Has Wall Street Wrecked US Defense Industrial Base?

Today I’m writing about an astonishing report that came from the Pentagon this week on how Wall Street has wrecked the defense industrial base. This chart, which shows stock buybacks are up while research and development is down, is the key finding.

From Javelins to ordinary ammunition to ship repair to ball bearings, the U.S. military just can’t get what it needs.

I’ve been writing about the defense industrial base monopoly problem for years at this point; the first major piece[1] I did was in the American Conservative in 2019. The modern story is relatively simple. In the 1990s post-Cold War era, the White House sought to cut defense spending. Bill Clinton’s administration arranged a deal with defense contractors; they would tolerate lower revenue or stagnant revenue, if they got higher margins. And so at a dinner known as ‘The Last Supper’ held in the Pentagon, the Clinton Defense Department encouraged a merger wave. Throughout the 1990s, the DOD even paid the merger costs of its defense base firms; the number of major prime contractors (or ‘primes’) dropped from dozens to 5. In addition, Congress, under ‘Reinventing Government,’ passed laws to eliminate contracting rules that blocked price gouging of the treasury.

All of this monopolization was done in a unipolar moment, when just-in-time manufacturing where suppliers kept no inventory on hand was applied to everything, even military stockpiles. This was, in retrospect, insane. Who thinks that having no resiliency is a good strategy for wars?

Since Covid and increasingly during the Ukraine conflict, policymakers have realized the U.S. faces real physical constraints on what we can build. Consider that the U.S. still cannot replenish its stocks of Javelin and Stinger missiles. Why? Not because the money isn’t there, but because if defense contractors act too quickly, they would, as one consultant to the industry put it, “get hammered by Wall Street.” And since there’s virtually no competition at this point in building any weapon major system, there’s no rush to take market share.

The DOD tasked three universities with examining how Pentagon contracting works, and did an internal analysis, all to determine the financial health of the defense base. And what they found is not so different than health care, big tech, finance, or any other industry segment; defense is run by a few giant middlemen who do exceptionally well by shareholders, outperforming commercial rivals and the S&P index. Contracting doesn’t look especially profitable, but the relatively lower margins are more than compensated by a host of favorable contracting terms offered by the government.

[1] When Wall Street targeted the commercial industrial base in the 1990s, the same financial trends shifted the defense industry. Well before any of the more recent conflicts, financial pressure led to a change in focus for many in the defense industry—from technological engineering to balance sheet engineering. The result is that some of the biggest names in the industry have never created any defense product. Instead of innovating new technology to support our national security, they innovate new ways of creating monopolies to take advantage of it.

A good example is a company called TransDigm. While TransDigm presents itself as a designer and producer of aerospace products, it can more accurately be described as a designer of monopolies. TransDigm began as a private equity firm, a type of investment business, in 1993. Its mission, per its earnings call, is to give “private equity-like returns” to shareholders, returns that are much higher than the stock market or other standard investment vehicles.

It achieves these returns for its shareholders by buying up companies that are sole or single-source suppliers of obscure airplane parts that the government needs, and then increasing prices by as much as eight times the original amount. If the government balks at paying, TransDigm has no qualms daring the military to risk its mission and its crew by not buying the parts.


A long winded way of saying “Welchism”.

Gouging the daylights out of DoD has been around for decades. Kaiser had a contract to build cargo planes for the Air Force, in the early 50s. Kaiser was billing DoD vastly more than what Fairchild charged, for the same model plane. When Curtis-Wright took over Packard’s defense contracts, C-W management was wondering if there was commercial potential for a line of diesel engines Packard had been building for the Navy. An engineer that came over to C-W with the program wrote back to C-W management that, as the program was configured, a customer could buy a perfectly suitable engine from Cummins, for just what Packard was charging the Navy for overhead.

I have commented before on the trend among the MIC now is to milk the “development” phase, stretching it out for years, like the F-35, that took 20 years from contract to deployment. Often, when the item does finally make it to production, after Billions in “development” funding, and years of work, only a handful are built.


I’m beginning to think it would be far cheaper and more effective if the US Gov’t simply directly employed the necessary engineers and workers and built their own weapon systems rather than farm it out to the “free market”.


While I agree with you, the working definition of “communism” is “government control of the means of production.” It’s easy to predict massive lobbying and political pressure if your suggestion was seriously considered.


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Understood Wendy. But when “capitalism” fracks you over this badly…

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Healthcare is also ridiculously expensive, not just at individual levels, but structurally. So it won’t help much to make govt a single payer, they would have to directly employ the docs, nurses, and other staff to make it “far cheaper and effective”.

Higher education (and all education) is also ridiculously expensive, also structurally. So govt will also have to take that over and directly hire all the staff necessary.

Same for housing. Crazy expensive, especially in certain areas, and private industry isn’t working well enough to provide the quantity of housing necessary. Especially if there will be increased immigration. Govt definitely has to take this one over, and govt can assign itself special powers that allow them to tell groups of people where they should live so all those imbalances in many locations dissipate.

Transportation! Have you seen the price of cars lately? And it’s all going up, even airfares and busfares. This one really needs to be taken under the government wing.

Food is also becoming rather expensive. But that can be handled later if necessary.


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Brush up on WWII US Naval history, especially the darlings of USN Bureau of Ordinance. Mk 14 torpedo, main armament of fleet subs, loaded with defects: magnetic pistol didn’t work, contact pistol didn’t work either. Defects were not discovered before the war because BuOrd didn’t want to spend the money on live fire tests. When confronted with the failures, BuOrd denied the torpedo was defective. The Mk 13 torpedo that USN airplanes carried also had multiple failures, at a high frequency. 1.1" AA gun constantly jammed. BuOrd carried on just like “JCs” in the private sector.

For the unfamiliar, here is a piece on the Mk 14 on a naval history youtube channel.


I think the implication in that phrase is ALL means of production. Not just a narrow slice of production.

But we have a real world example to look at. California will begin making it’s own insulin rather than pay the inflated prices most drug makers charge. The plan is for it to be on sale nationwide at a price less than the $35 out of pocket cap Medicare was able to negotiate with drug makers.

That is almost certainly the government controlling production. Yes, they’re working in partnership with a small, non-profit drug maker - most likely for their expertise in navigating the FDA drug approval and monitoring processes.




You are confusing “the means of production” with “all property”. Two very different things.



  1. a political theory derived from Karl Marx, advocating class war and leading to a society in which all property is publicly owned and each person works and is paid according to their abilities and needs.

You would never call the interstate highway system communism. You would not call the library system communism. You would not call public universities etc communism.

A few public goods v all property not the same things. Not to get off topic but in this conversation that actual elephant in the room is universal healthcare. You would not call Germany, Canada, Ireland, Israel, Japan etc today communist.


You can find several historical examples. Nearly any electric company with “municipal” in the name was “owned” by government. They got into the business because investors were, at the time, happy to cream skim the larger cities where they could serve lots and lots of consumers with not as much infrastructure (production and distribution, aka “wires”). That left smaller towns and cities without electricity, and it was uneconomic for public companies (or even private) to serve this market. So “municipal” electric companies were born (also see: municipal water, etc.)

Truly rural customers, of course, were SOOL until FDR made a push to bring them into the 20th century with the Rural Electrification Program.