The Pentagon suppressed a 2015 study exposing $125 billion—yes, billion—in administrative waste over a five year period in order to protect its own budget from being slashed. The Washington Post revealed the suppressed report earlier this month.

The numbers in the report are staggering:

  • 23% of the Pentagon’s $580 billion budget ($134 billion) is spent on overhead and core business operations like accounting, HR, and property management.
  • The Pentagon employs over 1 million people in its back-office bureaucracy.
  • The average administrative job at the Pentagon costs taxpayers more than $200,000.

But none of this should come as a surprise given how government bureaucracies operate. The political arrangement of the military-industrial complex is very different from the way competitive markets work, which has important consequences. In competitive markets, profit and loss provide continual feedback as to whether companies are using their resources effectively or not. The result is that resources tend to be used where they create the most value.

But for government (in this case the Department of Defense), profit and loss are determined not by the market, but by a political actor’s ability to navigate politics. Decisions about where resources will go are made by bureaucrats, not consumers and entrepreneurs. This means there is no way to ensure that resources in the defense industry are being used where they are valued most highly. Success is determined by the size of the agency’s budget. This incentivizes bureaucratic bloat and administrative secrecy.

After all, it’s taxpayer money, so there is little accountability for wasteful spending. The result is that the Department of Defense overspends and under-delivers.

Impossible to Audit

Given the incentives at work, it shouldn’t be surprising that this report is not the most recent instance of waste and mismanagement.  Consider that since 1997, the Government Accountability Office has been legally required to audit the financial statements of federal agencies. Despite this requirement, it has been unable to audit the Department of Defense because the DOD has been unable to provide accurate and credible financial documents.

This fundamental lack of basic accounting processes and controls means that the Pentagon is unable to keep track of its financial resources and expenditures in any kind of meaningful way. But this wouldn’t change the underlying problems anyway. The sheer size and complexity of the military bureaucracy coupled with overly lofty foreign-policy goals means thorough oversight and accountability are virtually impossible.

The only real solution would be to drastically reduce the size and scope of the military and related government agencies, which would remove many of the incentives for the DOD to overspend and to obfuscate its spending. This reduction, in turn, requires adopting a restrained foreign policy minimizing the use of military abroad and the significant resources necessary to fund such international adventures.