Planet Money
Two Indicators: Economics of the defense industry
Feb 21, 2024
Explore the staggering $842 billion defense budget and learn how military procurement differs from the commercial sector. Discover the impact of monopolistic practices on pricing strategies and profit margins in defense contracting. The show reveals how the merger of 50 companies into five giants affects competition and spending. It also highlights the U.S. military's capacity challenges amidst rising munitions shortages, linking urgent supply issues to just-in-time manufacturing vulnerabilities.
19:22
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Quick takeaways
- Government overspending on military items impacts resource allocation, posing risks to military operations.
- Government's monopsony power can be negated by defense contractors with pricing influence, leading to cost inefficiencies.
Deep dives
The Issue of Overpricing in Military Equipment
The podcast discusses the case of Transdime, a company overcharging the Pentagon $4,361 for a drive pin that should have cost $46. This example highlights the government's tendency to overspend on military items, impacting the allocation of resources for necessary equipment. Such extreme cases of overpricing can lead to inefficiencies in military spending and potentially jeopardize the safety of military personnel.
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