Real Wealth Society

Tuesday, August 08, 2006

The Cost Plus Scam By James Jaeger

Ever wonder why the space program is stagnant?

Ever wonder why the military budget is an outrageous $440 billion a year?

Ever wonder why the Singularity will probably never happen in this wasteful and stagnant environment?

Two words: COST PLUS. The government contracting system is known as a "cost plus" system and has been around long enough to prove that it's a scam -- bad for science and technology, bad for the American taxpayer. Here's how COST PLUS works. Let's say you have a company that provides AI computers to NASA, a government agency. The way you get paid is you add up your COST to manufacture the computers, PLUS you add on an additional 10% as your “profit.” You then deliver the computers and send NASA a bill.

The government issues your company a check. The Federal Reserve System creates credit or prints up Federal Reserve Notes to "pay" your check, and you're fat and happy.(1) Everyone in your company is fat and happy, except the American taxpayer and the thousands of other scientists and technologists who didn’t get to innovate, compete or bid for the job in this closed little monopoly scam.

Here's how Robert Zubrin (author of ENTERING SPACE) puts it after working for Lockeed Martin, the largest aerospace contractor in the world, as a senior engineer for 7 years:
Lockeed Martin almost never accepts hardware contracts on a fixed-cost basis. That is, the company rarely says to the U.S. government, "We will produce the ABC vehicle for you at a price of $X. If it costs us less than $X dollars to make it, we will make a profit. If it cost us more, we will take a loss." Instead, most important contracts are negotiated along the following lines: "We will produce the ABC vehicle for a cost of $X. We will then add a 10 percent fee to whatever it actually costs us to produce to provide the company with a modest profit.” In other words, the more the ABC vehicle costs to produce, the more money the company makes. Given this system, is it any wonder we occasionally hear such things like a hammer cost the military $500 or a toilet seat cost NASA $750?

The COST PLUS system gives the government contracting companies the incentive to NOT cut costs, innovate or compete –- as in a free market -- but instead gives them the incentive to add as many layers of bureaucracy and sub-contractors as possible, each layer adding their bill to the pile. By the time the "cost" of the final bill is added up, a company such as Lockeed Martin will be able to calculate their 10% "profit" on a grossly inflated “cost” of manufacturing. Given this system, is it any wonder the annual military budget COSTS $400 billion PLUS? Is it any wonder the space program is stagnant? Is it any wonder there have been NO new rocket engines developed since the 1970s when the Shuttle engines were made?

Is it any wonder there have been no new important launch systems since the first Shuttle flight in 1981? Is it any wonder we have NOT been back to the Moon? Is it any wonder all the things we dreamed would/could happen in the year 2001 -- as portrayed in the movie, 2001: A SPACE ODDESY -- are a total let down? Not only has there been stagnation in the aerospace industry, but we have actually REGRESSED since the 1960s. Thanks to your runaway government and its cost plus hiring policies, the year 2001 represented a year of HORROR, not a year of PROGRESS.

Not only is the event of 9/11 a horror, but it's a horror that there are NO more heavy-lift vehicles flying today; that there are NO more capabilities for nuclear engines (engines that have TWICE the exhaust velocity of any known rocket); that there are NO more mercury ion engines; that NO more light-weight space suits are made; and that many technological capabilities we once had NO longer exist. This stagnation is not only in the aerospace industry, but in every other technological industry to a greater or lesser degree. So you think the SINGULARITY -- the highest technological advancement possible -- is going to happen in THIS environment?!

Dream on Ray. We are living in an era of technological stagnation and until scientists and technologists reign in their profligate government representatives and the chief psycho executive, nothing much is gonna change. Until the government stops pissing away so much money in the ridiculous COST PLUS system, a system that again GUARANTEES no competition, no incentive and no true profit-motive -- ideals all other free-enterprise companies are expected to operate under -- nothing is going to happen.

American citizens need to PURGE the Congress of the traitors that have allowed this anti-capitalist system to grow and suffocate our true potentials. Why should the 9,000 people employed at Lockeed be allowed a special privilege when all it really takes is maybe 2,250 people to actually produce their products? Given the fact that Lockheed is extremely competitive with other aerospace companies, you can be assured the other giant companies (that suck on the government tit) are implementing a similar, if not the exact same, outrageous COST PLUS system -- and this "accounting" system is industry wide. And if it's industry wide in the aerospace industry, you can bet the practice goes on throughout the entire MILITARY-INDUSTRIAL complex. So if we use the above mentioned ratio of 9,000 to 2,250, it's a safe bet that companies in the military industrial complex over-charge the government by AT LEAST 4 times. This means that, if the Pentagon budget is $440 billion a year, it should REALLY be $110 billion a year. The rest is expense due to lack of competition, waste due to lack of incentive both over-charges due to COST PLUS.

This is money that's unjustly going to a select group of people and their families that work for companies, such as Lockeed Martin, companies that contract with the U.S. government on a cost plus basis. This anti-competitive, anti-capitalist, anti-democratic practice has to stop. These people and companies, along with their criminal accomplices in the Congress, use VOTE TRADING (a form of collusion) and PORK projects to dole out excessive amounts of taxpayer money to their constituents (a form of fraud) thus diverting money from projects of far higher national security, such as: A. The ENERGY crisis; B. The GLOBAL WARMING crisis.

The ENERGY CRISIS is not a major part of the GLOBAL WARMING crisis but it's contributing to the war in the Middle East because billions of petrodollars find their way into terrorists’ hands. We should stop funding these Arabs and we should also stop funding Israel to be fair. THEN how are BOTH sides going to continue this war, a wasteful war that's been going on for at least 50 years. This is nonsense and should be no part of what we do here in the U.S. Were the profligate U.S. government not wasting such huge sums of taxpayer dollars on the military-industrial complex, significant sums could be allocated to the development and deployment of clean, renewable alternative energy, namely PLASMA FUSION and NANO-ASSISTED SOLAR.

But, since $440 billion goes to the military and it industrial contractors, companies like Lockheed Martin, less than $1 billion a year is available to allocate to the remedy of the ENERGY CRISIS, hence the GLOBAL WARMING crisis. Again, this energy crisis also holds in place U.S. dependency on foreign oil and thus helps finance our country’s enemies. So Americans need to wise up and wise up fast. The military budget should immediately be cut back to no more than $150 billion a year. At least $50 billion a year out of this cut back should re-allocated to private companies that will compete to develop and deploy CHEAP commercial FUSION and SOLAR electrical energy.(2) No more COST PLUS. This socialist practice needs to stop.

(1) See FIAT EMPIRE to find out how they do this. (2) A side benefit of becoming a fusion economy will be the fact that fusion rocket engines will become practical. These engines are needed to mine the vast energy supplies of Helium 3 in the Persian Gulf of the Solar System, the gas giants.


  • This is a great article, relevant today as when it was written. Its a testament to your research and insight, i'd say your predictions have come true. And the waste continues. seemingly with horrible consequences.

    By Blogger CEC, At 3:32 AM  

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