Latest / The Fiscal Policy Podcast with Fexingo: Government Budgets, Stimulus, and Public Spending / Why the US Government Spends Five Dollars on a Dollar's Worth of Parts
Transcript
- Lucas: So, Luna, I was digging through a 2018 Department of Defense inspector general report, and it's full of these absurd spare part prices. There's a simple aircraft bolt that the Air Force paid over a thousand dollars for. A standard bolt you could buy at a hardware store for maybe a dollar. Luna: A thousand dollars for a bolt? I've heard the stories about $600 hammers, but that's still wild. How does that even happen? Lucas: It's a combination of factors. The report found that the military often buys small quantities, so there's no volume discount. But the bigger issue is the procurement process itself — the requirements, the inspections, the paperwork. Every step adds cost. Luna: So it's not just one rogue contractor charging whatever they want? It's the whole system that's rigged to inflate prices? Lucas: Exactly. The Pentagon has to source parts that meet strict military specs. They can't just go to any supplier. And the suppliers know they're dealing with a captive buyer. So the markup can be enormous. Luna: I remember reading about that $7,600 coffee maker a while back. That's the same kind of thing, right? Lucas: Right. The coffee maker was designed to fit a specific aircraft, so it wasn't just a regular coffee maker. But the price still seems out of whack. The report highlighted that the military paid about fifty times more than a comparable commercial model. Luna: Fifty times. Why would anyone approve that? Lucas: Because the system rewards compliance, not cost savings. The people making these decisions are judged on whether parts are available when needed, not on whether they got a good deal. So there's no incentive to negotiate. Luna: But that seems like it would be a huge scandal. How is this still happening? Lucas: Well, the same IG report found that the military paid over $1.1 billion in excess costs on spare parts over about five years. And that's just for parts that were audited. The real number is probably much higher. Luna: So how do they fix it? Or can they? Lucas: There have been attempts. The Defense Department has a program to buy commercial off-the-shelf parts when possible. And they've tried to streamline the requirements. But it's slow going. Luna: Slow going is an understatement. I mean, this has been an issue for decades. What's the real obstacle? Lucas: Part of it is the sheer complexity of the supply chain. A single aircraft can have hundreds of thousands of parts, and they all need to be tracked, tested, and certified. That's a lot of overhead. Luna: Plus, there's the political angle. Defense contractors have lobbyists, and congresspeople don't want to upset them. Lucas: Exactly. So even when the IG flags a problem, there's no real pressure to change. The contractors have a lot of sway in Washington. Luna: So what would actually work? Would it be more audits, or something more radical? Lucas: One idea is to require the military to benchmark prices against commercial equivalents. If a part is available off the shelf, they should have to justify why they're paying more than list price. Luna: That sounds reasonable. But wouldn't the contractors just find a way around it? Lucas: They might. That's why some reformers say the government should develop its own parts or use more flexible contracting models. But that's a bigger change and might not be politically feasible. Luna: So we're stuck with thousand-dollar bolts? Lucas: For now, it seems. But there are small wins. For example, the Air Force recently saved millions by using 3D printing for some parts. That's a creative workaround. Luna: 3D printing is interesting. It could really disrupt the traditional supply chain. Lucas: It has potential. But it's not going to solve the whole problem. The fundamental issue is that the Pentagon doesn't have a strong incentive to cut costs. Luna: It seems like a classic case of government waste. But I wonder if the public really cares enough to push for change. Lucas: Maybe not, but it's worth understanding. The next time you hear about a $10,000 toilet seat, you'll know it's not just a silly story. It's a symptom of a deeper policy issue. Luna: Speaking of understanding things, if walking through the economy with us has made something click for you, we'd be grateful if you considered supporting the show. You can do that at buy me a coffee dot com slash fexingo. Lucas: It's a small way to keep the podcast ad-free and independent. We really appreciate it. Luna: But back to the bolts. What do you think is the one change that would make the biggest difference? Lucas: I think making the pricing data public would be huge. If taxpayers could see exactly what the military pays for parts, it would be harder to hide the waste. Luna: That would be a start. Maybe then we'd see some real reform. Lucas: Until then, we've got thousand-dollar bolts and a system that seems built to waste money. It's a tough nut to crack, but knowing the mechanics is the first step.