Has $21 trillion gone missing?

On Dec. 2, 2018, Ocasio-Cortez [Rep.-elect, D-NY] tweeted a screenshot from an article in the Nation:

 

“$21 TRILLION of Pentagon financial transactions ‘could not be traced, documented, or explained.’ $21T in Pentagon accounting errors. Medicare for All costs ~$32T. That means 66% of Medicare for All could have been funded already by the Pentagon. And that’s before our premiums.”

 

The problem with what Ocasio-Cortez said: The $21 trillion figure refers to a cumulative amount of individual transactions — including some double- and triple-counting — not a single pot of money that was misspent.

 

One tip-off is the amount of Ocasio-Cortez’s “accounting errors” is far bigger than the actual Pentagon spending from 1998 to 2015, which was $8.5 trillion. In fact, it’s also far bigger than the amount the government has spent on national security since 1940 and, in all likelihood, in the nation’s history.

That was from Politifact. I’d like to say that closing the defense audit problem would solve gross misunderstandings like these, and promote accountability.

Perhaps that’s true in terms of public opinion. Gives us a warm and fuzzy, as though Enron had never happened. I’m not so sure that the audit, even if it were feasible given the scale and need for on-going operations, that it would actually do much good. It wouldn’t tell us whether there was graft. It wouldn’t tell us whether we got value for the dollars spent. We don’t know whether engineering change orders were valid.

Most of the accounting problems are in the contractor’s systems, which isn’t obvious from government transactions. And as intangibles rise, accounting data tells us less and less about real performance. 

I don’t think that the problem is that the DOD is double paying, or paying people who don’t work there anymore, as it was 30 years ago. I think the accounting problem is about data classification and accessibility.

But I think the baseline expectation is correct — it is a shame that the DOD cannot pass an audit, if for no other reason than to keep your house in order and good public perception. Ocasio-Cortez is an elected Congesswoman (taking office in Jan 2019), and apparently she believed there was $21 trillion just laying around, misallocated to a fat-cats over the years, or whatever it might be. $21 trillion is unfathomable. And yet this perception must not be uncommon for the general public.

I strongly believe that even if you removed all forms of corruptions at every level, you would not see much of an improved system of defense acquisition. That’s not where the money goes. You’ll get perhaps a small one-time jump in efficiency. The money goes to systematic rigidity stemming from a layering of decisions, among other complex institutional problems. If I believed the primary problem was corruption due to bad auditing, or some other incentive problem, I would not be writing this blog.