USS Zumwalt destoryer underway in the winter Photo: Dave Cleaveland/MaineImaging.com
by John Konrad (gCaptain) Near the start of his term, Secretary of Transportation Pete Buttigieg was appropriated $7.5 billion to install hundreds of EV charging stations around the nation. To date, he’s built only eight. This may sound like a rounding error compared to the $1.2 trillion he was given to rebuild failing infrastructure. It is not. $7.5 billion is an enormous amount of money. Or is it?
Shares of Intel toppled over 20 percent yesterday in the company’s worst day in fifty years. The reasons are many, but incredible considering in August 2022, the CHIPS Act appropriated over $50 billion to support the U.S. semiconductor industry.
It’s not just the amount of money spent on failing projects; it’s the speed at which checks are written. Last year, a bailout of Silicon Valley Bank and Freedom Bank cost roughly $22 billion. The former was pushed through the White House in just a matter of days.
Also Read: US Navy Shipbuilding Is Failing Because Admirals Avoid Wall Street
We have come to accept this flagrant spending, but the Navy still faces enormous pressure to cut spending. It’s been under this pressure for decades. Roughly ten years ago Navy was flogged by the media and Congress when costs of its new stealth destroyer project, the USS Zumwalt, exceeded $7 billion. The program was scrapped after only three ships, and the development of its advanced gun system was mothballed entirely. But today, we don’t blink an eye at Buttigieg building only eight charging stations? How does this make sense?
Let’s look at how many Zumwalt class destroyers (assuming $8B each) or Ford class nuclear aircraft carriers (assuming $16B each) could have been built with the money spent on four major bills. (Note that this ignores the fact that per-ship costs are inversely correlated with the number ordered.)
Bipartisan Infrastructure Law – $1.2T – 150 Zumwalts or 75 Fords
Inflation Reduction Act – $145B – 18 Zumwalts or 9 Fords
Chips Act – $54B – 6 Zumwalts or 3 Fords
American Rescue Plan – $45B – 5 Zumwalts or 2 Fords
Total: 179 Zumwalts or 89 Fords
Modern Monetary Theory (MMT) posits that governments that issue their own currencies can never run out of money in the same way businesses or individuals can. This theory suggests that such governments can and should spend as needed to achieve full employment and other social goals, and that deficits are not inherently problematic. MMT proponents argue that the real limit to government spending is inflation, not the deficit itself.
Under the Biden-Harris administration, MMT principles seem to be in full swing. Massive spending bills, such as the infrastructure bill and the CHIPS Act, are indicative of a government unrestrained by traditional concerns over deficits. The speed and scale of spending have reached unprecedented levels, with funds being allocated and spent in a manner that prioritizes immediate economic stimulation over long-term fiscal prudence.
The problem is the Navy is being left out.
In stark contrast, the Navy’s shipbuilding programs remain shackled to traditional budgeting and financial scrutiny. The USS Zumwalt program is a prime example. Initially conceived as a fleet of 32 stealth destroyers, the program was scaled back to just three ships due to cost overruns and technical challenges. The development of its advanced gun system, which promised revolutionary capabilities, was also abandoned.
Taxpayers were told building these ships was too expensive. That might be true but a destroyer has a lot more value than the eight EV charging stations Secretary Buttigieg has so far built with $7.5B.
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The Navy’s budgeting process involves rigorous cost analysis, oversight, and accountability measures that often delay projects and escalate costs. Fixed-price contracts, designed to control costs, become problematic when inflation rises, as seen in recent years. The Navy’s approach reflects a bygone era of fiscal conservatism, starkly at odds with the rapid, inflationary spending seen in other government sectors under the current administration.
One of the unintended consequences of the MMT-driven spending spree is inflation. When the government injects vast sums of money into the economy, demand outpaces supply, driving up prices. For the Navy, this means that fixed-price contracts, which are supposed to cap costs, become untenable. Contractors face higher costs for materials and labor, leading to delays, disputes, and ultimately, higher prices for taxpayers.
The Navy’s shipbuilding woes are exacerbated by this inflationary environment. Programs are delayed, capabilities are compromised, and strategic goals are jeopardized. While the civilian side of the government seems to print money with abandon, the Navy is left struggling to keep up, constrained by fiscal policies that no longer align with the broader economic landscape.
The US Navy must fight the narrative that $16 billion for one aircraft carrier is expensive. The fact is it’s smaller than the amount spent bailing out two small banks.
The most infuriating thing, however, is the Navy doesn’t understand the truly seismic shift in spending. Hundreds of billions are being spent on EV research and development and manufacturing. In the event of war, these technologies and the expansion of auto manufacturing will benefit the US Army. Not so much for the Navy.
Increasing defense spending is unpopular, but there are trillions of dollars of “new” money floating around, yet defense analysts don’t see it. The Navy and Air Force could be pushing for the Department of Energy to spend EV research money equally on electric planes and ships. They could be pushing the Department of Transportation to spend a sizable portion of the $1.2 trillion infrastructure money on areas surrounding shipyards and ports. They could be calling for Congress to match the CHIPS Act with a SHIPS Act for the US Maritime Administration.
Also read: US Maritime Crisis: Uncovering The Ghost Admiral Steering The US Government’s Most Secretive Agency
And it’s not just public money. These acts could help underwrite banks looking to shift capital investments from Chinese to American shipyards.
There are countless ways the Navy could be tapping into this tidal wave of new spending. Unfortunately, they do not.
This is important not just because we need warships (not to mention a strong Merchant Marine and logistical sealift ships) but because MMT is only possible if the United States maintains its Reserve Currency Status (RCS).
What MMT advocates fail to recognize is that the biggest component of RCS is liquidity. Investing billions in real estate is nice, but liquidity—massive amounts of money changing hands every single day—comes from global trade, and over ninety percent of trade is via water. Without free and open navigation around the world, the dollar loses liquidity, and that is the Achilles’ heel of RCS.
Even delays in goods, such as rerouting Red Sea ship traffic around Africa, impact the churn rate of the US dollar.
The dichotomy between MMT-driven civilian spending and the Navy’s fiscally conservative shipbuilding policies highlights a growing imbalance in government priorities. As inflation continues to rise, the Navy’s ability to maintain and expand its fleet is increasingly threatened. It is time for policymakers to reconcile these opposing approaches to government spending, ensuring that national defense does not become a casualty of economic experimentation.
Modern Monetary Theory may offer a new paradigm for economic policy, but it should not leave our Navy stranded. Balancing bold economic initiatives with pragmatic defense spending is essential for maintaining both economic stability and national security.
The US Navy, along with the conservative politicians who support it, have two options: reduce government spending significantly to curb inflation and lower shipbuilding costs, or give up and focus entirely on utilizing the influx of money provided by MMT. If Conservatives select the first option they must have the power to execute.
Republicans calling for an end to Modern Monetary Theory while simultaneously cutting Navy budgets without the means to actually end MMT are irrational. Cutting conservative priorities, like a strong Navy, without the power to rein in Democratic spending is akin to owning a Major League baseball team and slashing budgets while advocating for a tight salary cap. You will lose every single year until that cap is enacted.
Politics and war are never fair. You must play the cards you’re dealt, and right now, Modern Monetary Theory is a royal flush.
Wall Street only has one option if it wants to maintain Reserve Currency Status. Secure shipping choke points by funding a strong and distributed US Navy.
US Navy Shipbuilding Is Failing Because Admirals Avoid Wall Street
US Navy Shipbuilding Has A BIG Badger Problem
US Maritime Crisis: Uncovering The Ghost Admiral Steering The US Government’s Most Secretive Agency
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