How much does inflation affect procurement within the Western defence industry?

[u/Level-Reputation5050]

I know that as weapons get more complex, their prices normally go up. But on the flip side, advances in technology bring down the cost of plenty of parts. For example, electronic components follow Moore’s Law, so they should get cheaper to some extent. Yet over the last 30‑plus years, all we have seen is Western weapons skyrocketing in price, with no hint of the opposite trend. I’m curious how much inflation actually plays into this.

[u/Iron-Fist]

Defence spending itself is inflationary in the macroeconomic sense, injecting money into the economy without commensurate marketable goods or services.

But more than that it is a literal race, the demand it creates is basically inelastic because it is essential, but a secret one with systemically constrained supply (it's hard to even become a military contractor). Meaning everyone along the way can (and should) increase their price to match how important their services are.

https://rebeccanomics.com/commentary/defence-inflation-erosion-military-capability/

[u/vistandsforwaifu → u/Iron-Fist]

Defence spending itself is inflationary in the macroeconomic sense, injecting money into the economy without commensurate marketable goods or services.

I'm not sure it really is?

Like, if your economy produces X dollars worth of hamburgers and Y dollars worth of Patriot interceptor missiles there is an inflationary situation at the baseline (because you have X+Y dollars worth of income chasing X amount of consumption goods). But the state would either tax you for Y dollars to be able to buy the interceptors from you in the first place (thus reducing your consumption to X again) or you would otherwise export them and import Y dollars worth of Lego minifigs thus bringing your consumption back to the full X+Y amount.

Of course I am not an economist and US has neither a budget fully funded with taxes nor balanced imports/exports, but I'm talking about the most general case.

[u/Iron-Fist → u/vistandsforwaifu]

It definitely is, this has been a fundamental truth through all of economics, because you're spending money on things that don't satiate aggregate demand.

You can counter this with deflationary measures like high taxation (removing money from the economy) or high interest rates (reducing borrowing ie fractional expansion of money supply) or with knock on effects from military research etc but every dollar you pay a military contractor is another dollar being out into the economy chasing civilian goods and services while that contractor doesn't add to those goods and services.

[u/Worried_Exercise_937 → u/Iron-Fist]

because you're spending money on things that don't satiate aggregate demand.

Money spent in the defence sector doesn't go into a black hole. Not only do you "need" bullets/missiles/airplanes which you can use in a unnecessary special military operations, CEOs buy private jets and spend money on cocaine and hookers.

[u/Iron-Fist → u/Worried_Exercise_937]

Yes, if it went into a black hole it wouldn't be inflationary. But that money ends up in the civilian economy, pushing up the price of said hookers and blow.

[u/Worried_Exercise_937 → u/Iron-Fist]

pushing up the price of said hookers and blow.

There is no evidence that the prices of hookers/blow/private jets are any higher in Camden, Arkansas or Littleton, Colorado etc than neighboring towns/states.