alt Hacker NewsI'm always confused by prices of "highly regulated" goods in the United States.
When I get a $150,000 bill for a 15-minute hand-reconstruction surgery, how much of that bill is the total margin vs self cost? And how much of that is warranted / acceptable?
When a single Tomahawk missile bills the taxpayer $3,600,000, how much of that bill is the total margin? When I say "total margin", I mean not just the margin of the company that builds the Tomahawk itself, but the margins of all the components that were used in it -- every last bolt and every ounce of aluminum.
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The unknowns of defense spending is a feature and not a bug - for defense contractors
The real problem isn't the price of the missiles. I wouldn't even care about the price of the missiles if they actually worked. But Iran kicked our butts. We don't have air superiority, we cannot guarantee the shipping of oil through the straight of Hormuz, or anywhere else in that hemispheres, our bases and our aircraft carriers are useless.
I wanna know what they've been doing with our trillions of dollars, because it sure as heck wasn't making an effective military.
RTX, formerly Raytheon, has the same revenue and net income as PepsiCo. PepsiCo has a higher profit margin.
Most of these companies are public and you can find their stats.
A Tomahawk missile is $3.6 million because it uses specialty components, all made in small batches using very expensive American specialist labor. It's also staggeringly more capable than a drone, or a shahed. Those extra capabilities are enormously expensive, because they are hyper niche.
A single American Artillery Shell is $3000.
Meanwhile, your $150k surgery bill example is completely different. It's a fake number, made up to cause a process to generate an actual, intended price somewhere. Your insurer and the hospital play some insane game of chicken where the insurance promises only to pay a percentage of what they are billed and so the hospital submits a fake number to get what they actually want (or nowadays the system is even more byzantine)
I think most of the cost is in R&D
If you were to count the margin of everything it would be 100%. At the end of the day everything is either a resource harvested from the earth or human labor.
Those margins are the cost of Capitalism.
Many defense contracts are cost plus. https://en.wikipedia.org/wiki/Cost-plus_pricing
There are a great many costs built into the system that this analysis won’t get you: mandatory useless ingredients, arbitrary standards, and pervasive regulations.
I worked in aerospace and know a bit about this. Say you want to make a missile. Well, you better have the paperwork for literally every component to show that the metal used in all of it originates from a foundry in one of a tiny handful of countries.