Reddit recently had an interesting debate with someone who states he was a Contracting Officer in the US Air Force for several years, and was able to shed some inside light on US military waste.

We learn that things like $10,000 hammers are generally miscommunications. An invoice might contain maintenance work worth $10,000 and supplies worth $10, and the line items get swapped around; or the wrong product code is entered.

That being said, there's still substantial waste. It happens as follows:
  • For many types of purchases, the military is required to look for a handicapped, veteran-owned, female-owned, minority-owned, or small business to buy from, before even considering e.g. Walmart. These types of businesses then buy the items themselves and resell to the military at a markup. This is effectively a subsidy program for business owned by veterans, minorities, and women.
  • There are programs like NASA SEWP that buy products large-scale from contractors that buy from other contractors that belong to the favored minority groups. Each contractor in the chain passes on the products at a markup, resulting in a final price paid by the government that can be 50% over retail.
  • The military employs use it or lose it budgeting, where the budget of each unit is decreased the next year if they did not spend the entire budget the previous year. But expenditures of most units are not the same year after year, and units want to have money available for years when there are emergencies, such as in this Washington State Forest Service example. Therefore, units start their annual financial cycle very tightly to conserve in case there will be an emergency. But as the year comes to an end, they end up with a budget surplus, and now they have to spend it, so that next year, they won't receive less. Units that still have money at the end of the financial year have it taken away, and have to fight to get it back, such as in this Blackhawk fuel example. Most units therefore spend their surplus budgets on items ranging from training, to unnecessary flat screen TVs, to expensive office furniture. This mostly doesn't get reported because the orders come in with full documentation claiming they are bona fide needs that just so happen to come up at the end of the budget cycle.
  • The military employs a large amount of old technology where replacement parts are only still available from a handful of suppliers. These suppliers gouge their prices as high as they can without making it worth for the government to file a lawsuit.
All in all, it looks like there are three major sources of US military waste:
  1. "Use it or lose it" budgeting.
  2. Substantial markups due to having to purchase from favored types of businesses.
  3. Vendor lock-ins for old technology.
If each of these issues were addressed, the US military budget could be cut by possibly as much as 50% without losing effectiveness. The money currently spent on minority business subsidies would likely be much better spent on direct social security. The losses from "use it or lose it" budgeting could be eliminated through a smarter budgeting system that doesn't penalize responsible spending.

Similar lessons could likely also be applied to other government branches, resulting in large overall savings without decreasing the quality and quantity of government services.