12 years have passed since Donald Rumsfeld famously revealed that 2.3 trillion dollars of tax payer money had simply 'disappeared' in the Pentagon's bowels and could not be accounted for. It was a case of fortuitous timing for those running the war racket, as his press conference took place exactly one day before the WTC attack. Rumsfeld's admission can be seen in the video below, in which it is noted that after the WTC attack 'priorities changed' and the 'war on waste' was forgotten in favor of providing unlimited funding for the 'war on terror':



$2.3 trillion had 'gone missing' at the Pentagon 12 years ago already



As the video also shows, a number of knowledgeable observers admitted that the Pentagon's 'books are cooked' and that in essence, a giant cover-up was going on. A mixture of waste and theft on a truly breathtaking scale was and still is underway.

There is of course also stunning incompetence on display on the part of those entrusted with administering the bureaucracy's funds – and it is their incompetence that makes theft possible. Hopefully no-one is so naïve as to believe that the trillions that have 'disappeared' have simply fallen into a black hole. Someone got the money and is laughing all the way to the bank.

We now have a more recent update on developments concerning this particular racket. As a Reuters report reveals, 'cooking the books' is by now regarded as perfectly normal by the bureaucrats running the government's side of the military-industrial complex. Often they simply have no choice and it has become their normal mode of operation, with supervisors instructing accountants to deliberately falsify accounting entries:


“Linda Woodford spent the last 15 years of her career inserting phony numbers in the U.S. Department of Defense's accounts.

Every month until she retired in 2011, she says, the day came when the Navy would start dumping numbers on the Cleveland, Ohio, office of the Defense Finance and Accounting Service, the Pentagon's main accounting agency. Using the data they received, Woodford and her fellow DFAS accountants there set about preparing monthly reports to square the Navy's books with the U.S. Treasury's – a balancing-the-checkbook maneuver required of all the military services and other Pentagon agencies. And every month, they encountered the same problem. Numbers were missing. Numbers were clearly wrong. Numbers came with no explanation of how the money had been spent or which congressional appropriation it came from. "A lot of times there were issues of numbers being inaccurate," Woodford says. "We didn't have the detail … for a lot of it."

The data flooded in just two days before deadline. As the clock ticked down, Woodford says, staff were able to resolve a lot of the false entries through hurried calls and emails to Navy personnel, but many mystery numbers remained. For those, Woodford and her colleagues were told by superiors to take "unsubstantiated change actions" – in other words, enter false numbers, commonly called "plugs," to make the Navy's totals match the Treasury's.

Jeff Yokel, who spent 17 years in senior positions in DFAS's Cleveland office before retiring in 2009, says supervisors were required to approve every "plug" – thousands a month. "If the amounts didn't balance, Treasury would hit it back to you," he says.


At the DFAS offices that handle accounting for the Army, Navy, Air Force and other defense agencies, fudging the accounts with false entries is standard operating procedure, Reuters has found. And plugging isn't confined to DFAS (pronounced DEE-fass). Former military service officials say record-keeping at the operational level throughout the services is rife with made-up numbers to cover lost or missing information.


Plugs also are symptomatic of one very large problem: the Pentagon's chronic failure to keep track of its money – how much it has, how much it pays out and how much is wasted or stolen.


(emphasis added)

Obviously, this is a racket of truly staggering proportions. What makes it so astounding is that we get to read this investigative report a full 12 years after Rumsfeld admitted to precisely these problems.



The black hole at the center of the Pentagon. It doesn't eat all matter surrounding it, it has instead specialized in sucking green paper out of the known universe.

(Image source unknown – Thw Web)



What Happens Next?

The answer to that question is already contained in the preceding paragraph. What will happen is precisely nothing. The game will just continue. The reasons are quite simple: for one thing, it is too good and too big a racket. Journalists can write 'investigative reports' until they are blue in the face, it won't change anything. Similarly, when the odd Congressman threatens the Pentagon with sanctions 'unless it brings it audits up to date', the people running the bureaucracy can probably only laugh. It has become way too large and powerful, similar to other appendages of the national security apparatus. No mere politician can possibly throw a spanner into its works.

Here are a few more tidbits from the report, many of which indicate how and where the biggest thefts probably take place:


“As the use of plugs indicates, pay errors are only a small part of the sums that annually disappear into the vast bureaucracy that manages more than half of all annual government outlays approved by Congress. The Defense Department's 2012 budget totaled $565.8 billion, more than the annual defense budgets of the 10 next largest military spenders combined, including Russia and China. How much of that money is spent as intended is impossible to determine.

In its investigation, Reuters has found that the Pentagon is largely incapable of keeping track of its vast stores of weapons, ammunition and other supplies; thus it continues to spend money on new supplies it doesn't need and on storing others long out of date. It has amassed a backlog of more than half a trillion dollars in unaudited contracts with outside vendors; how much of that money paid for actual goods and services delivered isn't known. And it repeatedly falls prey to fraud and theft that can go undiscovered for years, often eventually detected by external law enforcement agencies.

The consequences aren't only financial; bad bookkeeping can affect the nation's defense. In one example of many, the Army lost track of $5.8 billion of supplies between 2003 and 2011 as it shuffled equipment between reserve and regular units. Affected units "may experience equipment shortages that could hinder their ability to train soldiers and respond to emergencies," the Pentagon inspector general said in a September 2012 report.

Because of its persistent inability to tally its accounts, the Pentagon is the only federal agency that has not complied with a law that requires annual audits of all government departments. That means that the $8.5 trillion in taxpayer money doled out by Congress to the Pentagon since 1996, the first year it was supposed to be audited, has never been accounted for. That sum exceeds the value of China's economic output last year.

Congress in 2009 passed a law requiring that the Defense Department be audit-ready by 2017. Then-Defense Secretary Leon Panetta in 2011 tightened the screws when ordered that the department make a key part of its books audit-ready in 2014. Reuters has found that the Pentagon probably won't meet its deadlines.”


(emphasis added)

If the Pentagon were a business, it would have been liquidated ages ago. In fact, as Reuters helpfully points out, it would have been found in continuous violation of Sarbanes-Oxley ever since that law was enacted.




The Pentagon  – attempts to 'fix' the problems have continually failed.

(Image source unknown – Thw Web)



Kafkaesque Attempts to Fix the Unfixable

As is typical for such vast and intractable bureaucracies, the people running  various departments have not even the foggiest idea what is going on in their own departments. Since none of them have to consider profit and loss, they are merely 'groping in the dark', to paraphrase Mises, as all socialist managers are forced to do. In a truly Kafkaesque twist, a number of extremely costly attempts to actually modernize the administration of the bureaucracy and streamline its accounting and logistics procedures have ended up worsening the situation even further:


“In a May 2011 speech, then-Secretary of Defense Robert Gates described the Pentagon's business operations as "an amalgam of fiefdoms without centralized mechanisms to allocate resources, track expenditures, and measure results. … My staff and I learned that it was nearly impossible to get accurate information and answers to questions such as ‘How much money did you spend' and ‘How many people do you have?' "

The Pentagon has spent tens of billions of dollars to upgrade to new, more efficient technology in order to become audit-ready. But many of these new systems have failed, either unable to perform all the jobs they were meant to do or scrapped altogether – only adding to the waste they were meant to stop.”


(emphasis added)

A concrete example for this allegation is provided in the article as well – this one is a real jaw-dropper:


“Media reports of Defense Department waste tend to focus on outrageous line items: $604 toilet seats for the Navy, $7,600 coffee makers for the Air Force. These headline-grabbing outliers amount to little next to the billions the Pentagon has spent on repeated efforts to fix its bookkeeping, with little to show for it.

The Air Force's Expeditionary Combat Support System was intended to provide for the first time a single system to oversee transportation, supplies, maintenance and acquisitions, replacing scores of costly legacy systems. Work got under way in 2005. Delays and costs mounted. In late 2012, the Air Force conducted a test run. The data that poured out was mostly gibberish. The Air Force killed the project.

The system "has cost $1.03 billion … and has not yielded any significant military capability," the Air Force said in a November 2012 announcement. Fixing the system would cost an additional $1.1 billion, it said, and even then, it would do only about a quarter of the tasks originally intended, and not until 2020.”


(emphasis added)

If the myth of Reagan 'outspending the Soviet Union' militarily and thereby driving it into ruin were actually true (in reality it was just an excuse invented to justify his huge budget deficits ex post), we would have to conclude that the US empire is only a hair's breadth away from complete collapse.

However, even though this waste can probably still continue for a good while given the economy's remaining capacity to produce wealth that can be siphoned off by assorted parasites, one cannot ignore the fact that it is a symptom of a larger disease that has taken modern-day Western societies hostage and is slowly but surely choking them to death. The vast growth of regulations, taxes and bureaucracies has become a threat to civilization itself.


Why Should the State be the Sole Provider of Defense Services?

Incidentally, these ever recurring stories about how the Pentagon wastes tax payer funds are a very strong indication that it is high time to question the myth that only the State can provide national defense. Allegedly, defense is a good markets won't be able to provide, but there exists a lot of economic  literature that presents convincing arguments to the contrary. Since the need for providing national defense is one of the major arguments forwarded in favor of sustaining an ever more rapacious and intrusive State, it is actually important for those favoring a free society to tackle the notion that the market would be unable to provide adequate defense services. Obviously, now that we have once again been apprised of the huge amount of waste produced by the current socialistic arrangement, this seems an especially pertinent topic. Readers interested in looking at some of the arguments forwarded by libertarian scholars should e.g. take a look at this collection of essays edited by Hans-Hermann Hoppe: “The Myth of National Defense” (pdf).

Naturally, when a mainstream news agency such as Reuters reports on such serious deficiencies in state-run agencies, it is always implied that what is needed is merely 'better management' by presumably more enlightened bureaucrats. This idea is erroneous.

It is not possible for state-run bureaucracies to be run 'efficiently'. This is similar to the hope that socialism could actually work if only it were 'implemented correctly', but socialism is a literal impossibility due to the calculation problem, as Mises has shown in 1920 already. All state-run firms and bureaucracies are ultimately subject to variations of the socialist calculation problem. They cannot possibly gauge profit and loss. They therefore don't know what the opportunity costs involved in their actions are. One could argue that we 'just have to put up with this to some extent', provided that one concedes that there are certain goods and services only government can provide.

However, that is precisely what should be at issue: do such exclusively 'public' goods and services really exist? We would argue that it cannot be proved that this is the case. What is absolutely certain is that the quality of the services that can supposedly only be provided by the State is continually declining, while their cost is continually increasing. This is to be expected from a monopoly (one that is enforced by the threat of violence to boot). It is the exact opposite of what happens in the free market, where competition ensures that only those who are able to best satisfy the wishes of consumers will prevail.

People have been conditioned by centuries of incessant propaganda to believe that the State is unavoidable, that there can be no life without it. And yet, it is also widely regarded by many as the equivalent of a mafia don one strives to avoid as much as possible, but whom one knows to run a ruthless monopolistic protection racket one cannot escape from. It will still take some time for people to wake up and realize that life without such a ruler is actually possible and won't necessarily result in 'chaos'. We probably won't live to see that day, but one shouldn't give up hope.




The monograph that showed why economic calculation is not possible under socialism. The basic problems involved bedevil all state-run institutions to varying degrees.





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3 Responses to “War Racket Update”

  • No6:

    A grave threat to the world.
    And after the next financial debacle, a grave threat to the President.

  • Solon:

    Molinari himself:

    “The monopoly of government is no better than any other. one does not govern well and, especially not cheaply, when one has no competition to fear, when the rules are deprived of the right of freely choosing their rulers. Grant a grocer the exclusive right to supply a neighborhood, prevent the inhabitants of this neighborhood from buying any goods from other grocers in the vicinity, or even from supplying their own groceries, and you will see what detestable rubbish the privileged grocer will end up selling and at what prices! You will see how he will grow rich at the expense of the unfortunate consumers, what royal pomp he will display for the greater glory of the neighborhood. Well! What is true for the lowliest services is no less true for the loftiest. The monopoly of government is worth no more than that of a grocer’s shop. The production of security inevitably becomes costly and bad when it is organized as a monopoly. It is in the monopoly of security that lies the principal cause of wars which have laid waste to humanity.

    Under the rule of free competition, war between the producers of security entirely loses its justification. Why would they make war? To conquer consumers? But the consumers would not allow themselves to be conquered. They would be careful not to allow themselves to be protected by men who would unscrupulously attack the persons and property of their rivals. If some audacious conqueror tried to become dictator, they would immediately call to their aid all the free consumers menaced by this aggression, and they would treat him as he deserved. Just as war is the natural consequence of monopoly, peace is the natural consequence of liberty.”

    October 1849

    And as Molinari points out, once the State has achieved its own monopoly, others can see the advantages it obtains and desire those same advantages for themselves, and thus make application for the State to lend its powers of monopoly to their own enterprises… thereby royally screwing the economy and the actors therein.

  • Solon:

    The military dodged the last bullet with the attacks of 9-11. How will they dodge the next bullet? We’re probably going to war.

    Is there any better justification for its spendthrift existence than a full-blown war?

    Is there any better guaranteed profits for the elites that own Wall Street and the crypto-military complex?

    Is there any better political distraction that can obscure the criminal and corrupt monetary system imposed upon its citizen-serfs?

    Is there any better excuse for a greater imposition of State control upon the free exchange of ideas, upon a free media and and upon “free” serfs?

    The winds of war are blowing… just a light zephyr right now, but the hurricane is a-forming.

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