By Peter Ward December 9, 2016
Pentagon Buries Bad Budgeting Report
The Pentagon buried a report suggesting it could save $125 billion by eliminating administrative inefficiencies, according to an investigative story published by the Washington Post this week.
The study was produced last year by the Defense Business Board, an advisory panel of corporate executives and McKinsey & Company consultants. The report found that the Defense Department could save $125 billion over the next five years, by making back-office bureaucracy more efficient.
But the study uncovered more waste than the Pentagon expected, and senior officials feared the Congress would use the findings to slash the defense budget. Reporters Craig Whitlock and Bob Woodward used interviews and confidential memos to reveal that the Pentagon had moved quickly to silence and discredit the research.
According to the findings, the Department of Defense was spending almost a quarter of its $580 billion annual budget on overhead and core business operations such as human resources, logistics, property management and accounting. The study also found that the back-office bureaucracy of the Pentagon employed over 1 million people, including 298,000 military personnel and 268,000 contractors.
“They’re all complaining that they don’t have any money. We proposed a way to save a ton of money,” said Robert “Bobby” L. Stein, a private-equity investor from Jacksonville, Fla., who served as chairman of the Defense Business Board, told the Washington Post.
Obamacare Repeal Broken Down
How easy would it be to repeal Obamacare? An interactive feature in The New York Times offers a simple breakdown of what would be an extremely complex process.
Some parts of the law would be easier to repeal than others, but the whole system works together so removing only individual parts could destabilize the entire healthcare industry.
Five parts of the law would be especially hard to roll back as they’d require Republicans to have 60 votes in the Senate, where they only have 51. These include the laws about pre-existing conditions and staying on parent’s policies until 26, which president-elect Trump has said he wants to keep anyway.
Trump can repeal two parts of the law with minimal fuss: contraception coverage and cost-sharing subsidies. Five other parts of the law can be dismantled easily because Republicans have the necessary number of votes in the Senate. These include Medicaid expansion, individual mandate to buy insurance, and premium subsidies.
But experts believe that if premium subsidies and the individual mandate were removed, the health insurance industry would struggle to operate with the parts they would keep, such as coverage of pre-existing conditions.
The industry relies on premiums paid by younger, healthier people to compensate for the older sicker people who make more claims. If the premium subsidies and individual mandates are removed, fewer younger and healthier people will buy insurance.
Disciplining Google’s Dream Machine
At what point does a wildly successful company with $76 billion in annual revenue have to worry about financial discipline? That’s the question asked by Max Chafkin and Mark Bergen in Businessweek this week, which examines the cost cutting exercises underway at Google.
Google’s parent company Alphabet makes an enormous amount of money from its core business, online advertising, but also spends a lot on ‘moonshot’ projects, which are run out of its Google X division. In 2015, the company lost a staggering $3.6 billion on non-Google projects, such as self-driving cars and robotics.
The person tasked with minimizing losses in the more ambitious projects (known disparagingly as “Other Bets” among Google employees) is Ruth Porat, the company’s new chief financial officer, former CFO of Morgan Stanley.
“She joined Google in May 2015 with a mandate to bring discipline and focus to a company so awash in cash that it never needed much of either. She instituted rigorous budgeting and, according to people familiar with Alphabet’s operations, forced the Other Bets to begin paying for the shared Google services they used. Projects hatched with ambiguous timelines of 10 or more years in some cases had to show a path to profit in half the time,” reporters Mark Bergen and Max Chafkin write.
The response from investors has been encouraging – Alphabet stock is up 35% since Porat was appointed.
Porat’s appointment and cuts have been met with mixed reactions within the company, however, which is still trying to strike a balance between innovating world changing technology and running a profitable business.
German Companies Pull Breitbart Ads
Major German companies are pulling advertising from right wing news site Breitbart, after the publisher announced it was expanding to Europe before elections next year.
The boycott follows a social media campaign named KeinGeldFurRechts, or No Money for the Right. Duetsche Telekom and the restaurant chain Vapiano have also said they will take steps to ensure they don’t advertise on the site. Because some advertising is placed on websites by automated systems run by media buyers, individual companies may not have struck deals with Breitbart directly.
Breitbart was seen a rallying point for so-called alt-right supporters of Donald Trump during the Presidential election. It has a far-right editorial stance and has given a platform to white supremacists. The company has said it is interviewing reporters for new news services it plans to launch in Germany and France, where right wing politicians will attempt to make major gains in elections next year.
In the U.S., Kellogg Co. has also decided to pull advertising from the site, a decision which led Breitbart to call on its readers to boycott Kellogg products. Shares of Kellogg initially fell after a #DumpKellogs trend emerged on Twitter, but have since recovered.
The Week’s Top Headlines
Trump feuds with Indiana union chief – Louis Nelson, Politico
Lululemon Q3 sales impress, shares up 17% – Mike Snider, USA Today
Sears reports wider third-quarter loss, as sales continue to suffer – Krystina Gustafson, CNBC
EU takes legal action against Germany, UK over Volkswagen scandal – Alissa de Carbonnel, Reuters
Woman on New Canada $10 Bill Fought Racism Before Rosa Parks – Greg Quinn, Bloomberg
MGM’s $1.4 billion casino is a cruise ship to nowhere – Phillip Kennicott, Washington Post
Entergy Plans to Close Michigan Nuclear Plant in 2018 – Tess Stynes, Wall Street Journal
Ikea Group plans €1bn investment in recycling companies and forests – Sarah Butler, The Guardian
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