Building the Heart of the Military-Industrial Complex

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On this day in economic and financial history...

Construction of the Pentagon was completed on Jan. 15, 1943 in Arlington, Va. It had taken a year and a half to build, required millions of cubic yards of earth and nearly 700,000 tons of sand, and cost the federal government $83 million. Upon its dedication, the Pentagon became the largest office building in the world, a status it retains and which befits its role as the headquarters of the world's most powerful military force. More than 23,000 people work in the Pentagon in offices that take up 3.7 million square feet.

Ground was first broken at the Pentagon before the Pearl Harbor attack, but that attack spurred the construction process as America geared for war. Between the Pentagon's groundbreaking and its completion, the national defense budget soared from $6.4 billion to $66.7 billion. By the end of the war, defense outlays reached $83 billion, which would be just more than $1 trillion in real terms -- or a whopping 36% of the entire national GDP.

The Pentagon oversaw the greatest national wartime production effort in history. By the end of World War II, the United States had produced:

  • Nearly 300,000 aircraft.
  • More than 10 million rifles.
  • More than 100,000 tanks.
  • More than 700,000 trucks and other transports.
  • Nearly 80,000 seaborne landing craft.
  • 48 cruisers, 26 light cruisers 349 destroyers, 508 destroyer escorts, 203 submarines, and eight battleships.

Many of the contractors that lead American military production today were similarly positioned during World War II. Boeing (NYSE: BA  ) was the military's prime bomber supplier, manufacturing more than 16,600 B-17s and B-29s. Boeing later acquired several of World War II's other principal aircraft manufacturers, including North American Aviation (absorbed by Rockwell International) and Douglas (later McDonnell-Douglas). Lockheed Martin (NYSE: LMT  ) was responsible for building nearly 15,000 attack aircraft of both bomber and fighter types, and Northrop Grumman produced more than 20,000 carrier-based fighters. Ford (NYSE: F  ) and Chrysler manufactured thousands of tanks and tank engines apiece.

The Pentagon remains the focal point of the American military-industrial complex today. Four of the country's 25 largest domestic defense contractors -- Boeing, United Technologies (NYSE: UTX  ) , General Electric (NYSE: GE  ) , and Hewlett-Packard -- are current members of the Dow Jones Industrial Average (DJINDICES: ^DJI  ) . The country's 2012 defense budget, at $711 billion, is smaller than 1945's budget both in real terms and in terms of its proportion to GDP. However, because America has no present-day enemies as belligerent or powerful as the Axis powers or Japan, it's worth asking whether or not these tremendous outlays -- at nearly 5% of U.S. GDP -- are truly justifiable in light of persistently deep budget deficits.

Are you ready for some football?
The very first Super Bowl was played in Los Angeles on Jan. 15, 1967 between the Kansas City Chiefs and the Green Bay Packers. It was the first championship game held following the AFL-NFL merger the year before, and it started a tradition that is today among the most notable events on the American calendar. Both NBC and CBS (NYSE: CBS  ) broadcast the game, which the Packers won -- the only time two networks carried the game in Super Bowl history.

The most recent Super Bowl, numbered XLVII (or 47), will continue that tradition, with more than 100 million viewers expected to tune in. CBS broadcasts that contest thanks to its joint contract with the NFL, which costs CBS, NBC, and News Corp's Fox network a combined $3 billion a year. CBS has paid $1 billion for its share of the broadcasting rights, which in 2013 includes the Super Bowl broadcast, and has charged advertisers nearly $3.8 million for each 30-second ad spot. Those ads are frequently as big a draw as the game itself, which is unique to the Super Bowl on the American television landscape. Who will have the best commercial this year? We'll find out in a few weeks!

I'll look it up on Wikipedia
Wikipedia, the massively popular online information database, got its start on Jan. 15, 2001. I know this thanks to Wikipedia's article on itself. The site now has more than 24 million articles -- more than 4.1 million in English -- and receives nearly 3 billion monthly page views from more than 365 million readers around the world. Whatever your opinion might be on the site's accuracy or reliability, Wikipedia has undoubtedly had a huge impact on the spread of knowledge in the Internet age.

Now that's a pop
On Jan. 15, 1999, went public. It had priced shares at $17 each, but by the end of its first day, Marketwatch had risen to $97.50 for a first-day gain of 474%. This was the first super-pop of 1999, which turned out to be by far the best year in market history for institutional investors to ride small, speculative tech ventures to ridiculous gains. Marketwatch finished its first day valued at $1 billion. The company's 1998 revenue of $7 million (and no profit) gave it a price-to-sales ratio of 143.

Marketwatch was acquired by Dow Jones & Company, the steward of the eponymous index, for $530 million in 2005, and Dow Jones would be absorbed by News Corp in 2007. By this standard, it was a success story of the dot-com bubble; within two years, 20% of the class of 1999 had ceased trading on major exchanges, and half of the remainder had lost more than half of their first-day closing value.

With great opportunity comes great responsibility. For Boeing, which is a major player in a multitrillion-dollar market, the opportunity is massive. However, the company's execution problems and emerging competitors have investors wondering whether Boeing will live up to its shareholder responsibilities. In this premium research report, two of The Fool's best industrial-sector minds have collaborated to provide investors with the must-know info on Boeing. They'll update the report as key news hits, so be sure to claim a copy today by clicking here now.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 15, 2013, at 1:10 PM, OKJackGroup wrote:

    It would be interesting to see a two-column comparison of homeland security and national defense.

    When President Eisenhower spoke of the military-industrial complex in 1961, he was thinking of the constitutional cost of maintaining the already existing infrastructure necessary to the maintenance of an outer ring of national defense.

    What he didn't envision, of course, is the constitutional cost of maintaining the now existing infrastructure required for the maintenance of an inner ring of homeland security.

    By constitutional cost, we are referring to constitutional freedoms, rights & privileges v. statutory safety & security.

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