AUKUS

It's time to sink the subs

Boring accounting stuff

A note about dollars. All figures in this piece apply an inflation factor to costs- I treat the AUKUS deal as costing 200 billion dollars- somewhat over half of its projected 368 billion dollar cost- because much of that cost represents things getting more expensive due to inflation as time passes. Accounting of defence spending over time in Australia is typically out-turned- so if something is going to cost 50 million now and 50 million in five years, it will be costed as 100 million even though 50 million is worth more now than in five years. In my view, this is an extremely bad accounting practice because it introduces all kinds of misincentives- generally it’s better to spend money later rather than earlier so you can collect the interest on it (or avoid paying interest on it, if it’s borrowed). Out turning reverses this incentive for politicians and planners, it means you should aim to spend money now rather than later so it won’t look bigger due to inflation!

It’s worth noting that the 368-billion-dollar figure theoretically represents our projected expenses, plus a safety margin. However, based on the experience not just of Australia, but of all countries since time immemorial with major purchases of military equipment that don’t yet exist, I project the cost of the submarines will likely exceed 368 billion. Nevertheless, as an act of unwarranted generosity, we will treat the cost of AUKUS as 368 billion, or 200 billion in current dollars.

A sense of scale

How much money is 200 billion? A lot. For example, it’s about 6x the 2020 Israeli military budget- that is, enough to fund them at the 2020 level for 6 years.

If we use the 368-billion-dollar figure, Australia is spending $37,500 per household on the AUKUS deal, equivalent, in a sense, to everyone in the country taking out a mortgage for it. This isn’t quite fair though, as mentioned 368 billion represents the figure spent over the lifetime of the project including expectations of inflation. However, even when we factor in that the cost of AUKUS is substantially increased by inflation, it’s still likely around 20,000 dollars per household. If you’re Australian, you’re taking out a mortgage for these submarines. We’re not wildly enthusiastic about it either- only 49% of the country in 2025 thought it would make us safer, and two thirds of those surveyed wanted it reviewed.

https://australiainstitute.org.au/post/two-thirds-of-australians-want-a-review-of-aukus-while-less-than-half-think-it-will-make-us-safer-poll/

For all this, we will be getting ~3 Virginia class submarines and working on the development of a new submarine class with the US of which we will eventually get 5. That’s a total of 8 submarines. China has about 70, the United States has about 67. Is 200 billion for eight submarines good value for money? To examine this, we need to think about what else we could do with the money. In what follows, I’ll examine first non-military and then military alternate uses for 200 billion.

Alternative civilian applications

• According to one estimate, we could upgrade Australia’s energy grid to renewables for around 140 billion dollars.

• A hospital costs about a billion dollars a pop in Australia, so we could build about 200 of them.

• We could double the amount of research that is done at our universities for 14 years. We currently spend 14 billion dollars a year on university research- hence 14*14 billion=196 billion. To be clear, this includes not just government funded research, but all research that happens in our universities. Unlike AUKUS, this might well pay for itself. Studies of the impact of research funding generally find returns on investment of 2-5x, and Australia is no exception, with one study finding that research returns dividends at about a 3.32x rate.

• We could raise the rate of Newstart to the poverty line for, by my figures, about 8 billion dollars a year- so 25 years for AUKUS money.

• We could spend as much money researching fusion power as every single country in the world since the 1950s. Possibly twice as much. The United States, which has engaged in the lion’s share of expenditure on fusion power, has spent about 80 billion dollars (in real terms) on it since the 1950s. A 200-billion-dollar investment would be groundbreaking because fusion power is not so far from being viable. I strongly suspect with this big a research push we could make it happen- create commercially viable fusion power. This would, in turn, take us much of the way towards solving the climate crisis, and the cost of energy crisis. The world would never be the same.

• A reasonable estimate is that we can build a modular house on government land for 200,000. This suggests we could build 1 million new houses for AUKUS money. If we sell/rent these houses [hopefully at below market rate], the money recouped would partially cover the cost and could be used to build even more houses. However, at that point we’d probably want to spend the money on something else- the housing crisis would be solved! Perhaps 200,000 is generous when we consider factors like roads in and out. However, even if we spent 400,000 per house (more than enough!), we could build half a million houses and sell them at cost to those who would otherwise be excluded from the housing market, using the reinvested money to reach any practically relevant level of new housing build one might desire. Alternatively, if we were to rent them out at 5% of cost, inflation adjusted, we would gain a 10-billion-dollar income stream which is equivalent to the entire Housing Australia Future Fund every year.

• Using standard figures, it costs about 3000 to 5500 US dollars to save a life. When we are aiming for maximum cost-effectiveness, this is most often achieved through Malaria prevention but can happen in other ways. Call it about 6000 Australian dollars. Granted- at the scale we’re talking about it might be illegitimate to just extrapolate from the current figures- there would presumably be both diminishing returns and positive returns to scale- and which one matters more is hard to say. However, using our 6000 dollars figure, AUKUS money we could save 33 million lives, or far more than the population of Australia. About 600,000 people die per year of Malaria, for reference. I know this won’t be at all persuasive, probably even to most of my readers, but I think that’s very sad.

• The value of a statistical life in Australia is 5.87 million. That means that the government considers it worth saving a healthy (Australian) person with at least 40 years of life ahead of them if it can be done for less than 5.87 million. Theoretically that means the government is roughly indifferent between 34071 such people dying, and AUKUS. [Actually, this understates it somewhat, if it gets any consumer surplus at all from AUKUS it would prefer AUKUS even if it killed 34071 people.]

But isn’t this pacifist nonsense?

Ah but Philosophy Bear, we live in a dangerous world! What if China invades us? What if we are encircled and forced to leave our beloved US alliance. You can’t go spending the money on bread and roses when we need guns and bayonets!

Well, okay, let’s grant the point. I still wouldn’t go with AUKUS

We could have gotten 8 conventional, long-range submarines for a fraction of the cost. There are multiple options here and I won’t bore you with the details, but it is undeniably possible. South Korea's KSS-III Batch-II could be gotten for well under two billion. We could have gotten much cheaper than the French option as well. I won’t claim they’d be better per unit than the AUKUS subs, but sometimes value for money, and quantity, have more weight.

We could have also purchased 2000 F-35s at present dollar rates, or more likely a mix of F-35s and other planes, making us one of the world’s greatest airpowers. Of course, I’m being absurd, the operational costs would mean we’d have to go far lower than that. The lifecycle cost of an F-35 is about 500 million dollars, meaning we could only get *checks notes* 400 of them. [And 500 million is towards the upper end of the range of estimates]. We wouldn’t actually get 400 F-35s, of course, we’d get a more balanced basket of planes, combat and non-combat, as well as enabling infrastructure- radar, airstrips etc. But 400 F-35s- quintupling our current fighter jet capacity- gives you an idea of the scale of potential air force expenditure we’re talking about.

If I were in charge of Australia’s defence, I would say that Australia desperately needs to invest in drones. We could have a decent drone arsenal for a fraction of the cost of AUKUS. For example, Turkey’s Bayraktar TB2- battle tested in Ukraine- costs $5 million per unit. The loyal wingman drone unit, Australian made, is arguably a bit cost inflated but still only costs 40 million dollars per unit.

In fact, we could have a fleet of drones, 8 or so submarines plus a much stronger air force all for the cost of AUKUS.

Ahh, but you think, the realpolitik of this situation is that the United States demands a little do re mi for all the important work it’s doing to protect us from China. Fine. We could have 8 submarines, a fleet of drones, a qualitatively stronger air force and enough money left over for a 40-billion-dollar yank security bribe. Pay the Danegeld and you’ll never be rid of the Dane, sure enough, but hey, if we’re going to give a bribe, we might as well be honest about it and transfer the money efficiently.

Here’s a military counterproposal to AUKUS:

20 billion for a drone force

60 billion for a vastly stronger air force

40 billion for a bribe (and don’t worry, for the sake of nicety we can find some way to disguise and make it look proper)

And 80 billion [and that’s at the high end!] for any number of reasonably priced submarine acquisitions- aiming for about eight units.

Tail risk

What the costs we have discussed so far do not include is tail risk.

One form of tail risk is a cost blowout. It is not unusual for defence projects for the acquisition and creation of novel hardware to end up costing x2 what they were initially budgeted for, if not more. If this happens, we’re on the hook for hundreds of billions extra. Now I know that we can get desensitised to the word “billion” when talking about politics, but when we’re discussing Australia and multiples of 200 billion dollars we are not talking chump change!

Another form of tail risk comes from our rather agitated partners/masters in this endeavour. America, you may have noticed, is undergoing a political crisis at present. Any sense that there once was that national security decisions by prior administrations are sacrosanct is now dead. America’s word is worth very little- Trump broke a far more consequential agreement (the Iran nuclear control agreement) than this one essentially out of pique. Trump has already insisted on renegotiating AUKUS. So might the next administration, and the one after that. These renegotiations do not just mean monetary risk, they also may well involve sovereignty risk- e.g. hooks, lines and sinkers to ensure that we cannot do anything with the submarines without the Americans ticking off on it. Or perhaps we may be forced to integrate ourselves further into the alliance to get our subs- to act as servants to have our 368-billion-dollar bet pay off. Your navy won’t back us in the strait of Hormuz? Then why should we add to your Navy? You won’t help us with the 2034 second invasion of Iraq? No submarines for you!

Another form of tail risk is nuclear proliferation. If Australia gets nuclear submarines, it’s going to be that much harder to make the argument against Chinese allies getting nuclear submarines. If a bunch of countries get nuclear submarines the risk of these self-same countries getting nuclear weapons increases. If nuclear weapons are held by many countries, the risk of nuclear war increases. It is not fashionable these days to worry about nuclear war- nuclear war is very eighties. But it is a real and terrifying threat. If the contribution of Australia to world civilization was to end it that would make me sad.

One big tail risk in buying items that have a projected service life into the 2080’s is the possibility of obsolescence. There are reasons to think that surface navies are already going the way of the dodo- they are too easy to spot and destroy with missiles, airpower and/or drones. This is, in all frankness, why the world is currently obsessed with submarines. Yet it seems likely to me that as sensor technologies improve further, this will extend to submarines. Alternatively (and this is hardly a tail risk in my estimation- I expect it to be the case), the future of undersea warfare might be hordes of cheap underwater drones. They may be ten-thousandth the cost yet fully capable of hunting an AUKUS sub. I’m not the first to worry about submarine obsolescence- John Quiggin has been banging the table on the topic for ages and so have many specialists: https://theconversation.com/progress-in-detection-tech-could-render-submarines-useless-by-the-2050s-what-does-it-mean-for-the-aukus-pact-201187

Yet another form of tail risk comes from us poking the bear (or dragon, as it were). Even if we must participate in this new cold war with China, the current route seems among the most unnecessarily provocative. China is our biggest trading partner! At the most extreme end, we make our nuclear submarine infrastructure in Western Australia a target during a conventional or nuclear war. Buying something that is so clearly meant only to allow us to project power in the China sea seems a mistake.

Conclusions

The real issue, I think, is this. Either you think Australia should adopt a neutral defence posture, or you think that Australia should be in the tank with the yanks. On either branch, there are strong arguments against AUKUS. I am absolutely against being in the tank with the yanks, but even if that is what we must do I cannot for the life of me comprehend why it should be through AUKUS.

If you think Australia should have a neutral defence posture, it follows that AUKUS is ludicrous at its face. On the other hand, if you think that Australia should be in the tank with the yanks, why buy these submarines? Sure, they have the range to reach Shanghai, but if we really have to help America project power against China (I wouldn’t recommend it!) there are much cheaper ways to do it. And beyond China, if we really want to be a good little lackey to the US, there are much cheaper ways to assist them in whatever half-cocked foreign adventure they’ve selected for themselves this time than getting 8 submarines. Frankly scores of additional combat aircraft would be just as helpful for far less.

For one thing, there’s a high risk that the key confrontations might have already occurred before we even get the damn things. If they don’t come till 2050 then it might all already be over by then. Indeed, as someone who wants to avoid war, I think this is perhaps the sole good argument for AUKUS- it will take so long to come it will reduce our capacity to get involved in any upcoming conflicts. If we want to intervene (and I am not saying you should!) We should be buying F-35s, plane mounted anti-ship missiles, and much cheaper subs. The great thing about being a minor power is that when you’re going to the major power’s fight, you can hop on his truck (or aircraft carrier). There’s no point- either for yourself or for the greater power’s sake- in trying to create a miniature version of the greater power’s power projection capabilities. And if your relationship with that greater power collapses, or the greater power itself collapses? Well, it will be a good thing you focused on assets that can be used defensively, rather than power projection.

So, I do not understand why we are buying these fucking submarines. I do not think this is a case of a vast and competent but evil apparatus looking at the situation and coming to a different conclusion than me because they have wicked goals in mind. I believe this has happened because Morrison is and was an idiot and was poorly advised as well. I believe this is a stupid choice that is unnecessarily destructive and will cost countless lives through (at least) opportunity cost. It is an “irrationality” and not in the sense of an inhuman outcome arising from the nevertheless, ‘rational’ workings of an alien system- it is an irrationality in the sense that it is an all-round stupid choice from basically everyone’s point of view.

I do not believe that the security establishment in Australia- outside parts of the Navy and the submarine agencies- supports this in their heart of hearts. I would challenge any retired officer, public intellectual, whistleblower or anyone else with leverage to have the courage necessary to urge Australia cast off this millstone round our neck

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