Ron Paul: Crony defense budget hands SpaceX a monopoly - why?

Elon Musk takes to twitter to reveal the Model 3 (Reuters)

Behind the high-minded rhetoric surrounding many government programs, there often (or even usually) lies some grant of special privilege to a powerful business interest. The most well-known example, of course, is ObamaCare’s individual mandate creating a guaranteed market for insurance companies. However, the most common hiding place for corporate welfare is the Pentagon. Hawkish politicians love sticking gifts to big corporations in the yearly National Defense Authorization Act (NDAA). So it is no surprise to find an example of cronyism in the Fiscal Year 2018 NDAA, which the Senate is expected to vote on this week.

Specifically, Section 1615 of this year’s NDAA expressly forbids the Air Force from developing new launch vehicles by restricting expenditures to the development of new engines or the modification of existing systems. This prohibition is supposedly designed to address the “Russian threat” -- a threat manufactured by those seeking a new Cold War. In addition to flaming anti-Russian hysteria, this provision makes the company SpaceX the only affordable option for launch services.

For obvious political reasons, Washington wants to phase out the use of Russian-manufactured RD-180 rocket engines. However, as former Air Force Secretary Deborah Lee James made clear, the Department of Defense "would strongly prefer to not have to pay for the development of an RD-180 engine replacement that would benefit only one launch service provider."

The union between politicians seeking to grow the welfare-warfare state and businesses seeking special favors from government solidifies the forces of big government’s control of Capitol Hill.

Allowing SpaceX to obtain a monopoly over launch services harms taxpayers much more than forbidding the Pentagon from purchasing Russian products harms Vladimir Putin. If this provision becomes law, SpaceX will be able to charge the government more than they could in even a quasi-competitive market. This monopoly will also stifle innovation in rocket launching technology.

Despite the numerous public statements by SpaceX CEO Elon Musk decrying crony capitalism, SpaceX would not exist without government contracts and subsidies. According to The Wall Street Journal, government contracts account for about 70 percent of SpaceX’s contracts. U.S. taxpayers have provided SpaceX more than $5.5 billion in the form of Air Force and NASA contracts.

SpaceX’s reliance on government subsidies lead it to behave in ways that distort the political and policy process. Companies like SpaceX have an incentive to invest in lobbyists and campaign contributions to keep the government money flowing. These companies shower their largess on powerful politicians whose political or ideological agenda dovetails with the companies’ demand for taxpayer subsidies.

The union between politicians seeking to grow the welfare-warfare state and businesses seeking special favors from government solidifies the forces of big government’s control of Capitol Hill.

A perfect example of how this system works against the taxpayer is the relationship between SpaceX and Senate Armed Services Committee Chairman John McCain, R-Ariz. Elon Musk is a generous donor to both Senator McCain’s campaigns and the McCain Institute, while Senator McCain has in the past been a lead sponsor of provisions that would give SpaceX a monopoly on launch services.

I do not mean to suggest that Senator McCain is helping start a new Cold War to receive donations from SpaceX. Anyone who knows John McCain knows he does not need financial incentives to promote a belligerent foreign policy. Rather, SpaceX supports John McCain because his policy preferences coincide with their business interests.

I rarely agree with Pentagon officials, and it is rare that I am on the same side of questions involving military spending as President Trump. However, the president and the Pentagon brass are correct in that this protectionist provision should be removed from the NDAA. It poisons relations between the U.S. and Russia to benefit one company. Killing this piece of cronyism would be a great way to start draining the swamp.