The Pentagon's Absorption Problem: Why $1.5 Trillion Cannot Buy Its Way to Capability
A 50% defense budget increase sounds transformative. But market concentration, workforce collapse, and acquisition sclerosis ensure that additional funding will inflate contractor profits rather than expand military capability. The constraints are structural, not managerial.
The Monopsony’s Dilemma
Pentagon officials speak of “absorbing” budget increases as if the defense industrial base were a sponge. Pour in more money, squeeze out more capability. This metaphor conceals a structural impossibility: the American defense sector cannot absorb a 50% budget increase because it was never designed to expand. It was designed to consolidate.
Since the Cold War’s end, deliberate policy choices have compressed the defense industrial base from dozens of prime contractors to five. Lockheed Martin, RTX, Northrop Grumman, Boeing, and General Dynamics now dominate a market where the Pentagon is often the only buyer and they are often the only sellers. This bilateral monopoly—textbook economics applied to national security—creates pricing dynamics that mock the logic of competitive markets. When the buyer cannot walk away and the seller cannot be replaced, additional funding does not purchase additional output. It purchases additional leverage for the seller.
The question of whether $1.5 trillion would inflate costs without expanding capability therefore answers itself. Under current market structures, cost inflation is not a risk to be managed. It is a mathematical certainty.
The Consolidation Trap
Understanding why requires examining what the defense industrial base actually is—and what it has become. The Department of Defense defines the DIB as “the network of organizations, facilities, and resources” supplying materials, products, and services for defense purposes. This includes prime contractors with direct government relationships and the subcontractors providing goods and services necessary to perform defense contracts. The network metaphor suggests resilience through redundancy. Reality suggests the opposite.
The 1990s peace dividend accelerated a consolidation wave that defense officials initially welcomed. Fewer contractors meant simpler oversight. Larger firms could achieve economies of scale. The “Last Supper” of 1993—when Deputy Secretary of Defense William Perry told defense executives that the Pentagon could no longer sustain so many suppliers—launched a merger frenzy that reduced fifteen major aerospace and defense firms to five by 2000.
What followed was predictable to economists and surprising to policymakers: prices rose. The 2023 National Defense Industrial Strategy now acknowledges “serious shortfalls in both domestic manufacturing and international supply chains.” This is bureaucratic understatement. The shortfalls are structural, not cyclical.
Consider the bilateral monopoly dynamic. In a competitive market, additional demand attracts new suppliers, expanding capacity and moderating prices. In a bilateral monopoly, additional demand simply shifts bargaining power. The Pentagon cannot credibly threaten to take its business elsewhere when “elsewhere” does not exist. Contractors know this. Their pricing reflects it.
The fiscal year deadline compounds the problem. Unlike commercial buyers who can wait for better terms, the Pentagon must obligate funds by September 30th or lose them. This transforms the Department of Defense from price-setter to price-taker. Sole-source contractors facing year-end deadlines possess leverage that no amount of acquisition reform can eliminate. The Government Accountability Office’s 2024 weapon systems assessment found that DOD “continues to struggle with delivering innovative technologies quickly” despite planning to invest more than $2 trillion in its costliest weapon programs. The struggle is not managerial. It is structural.
Where the Money Actually Goes
A 50% budget increase sounds transformative. Examine where defense dollars flow and the transformation evaporates.
The defense budget divides into four major categories: operations and maintenance (O&M), personnel, procurement, and research and development (RDT&E). Personnel costs are largely fixed—you cannot hire 50% more soldiers overnight, and even if you could, training pipelines constrain how quickly they become effective. O&M spending maintains existing equipment and readiness; it does not expand capacity. That leaves procurement and RDT&E as the categories where additional funding might theoretically purchase additional capability.
Here the absorption problem becomes concrete. Procurement requires production capacity. Production capacity requires factories, machine tools, skilled workers, and supply chains. These do not materialize on command.
The Army’s experience with 155mm artillery shells illustrates the constraint. Before the Ukraine conflict, the United States produced approximately 14,000 shells monthly—adequate for peacetime training but catastrophically insufficient for high-intensity warfare. Ukraine fires roughly 6,000 rounds daily. Russia fires 20,000. The Army has since achieved a 178% production increase to 40,000 shells monthly, a genuine accomplishment. Yet this expanded capacity still cannot sustain the consumption rates that modern conventional warfare demands.
The limiting factors were not financial. They were physical: production lines, chemical propellant facilities, metal forging capacity. Money could accelerate some investments but could not eliminate the 18-24 month timelines required to build new facilities, install equipment, and train workers. Throwing additional billions at the problem would have bid up prices for the same constrained inputs.
Shipyard capacity tells a similar story. The Pearl Harbor dry dock project’s cost escalation from $6.1 billion to $16 billion reflects not construction expenses but environmental remediation requirements. Modern regulations transform shipyard expansion from an engineering problem into an archaeological cleanup operation. Before building new capacity, the Navy must remediate decades of industrial contamination. This is not waste or inefficiency. It is the unavoidable cost of reversing half a century of deferred maintenance and environmental neglect.
The workforce constraint may prove most binding. The average age of skilled machinists in defense manufacturing is 45.9 years. Welders average 55 years old, with 30% retirement-eligible by 2025. Apprenticeship programs require 2-4 years to produce journey-level workers—and certification marks the beginning of mastery development, not its completion. The tacit knowledge that experienced tradespeople carry cannot be captured in training manuals or transferred through digital twins. When a senior technician who “feels” material behavior retires, that embodied expertise leaves with them.
Budget increases cannot purchase workers who do not exist. They can only bid up wages for the workers who do, drawing them from one defense program to another or from civilian manufacturing into defense—without expanding the total skilled labor pool.
The Acquisition Labyrinth
Even if production capacity existed, the acquisition system would struggle to deploy additional funding effectively. The defense acquisition workforce numbers 207,000 federal employees—exceeding the entire active-duty Marine Corps. This is not bureaucratic bloat in the conventional sense. It is the accumulated sediment of decades of oversight requirements, each individually justified, collectively paralyzing.
The system exhibits what organizational theorists call “means-ends decoupling.” Compliance activities—audits, reviews, certifications—have become ends in themselves rather than means to capability delivery. The workforce’s daily contract actions remain roughly fixed regardless of budget levels. Additional funding does not accelerate processing; it creates backlogs.
The Cybersecurity Maturity Model Certification (CMMC) requirements illustrate the filtering effect. Compliance creates structural barriers that specifically exclude organizations most capable of rapid adaptation—research institutions, universities, small contract manufacturers. These entities operate on economic models incompatible with the overhead that CMMC demands. The certification process selects for large, established contractors with dedicated compliance departments, not for innovative firms with novel solutions.
Cost-plus contracts compound the problem. When contractors are insulated from risk, they gain incentive to extend timelines because each additional month generates additional fees. Information asymmetry—where contractors know their true costs and the government does not—enables this temporal dilation. The moral hazard is not occasional fraud but systematic schedule extension.
The Middle Tier Acquisition pathway, created to accelerate urgent programs, represents deliberate immunosuppression—reducing oversight to enable speed. Like immunosuppressive drugs enabling organ transplants, reduced compliance checks enable rapid fielding. But the parallel extends further: immunosuppression creates vulnerability to opportunistic infections. Reduced oversight creates vulnerability to contractor exploitation.
The Thermodynamic Minimum
Physical constraints ultimately govern what money can and cannot buy. Consider titanium, essential for aerospace applications. A vast gap exists between the thermodynamic minimum energy required for titanium production and current industrial energy intensity. This gap reveals that manufacturing bottlenecks are not about physical laws but about installed industrial processes.
The gap could theoretically be closed through investment in more efficient production methods. But closing it requires time, engineering expertise, and capital equipment that cannot be conjured through appropriations. The defense industrial base does not lack money. It lacks the physical infrastructure that money would purchase—and the time required to build that infrastructure.
Lead times for military components now stretch to 900 days for critical items. This creates a fixed temporal window that adversaries can exploit for strategic planning. When American capability gaps are predictable 2.5 years in advance, no amount of funding eliminates the vulnerability. The constraint is temporal, not financial.
Legacy systems remaining in service 2-3 times longer than their component production lifecycles create a structural demand that authorized channels cannot fill. This does not merely create counterfeit risk—it mathematically guarantees counterfeit infiltration. Original manufacturers have ceased production. Authorized distributors have exhausted inventory. The components must come from somewhere. Additional funding to “secure supply chains” cannot secure components that no longer exist in legitimate channels.
The Workforce Cliff
The demographic collapse of the skilled trades workforce represents perhaps the most intractable constraint. Supply chain discourse became viral—memetically fit, shareable, culturally resonant—precisely when the underlying skill-bearer population entered senescence. Awareness propagated faster than skills could replicate.
The 2-4 year apprenticeship timeline produces credentialed novices, not the master tradespeople being lost to retirement. The certification marks minimum competence, not the decades of accumulated expertise that enable workers to diagnose problems by sound, adjust processes by feel, and prevent failures before they occur. This tacit knowledge resists codification. Digital twins and AI optimization cannot replace it because they depend on training data generated by the experts who are disappearing.
The workforce exhibits hysteresis—a path-dependent resistance to change. Like ferromagnets where domain walls pin at defect sites and cannot simply retrace their paths, the defense workforce cannot be rapidly rebuilt by reversing the policies that hollowed it out. The energy required to rebuild capacity vastly exceeds the savings achieved through consolidation. The asymmetry is structural.
Reskilling programs face a paradox illuminated by an unlikely parallel: tantric practice explicitly forbids intense techniques during physiological stress—the markers of anxiety and pressure. Yet workforce reskilling programs systematically apply maximum pressure through compressed timelines, funding urgency, and job insecurity. The programs designed to rebuild capacity may be structured in ways that guarantee failure.
What Expansion Would Actually Require
Genuine capability expansion—not cost inflation masquerading as growth—would require interventions at multiple leverage points simultaneously. None is politically easy. All involve trade-offs that policymakers prefer to avoid.
First, market structure reform. The bilateral monopoly must be broken, either through deliberate deconsolidation of prime contractors or through aggressive development of alternative suppliers. The Defense Production Act Title III provides authority for government investment in production capacity. Using it at scale would require accepting that taxpayer funds might support facilities that later prove unnecessary—a political risk that acquisition officials consistently avoid.
Second, acquisition system simplification. Not reform—simplification. The compliance apparatus has achieved escape velocity, where coordination infrastructure consumes more resources than the activities being coordinated. Reducing oversight creates genuine risks of fraud and waste. Those risks must be weighed against the certainty that current oversight prevents timely capability delivery.
Third, workforce development at scale. This means not training programs but structural changes to make defense manufacturing careers attractive to young workers. Compensation must compete with technology sector alternatives. Working conditions must accommodate generational expectations. Geographic concentration in high-cost regions must be addressed. None of this happens quickly.
Fourth, allied industrial integration. NATO’s Defense Production Action Plan attempts to aggregate demand across allies to create economies of scale. But the initiative inverts game-theoretic logic: instead of each ally free-riding on collective defense, the pooling mechanism creates new coordination failures. The United States cannot expand its industrial base in isolation, yet integration with allied production creates dependencies that complicate national security planning.
Each intervention requires accepting costs that the political system resists. Deconsolidation threatens contractor profitability and the campaign contributions that flow from it. Simplified acquisition risks headline-generating scandals. Workforce investment competes with other budget priorities. Allied integration surrenders autonomy.
The most likely scenario, therefore, is none of the above. Budget increases will flow through existing structures, enriching existing contractors, bidding up prices for existing workers, and generating impressive-sounding program announcements that deliver capability years late and billions over budget.
The Signaling Function
A darker interpretation deserves consideration. Defense spending may function partly as what economists call a Veblen good—where higher prices signal greater value rather than diminishing it. Historical military expenditure often served status demonstration rather than capability acquisition.
The 1609 Livonian campaign of Mikołaj Krzysztof Radziwiłł involved luxury expenditures during military operations that were not inefficiencies but deliberate status demonstrations. The spending signaled capacity to waste resources while still achieving objectives. Modern defense budgets may serve similar signaling functions, where the ability to sustain cost overruns demonstrates national wealth and commitment more effectively than efficient procurement would.
If defense spending partly signals resolve rather than purchases capability, then cost inflation is not a bug but a feature. The waste demonstrates that the nation can afford to waste. This interpretation is uncomfortable but not easily dismissed.
FAQ: Key Questions Answered
Q: How long would it take for a major budget increase to translate into actual military capability? A: Historical buildups suggest 3-5 years minimum before significant capability gains materialize. Production facilities require 18-24 months to construct and equip. Workforce training adds 2-4 years. Supply chain development extends timelines further. Money appropriated in 2025 might begin producing meaningful capability gains by 2028-2030.
Q: Why can’t the Pentagon simply buy from foreign suppliers to expand capacity quickly? A: International Traffic in Arms Regulations (ITAR) and Buy American provisions restrict foreign sourcing for most defense items. These regulations exist for legitimate security reasons—preventing technology transfer to adversaries and maintaining domestic production capability. Relaxing them would accelerate procurement but create long-term dependencies that could prove strategically costly.
Q: What would “successful” absorption of a budget increase look like? A: Genuine absorption would show in capability metrics: higher mission capable rates, deeper munitions stockpiles, shorter maintenance backlogs, and expanded production surge capacity. The Air Force’s average mission capable rate of 67.15% in fiscal 2024 provides a baseline. Successful absorption would move this metric upward while expanding the fleet—not merely maintaining readiness for a static force structure.
Q: Are there examples of successful rapid defense industrial expansion? A: World War II mobilization remains the canonical example, but it occurred under conditions impossible to replicate: total war psychology, suspended environmental and labor regulations, government seizure of industrial facilities, and a manufacturing workforce that had not yet been hollowed out by decades of offshoring. The Reagan buildup of the 1980s provides a more relevant comparison, but even that occurred when the industrial base retained capacity that has since been lost.
The Arithmetic of Constraint
The question posed—can the defense industrial base absorb a 50% budget increase—assumes that absorption is possible under some set of conditions. The evidence suggests otherwise. The constraints are not contingent but structural. They cannot be wished away through better management or overcome through political will.
Market concentration ensures that additional funding flows to a small number of firms with no competitive pressure to expand capacity rather than raise prices. Workforce demographics ensure that skilled labor cannot scale regardless of wage offers. Acquisition rules ensure that processing capacity remains fixed while backlogs grow. Physical infrastructure requires years to build regardless of funding availability.
A 50% budget increase—or the $1.5 trillion figure that represents an even larger jump—would therefore produce exactly what the question anticipates: inflated costs without proportionate capability gains. The contractors would profit. The Pentagon would announce ambitious programs. The capability would arrive late, over budget, and below specification. The cycle would continue.
This is not a prediction of failure. It is a description of how the system currently functions. Changing the outcome requires changing the system—a project far more difficult than changing the budget.
The defense industrial base was optimized for an era of constrained budgets and limited conflict. It cannot be repurposed through appropriations alone. The money is necessary but not sufficient. Without structural reform—to market concentration, acquisition processes, workforce pipelines, and allied integration—additional funding purchases additional leverage for those who already possess it.
The sponge metaphor fails because sponges expand to absorb liquid. The defense industrial base does not expand. It concentrates.
Sources & Further Reading
The analysis in this article draws on research and reporting from:
- National Defense Industrial Strategy 2023 - DOD’s first comprehensive strategy addressing industrial base modernization
- GAO Weapon Systems Annual Assessment 2024 - Analysis of DOD’s $2 trillion weapon program portfolio and delivery challenges
- Breaking Defense on 155mm production - Reporting on artillery shell production expansion and remaining constraints
- CBO Future Years Defense Program Analysis - Budget projections and baseline spending analysis
- Congressional Research Service on Defense Industrial Base - Definition and scope of DIB programs
- Investopedia on Bilateral Monopoly - Economic framework for understanding defense market structure
- Air and Space Forces Magazine on Mission Capable Rates - Readiness metrics for fiscal 2024
