Economics of Defense Spending

A fantastic (and funny) quote from the article (Defence spending in a time of austerity, The Economist, Aug 26th 2010) :
http://www.economist.com/node/16886851/print
“In a book published in 1983, Norman Augustine, a luminary of the aerospace industry, drafted a series of lighthearted “laws”. In one aphorism, he plotted the exponential growth of unit cost for fighter aircraft since 1910 (see chart 2), and extrapolated it to its absurd conclusion:
“In the year 2054, the entire defence budget will purchase just one aircraft. This aircraft will have to be shared by the Air Force and Navy 3½ days each per week except for leap year, when it will be made available to the Marines for the extra day.””

An interesting point to be made here is that like many major military powers, the US emphasizes (rightly from a strategic perspective) that major weapons system be entirely developed domestically. From an economic standpoint, if you have a captive buyer – the US government (with what sometimes appears to be an unlimited spending capability) – and few suppliers (facing little or no competition), it is a recipe for cost overruns and expensive production.