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Ackerman writes: "Defense giant Lockheed Martin had a totally sweet quarter, raking in $700 million and looking forward to the same this time next year. So it raises eyebrows when Lockheed's anointed mouthpieces predict mass economic disaster if Congress touches the defense budget. On Tuesday, the aerospace industry put out a report saying that chopping the defense budget would put over a million Americans out of work. Cuts that could total up to a trillion dollars over 10 years would 'devastate the economy and the defense industrial base and undermine the national security of our country,' said Marion Blakeley, president of the Aerospace Industries Association, which sponsored the report."

A Lockheed Martin assembly plant worker, 10/21/11. (photo: US Navy Aviation)
A Lockheed Martin assembly plant worker, 10/21/11. (photo: US Navy Aviation)

Defense Industry: Keep Paying Us or the Economy Dies

By Spencer Ackerman, Wired

27 October 11


efense giant Lockheed Martin had a totally sweet quarter, raking in $700 million and looking forward to the same this time next year. So it raises eyebrows when Lockheed's anointed mouthpieces predict mass economic disaster if Congress touches the defense budget.

On Tuesday, the aerospace industry put out a report saying that chopping the defense budget would put over a million Americans out of work. Cuts that could total up to a trillion dollars over 10 years would "devastate the economy and the defense industrial base and undermine the national security of our country," said Marion Blakeley, president of the Aerospace Industries Association, which sponsored the report.

But while Blakeley's group paid for research to draw that dire conclusion, some of her members reported a sunnier economic outlook to their shareholders. In its third-quarter earnings report, also released Tuesday, Lockheed - manufacturers of the F-22 and F-35 jets - told investors to expect that as long as Congress passes President Obama's next defense budget, "the Corporation expects 2012 net sales to be flattish as compared to 2011 levels, and that consolidated 2012 segment operating profit margin will remain at approximately 11 percent." Boom: another $700 million in earnings, on its way.

While there's no doubt that defense cuts will mean job losses, there's also no doubt that a report prepared for an industry so reliant on defense cash will paint a stark picture of what happens if that cash is threatened. Congressmembers looking to get reelected pay attention, since fighting for defense money as a jobs program is easier than making a case for what a sensible, appropriately funded defense strategy ought to be. That's the problem with reports like these: They make it easy to ignore structural economic and defense problems and imply that all will be well if the cash keeps flowing.

To see the report's breathlessness, check out its methodology. (.pdf) The aerospace report draws a straight correlation between lost jobs and lost sales (the result of lower defense budgets for orders). But defense firms concerned about losing jobs have, like all businesses, other options for preserving them, like dipping into their earnings.

And those earnings, as evidenced by the third-quarter disclosures, are up. Lockheed's $700 million net quarterly earnings are up sharply from its $56 million haul this time last year. Boeing's net income during that time was $1.09 billion, up from $837 million. General Dynamics? $652 million in net earnings this quarter, slightly up from its $650 million last year.

Meanwhile, Lockheed paid CEO Robert Stevens $19.1 million in 2010. Boeing's Jim McNerney made $19.7 million.

In other words, defense cuts won't, by themselves, force firms to fire people. Companies will surely be stressed by the revenue loss, but their bright economic pictures give them some options.

Then there are some dubious assumptions in the report. It says job-providing "modernization" cash is 45 percent of the $550 billion annual defense budget, but as defense gadfly Winslow Wheeler emails, the Congressional Budget Office puts it at 29 percent. (.pdf) Wheeler adds that the study presumes a cost of $130,000 per lost job: "One seasoned observer opined to me that the total for salary, materials, etc. should be about twice that."

Nor does the association report actually address the defense manufacturing base that so alarmed Blakeley. It drew its million-job-loss total from "across the breadth of the U.S. economy," into ripple-effect industries like finance, health care and "retail trade, leisure and hospitality services." Meanwhile, the structural effects of the shifting defense industrial supply chain go unstudied.

Now: America's defense industrial base - the engineering and manufacturing sector of the economy that ensures the U.S. can build warships, planes and missiles - is in the midst of a decades-long globalization that policymakers have yet to come to terms with. A recent report from the Center for a New American Security (CNAS) warns that the U.S.' influence over that supply chain suffers from a key vulnerability: "its dependence upon relatively large defense procurement budgets." (.pdf) Cut the budget too deeply, and the economic effects could cascade: the most expensive military program in history, the F-35 Joint Strike Fighter jet family, is built in eight countries.

In fact, CNAS warns that engineering "large-scale, high-technology projects" domestically is a "dying art," since "many of the nation's best young people tend to avoid -old' manufacturing industries - including the aerospace sector - opting instead for what seem to be more exciting (and potentially much more lucrative) prospects in startup ventures and -cutting-edge' firms that appear to be at the technological frontier."

In other words, it's not just the prospect of declining defense budgets that ravage the most important nodes of the defense industrial base. On the low-pay end of the spectrum, it's the fact that manufacturing plants have moved to low-wage places like China - which also erodes U.S. engineering know-how. On the high end, defense firms now have to compete with Apple, Google, Facebook and anything Y Combinator funds for bright tech engineers. All that is a problem that extends way beyond defense budgets, and into fundamental questions of how the U.S. structures its economy and values work.

And assume for a moment that all the aerospace industry's lost-jobs estimates are accurate. Notice that's an economic argument, not a national security argument. The explosion in defense spending since 9/11 was predicated on an emergency - all financed by borrowed money, contributing to the fiscal mess that cuts are meant to fix - that's receding. U.S. troops will be out of Iraq on December 31; the Afghanistan war is beginning its own drawdown. Arguing for military spending primarily as a stimulus measure begs the question of why less capital-intensive industries - road repair, anyone? - shouldn't get their own big checks from the government.

The answer - at least, one that ex-Defense Secretary Robert Gates proposed - isn't to look at the military as a big jobs program. It's to ask what the country wants defense strategy to be. If the U.S. is faced with the necessity of cutting defense, then it makes sense to ask what missions ought to be scaled back or jettisoned. In a series of reports this year, the most recent of which came out on Tuesday, the doves at the Project on Defense Alternatives have at least attempted that, even if not all their ideas are good ones. The aerospace industry? Not so much.

It's natural for defense cuts to raise anxiety in a military-industrial complex that's reaped a decade of cash windfalls. And it's just as natural for defense companies to cherry-pick arguments to support their revenue. That's all in the game. But unless they're also willing to accept big tax hikes to finance their continued desired spending, then it's hard to see how reports like this get around Winston Churchill's (or maybe Sir Ernest Rutherford's) famous aphorism: "Gentlemen, we have run out of money. Now we have to think." your social media marketing partner


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+32 # Kayjay 2011-10-27 19:59
The defense industry has made billions in profits off a perpetual game of extortion. It's like Lockheed and Boeing et al. are telling our congressional delegation, "keep the money flowing," or your JOBS get it. And of course our lazy, disconnected, arrogant congressional rats take the easy way out and approve the cash and thus retain their seats. It's time to cut defense spending and turn those swords into plowshares. It starts with booting out the most corrupt in congress.
+7 # jlohman 2011-10-28 07:51
Quoting Kayjay:
And of course our lazy, disconnected, arrogant congressional rats take the easy way out ...

You are absolutely correct Kayjay, our congressmen are paid to roll over and they do it so well. Campaign bribes can do wonders. They ALL must be unelected in 2012. All independents for me.

And the 1 million Americans? If we taxpayers are paying their salary anyway, let's put them to work rebuilding our infrastructure.

Jack Lohman
+8 # rsnfan 2011-10-27 22:30
The government takes the money it no longer spends on defense and subsidizes renewable energy. And all the people who lose their job making weapons can now make solar panels and wind turbines and install them. And since the government is subsidizing renewable energy we can compete with China.
Problem solved.
+5 # readerz 2011-10-27 22:41
What I would like to see Lockheed or Goodyear do is to make those lighter-than-ai r blimp-jet hybrids into a reality: they guzzle a lot less jet fuel, are much safer in the air, and really have a good commercial application, namely, transportation that doesn't create so much CO2. (O.K., I'm from Akron, but there is a model for a prototype in the museum downtown here, and it would be much nicer than defense.)
+8 # GeeRob 2011-10-27 23:27
This is one of the few things America makes now : War.
+6 # Activista 2011-10-28 00:34
The defense industry is killing World and bankrupting USA - this is where 90% deficit comes from.
+10 # reiverpacific 2011-10-28 05:05
To call the US war-machine a "DEFENSE" industry is like calling an obese person "skinny" or "undernourished"!
How can any nation justify the fact that it's "Defense" industry and the military might that walks hand-in-hand with it, gobbles up more revenue and resources than the rest of the world's nation-states combined and then some (and I'm pretty sure that this doesn't include the nefarious "Black Budget" for covert actions around the globe and is accountable to only a shadowy few and doest NOT include the president), whilst an increasing number of it's citizens, residents or inhabitants go without the basic essentials to provide any kind of quality of life, including healthcare, education and now work of any meaningful kind?
This represents national insanity, environmental degradation of all imaginable and some unimaginable kinds, through forced extraction, scientific advancement in increasingly toxic materials and destructive testing deployment thereof, ultimate global catastrophe and a perpetual threat to the entire circle of life on this beautiful planet which the perpetrators seem bent on hastening.
Another suggested name "Department of Planetary Treason"!
+3 # futhark 2011-10-28 11:31
Yes, a name change is long overdue. "Offense Department" would fit this branch of the Federal Government to a "T".
+2 # Lute 2011-10-28 06:07
Kayjay: We -- all of America -- voted these clowns and idiots into office. Barack Obama is the chief clown/idiot. As Cornel West said: "He's a black mascot for Wall Street." But we voted him, and the other cretins into office. That's why independent movements -- #Occupy or Tea Party -- are so important: They scare the bejesus out of the morons "we the people" voted into office. We the people are as cretinous as our supposed leaders. Obama is the cretin-in-chief , but McConnell share equal blame.Republica ns are braindead.
+1 # futhark 2011-10-28 11:33
Yes! Don't vote for the guy who spews the "hope" and "change" blather to get elected, then turns around and accommodates the self-same interests that the people elected him to stop.
+4 # RLF 2011-10-28 06:07
I guess the corps of this country had better start producing something else than killing hardware...othe rwise their profits are going to hell! Tough luck boys...guess you're going to be in the s#&t like the rest of us. Next go the bankers.
+1 # in deo veritas 2011-10-28 08:04
Lockheed was not this gluttonous merchant of death when I worked for them in the early 60's. But then neither was the "defense dept" with the cooperation of CONGRESS.
+4 # Pufferly 2011-10-28 08:29
This from the most job-poor industry in the known universe and parts of New Jersey? Cutting the military budget by 90% might allow us to survive on this planet. We could stop being the prime terrorist nation and maybe even help a few starving children get a life. We've got to stop creating enemies to justify militarism of our foreign policy and occupation and/or bombing of all regions with resources our money machines demand.
+2 # walt 2011-10-28 08:39
A classic example of how "defense" continues to hold America hostage. This is nothing new and has even increased since the end of the Cold War when we should have seen some "peace dividends." These folks work hard to ensure we are at war!
Eisenhower's prediction of the "military-indus trial complex" has long been surpassed and is at disastrous levels now.
The big question remains. Is what we have seen in Iraq, Afghanistan, Libya, drone attacks around the world, etc. really "defense?" Hardly!
We could better "defend America" by standing up for the rights of the Occupy Wall Street protesters rather than pretending to be "bringing democracy to the Middle East!"
Let's get this under control now!
+1 # futhark 2011-10-28 11:35
Once "democracy" is established in the Middle East, the military-indust rial complex no doubt already has another boogie-man lined up to scare Americans into supporting more militarism and enduring less of the liberty guaranteed to them in their Constitution.
+1 # Adoregon 2011-10-28 11:05
The U.S. desperately needs a Department of Peace. Then our tax dollars could be used to hire workers for peace rather than workers for war.

I mean, who really wants war???
+2 # futhark 2011-10-28 11:40
Quoting Adoregon:

I mean, who really wants war???

The military-indust rial complex, that's who wants war. It's time to watch Michael Moore's excellent "Bowling for Columbine" again, in case you have forgotten that the major industry and main employer in Littleton, Colorado, is the Lockheed missile manufacturing plant. For them lethal violence and war is not personal, it's just business.
+2 # ABen 2011-10-28 13:00
We need to have the "guns vs butter" debate once again in this country. Suggested reading: "Major Barbara" by George Bernard Shaw.
+2 # BradFromSalem 2011-10-28 14:16

Providing jobs to teachers that educate and train people to be better informed citizens, more productive workers, more creative people are a luxury. Hiring more engineers and construction workers to build and design roads, buildings and tools are only useful when those roads, buildings and tools are used to kill is the only way we can spend money to create jobs?

The defense department jobs are the least economically stimulating and is the worst way we can get the economy growing jobs and not just wealth for the 1%.

For every dollar we take away from defense contractors and redirect to energy saving technology; every citizen (that is 100%) is advantaged. The same holds true for education, the medical fields, and modernization of the entire US infrastructure.
0 # Activista 2011-10-28 15:27
look at the product of defense industry:
For the last two weeks, forces from the new transitional government (NATO =) had bombed and blasted Sirte back into the Dark Ages, as pro-Gaddafi fighters inside the city refused to surrender. Take look at the pictures: A picture of destruction - Dubai Street
+1 # futhark 2011-10-28 21:42
Defense industry: "Your money or your life!" Isn't that called "brigandage"?
+1 # Archie1954 2011-10-30 14:52
Defense contractors produce death and destruction, nothing of lasting value. Paying them is money down the drain. The only potential benefits are those technological advances that miltary experiments sometimes create thnat only flow down into society as a whole many years later after they have been declassified.

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