ships aren't so cheap once you account for the fleet train to keep them fueled.
I wonder if our WWII experience in damage control needs influences some of the Navy manning requirements.
I think much of it is institutional inertia. Back in the Age of Sail, you needed a helmsman to wrestle the rudder full-time - maybe two, in heavy weather. Plus sail trimmers, etc. - and an officer of the watch to make decisions. Metcalf's argument was that if you took a look at USN ships in the early 1980s, there was still that Age of Sail mentality.
Today? Merchantmen do quite nicely with 25-30 people. Any crew above 30 need to be manning weapons, operating sensors, or doing other fighting tasks.
Mogami seems to be the Japanese version of LCS, but slightly larger tonnage with approx. the same crew size. I am skeptical that they do "quite nicely".
I wonder where the Tico life extension program lands on the Sal curve?? I know where the Navy says it lands, but think they're full of it.
Yeah, the Tico sham the Navy pulled is still a festering wound of frustration for me lol...