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SUBS: Dollars And Sense
by Joseph J. Buff, [IMAGE]2006

ARTICLE ORIGINALLY APPEARED AT MILITARY.COM, May 16, 2006

Photo Courtesy: Walter P. Noonan
[IMAGE] Heated debate has raged recently over the cost of the new, post-Cold War era, littoral optimized Virgina-class nuclear powered attack submarine. Parties to this vital national defense argument (just one among many such arguments currently) include the U.S. Navy, members of Congress, military contractors, plus various analysts, commentators, journalists, even bloggers. There now appears to be wide agreement that the price tag per Virginia needs to and can be driven down, from the current $2.5+ billion to a firm cap at $2.0 billion in constant dollars. Otherwise the future minimum requirement for an adequately numerous Submarine Force won’t be affordable, and thus won’t be met in the mid-2020s -- a critical time, for instance, in the rise of China’s power-projection naval strength.

But cost is not a meaningful decision criteria if viewed in isolation from benefits. Most discussions about the benefits of building our 21st-century sub fleet generally concentrate on a listing of the many essential roles for which long-endurance, super-stealthy nuclear subs are uniquely suitable as part of a larger network-centric team. These roles include certain types of conventional deterrence, Indications and Warnings, ISR (Intelligence, Surveillance and Reconnaissance), ASW (anti-submarine warfare, both littoral and deep water), commando insertion and extraction, land strike (e.g., Tactical Tomahawks, conventional-warhead Tridents), anti-shipping attack (e.g., Mark 48 Mod 7 littoral-capable torpedoes), Amphibious and Carrier Strike Group protection, Sea Base protection, counterterrorism and homeland defense, and the ever-relevant thermonuclear deterrent patrols.

Yet all of these “benefits” amount to purely military sea power tasks and functions that are hard enough to explain and justify to busy laymen as mere concepts, let alone put a hard dollar “payback” figure to in return for the all-too-simple, painfully visible number known as “cost.”

I would like to suggest another perspective on benefits, as a reality check, which anyone can relate to pretty quickly and easily, and which appears to be tough to argue against: saving lives. The ultimate goal of every branch of our Armed Forces, in peace and in war, is exactly that, if you think about it: to threaten to fight, or actually fight, and even sacrifice some lives, in order to save as many human lives as possible. These include American civilian and uniformed servicepeople lives, the lives of our allies -- and even “enemy” innocent civilian lives, through better war and post-war planning, better immediate target intelligence, and precision strikes that limit collateral damage as much as is practical amid the confusion and chaos of battle.

As a former actuary, I’m familiar with various methods for quantifying the value of a human life. (The issue comes up often in civil lawsuits over wrongful death.) An extreme example is the complex formula developed to compensate the families or estates of those killed at the Twin Towers on 9/11/01. Factors used to “price” each victim included their income level and age at death.

Another thing I learned while a practicing actuary is that a back-of-the-envelope calculation can often get you within 10% or 20% of the precise answer derived from a complicated (and expensive) computer model. So let’s keep it simple, and proceed to establish my main point here.

In very round numbers, suppose the “average” American adult across their whole career earns on average pay of $40,000 per year in constant dollars, works from age 20 through age 64, and the appropriate rate of interest to discount future payments to 2006 is exactly equal to wage inflation plus merit raises. On the one hand, some people killed because of geopolitical conflict not avoided will be much older than 20, but on the other hand some will be children instead, and many will be soldiers for which 20 isn’t a bad guess at typical age. We additionally need to include the value of pain and suffering for loved ones and friends of the dead –- again, a factor recognized by actuarial science and by the courts. Given the present uncertainty over tort reform, I’ll account for this factor by adding one-tenth to the figure of $40,000 x 45 years = $1.8 million.

The result of this crude but informative number-crunching gives the lump-sum value of an average American’s life at $2 million dollars. How many lives does each Virginia-class sub need to save, while in commission, to break even for our country on this fundamental cost/benefit basis? If the Virginia price tag hits the urgent goal of $2.0 billion dollars, that sub needs to save 1,000 lives, hopefully by deterrence, and if not then by interdiction, or lower-casualty warfighting. The useful life of a Virginia hull is expected to be 33 years. (The hulls wear out due to metal fatigue from the repeated stresses of diving deep and surfacing.) This means each of the Virginia-class subs needs to save, on average, 30 lives a year to pay for itself. Abstract? Perhaps. Intangible? Sure. Meaningful? Definitely.

In the dangerous, unpredictable world all around us now, it doesn’t sound like such a difficult performance goal to meet.

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