Fixed and variable costs

Fixed and variable costs are concepts that every economist knows very well, and over time I found them to be extremely useful tools for thinking about many things.

It goes like this:
You buy a machine that costs 1 Million €. Now you produce items that cost 1 € each to make.
Let's assume you buy that machine and produce exactly one item, then you forget about the machine. Your total costs of producing that one item was 1,000,001 €. 1 Million € fixed costs and 1 € variable costs.
Let's now assume you did not stop producing after one item; you produce a million items instead. Your total costs was 2,000,000 €. 1 million € fixed costs and 1 million € variable costs. The costs were thus two € per piece; 1 € fixed costs and 1 € variable costs per item.
The variable costs depend on the quantity, while the fixed costs are what costs you have to be able to produce any quantity at all.*

Fixed costs are often sunk costs, too; they incur anyway, regardless of whether you produce anything. A factory may consider the costs of the building as fixed costs in its production, but the building was probably built last year regardless of whether you continue to produce in it or not. Sunk costs should never influence decision-making, period.

These actually very simple concepts are very powerful mental tools. I've observed people having very confused thoughts about issues where resources allocation was of great importance. They lacked the economist's tools to make sense. Economic decisions driven by 'feelings' alone are all-too often poor decisions.

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The fixed costs issue is pervading almost everything. Development costs and start of production costs are fixed, per copy costs are variable costs of a hardware program, for example.

One can also use the concept and transfer it. An interesting example in the military realm is about warships:

A warship needs a minimal crew for navigating and keeping it running. That's the fixed effort required for running a ship, regardless of what it's being used for.

The employment as a warship (excluding quite incapable patrol vessels) requires additional fixed effort, regardless of what specifically it's supposed to do: Extra communications gear, at least a multifunction radar, ESM, ECM, shock proofing, silencing, command centre, at least short range air defences, at least a 57 mm gun, at least basic anti-submarine hardware, propulsion power for higher speeds  - and the crew to make use of all this in at least a two-watch system.

HNLMS Tromp, a classic SARH missiles-armed AAW frigate
with obvious special AAW equipment ((c)Quistnix)
Why is this important? Let me show a hypothetical calculation:

Let's say the necessary basic equipment costs 100 coins.
The equipment needed to improve the ship to a dedicated air defence ship costs 50 units.
The equipment needed to improve the ship to a dedicated anti-submarine ship costs 50 units as well.

There are people arguing in favour of specialised ships. Let's look at that:

1 AAW ship costing 150 coins.
1 ASW ship costing 150 coins.
Meanwhile, one could have 1 general purpose (GP, AAW and ASW combined) ship for 200 coins with the same effectiveness in one package.** That's 1/3 less purchasing costs and even greater operating costs savings.

Now one could say all eggs in one basket is no good idea.

Well, let's look at a fleet of baskets to check this out:
We afford 10 AAW ships + 10 ASW ships OR 15 GP ships (purchasing costs each 3,000 coins).
The GP ships are 50% more capable. What do we have after 4 ships were lost in combat?

6 AAW + 10 ASW or 10 AAW + 6 ASW as extremely unfortunate scenarios, or evenly distributed attrition with 8 AAW + 8 ASW left. Meanwhile, the GP fleet is down from 15 to 11.
The GP fleet is still at least 37.5% more capable!

Let's say there are catastrophic losses; 10 ships sunk.
5 AAW + 5 ASW left. As are 5 GP ships. This is break even; GP ships and specialised ships have equal capability - but this requires 67.7% losses among the GP units! Instead, 10 ASW or 10 AAW ships could have been sunk, eliminating the ASW or AAW capability of the fleet. So why not think about the specialised approach as having the eggs in too many baskets?

"All eggs in one basket" was an irrational fear regarding GP warships in this hypothetical example. Feelings are a poor guide in resource allocation decisions.

HNLMS Kortenaer, a contemporary ASW frigate of the same navy
I write about this warship example because a warship is awfully expensive even if it has only basic equipment for self-defence against aerial threats including modern missiles, basic gun armament, mine avoidance sonar, SatCom, ESM (radar warning receivers, passive radio direction finders), seaworthiness, good endurance, crew quarters, redundant propulsion for well over 20 kts, helipad with related equipment, shock hardening, fire protection, boats and equipment for their recovery and so on. The huge basic ('fixed') cost leads to rather useless corvettes (which cannot afford much more than self defence***) and supports the case for GP warships over ASW or AAW warships.

The correct choice between specialised warships and general purpose warships isn't about personal preferences, or necessarily much about tactics. The correct decision-making method has to be dominated by the question how much of the costs is fixed for a basic, non-specialised and largely incapable warship capable of self-defence only. A resource allocation question should be answered with help of the appropriate economic tools.

Furthermore, the smaller the "extra" costs for either AAW or ASW capability become, the more likely is a GP ship the correct choice.****


(Some readers may have noticed that I deviated from the purely economic idea of fixed and variable costs, and transferred the concept to a different application. The analogy of "base+specialisation costs" is based on largely the same idea as the fixed+variable costs. The transfer of ideas to analogies is often useful - physics for example uses almost identical formula to describe a plethora of different waves. That's a tertiary point of the blog post; once you become educated with certain tools, you can be expected to make use of them, even transfer them to other areas.)

*: Not a textbook-grade definition.
**: Assuming no need for a larger hull and what higher order costs that causes. This simplifies the text. The moral of the story doesn't change if you assume 220 instead of 200 coins.
***: Hence they don't approach frigates in capability in anything but ship-to-ship missiles. Those can also be had even even much smaller (approx 1/10th the displacement of corvettes) fast attack craft. Corvettes are never high quality ASW or AAW ships. Corvettes are little but targets in a high end war.
****: This is why I wrote in the warship series in favour of GP warships (if warships at all). AAW better include AEW, and once you include (survivable) AEW you can largely do away with the expensive giant ship radars. The rise of surface to air missiles that need no illuminator radars eliminated their costs from the 'AAW extra expenses' list. An ASW ship can be an AAW ship simply by adding a console and a little more than a dozen VLS cells (which can even be retrofitted on superstructures!). The extra expenses for AAW capability (area air defence) have become tiny, so (near) future warships (escorts) should be GP warships.


"6th generation" fighters

The Brits and the French have shown their mockups for 6th gen fighters.

I never understood why the Americans didn't use a delta wing without any separate tail fins (fully tailless). It's the bare bones configuration, without any stabilisers that function as reflectors.
Nor did I understand why the F-35 was built as a single engine aircraft (though is suspect it's one of the drawbacks caused by the STOVL version). Two engine aircraft have multiple advantages, including the ability to control roll with thrust vectoring. The F-35 was never realistically going into the low (cost) end, a niche that's now reserved for the Gripen (NG) in the West.

I myself think a completely tailless design is the obvious choice from an aerodynamic and radar stealth point of view. Two engines and a limitation to an exportable size and price (rather a F/A-18E/F equivalent than a F-22 equivalent) seem obvious things to go for as well.

The really important things that I expect in "6th gen" combat aircraft are different, though:

(1) DIRCM, likely in dorsal and ventral position and likely retractable. 
Directional infrared countermeasures (lasers) that dazzle the IR sensors of incoming short and medium range missiles are very effective given enough output power and accuracy and could ruin IR-guided missiles' probability of hit. Radar-guided missiles can be messed with by many means, but smart IR-guided missiles are very difficult to defeat, as they reject decoys quite well and can even re-engage after missing.
The upper (dorsal) DIRCM 'turret' may also serve as satellite communication emitter, and both DIRCM turrets may serve as laser communication emitters for datalinks between friendly aircraft. The DIRCM may even be used as first choice IFF (identification friend or foe) interrogator (with normal radio interrogation as backup if there's no positive reply).
The lower (ventral) DIRCM 'turret' might be used to sweep the ground in search of skyward-looking optics (detecting them by characteristic reflections), which might make sense if the approximate origin of hostile surface-to-air missiles is known. The ventral DIRCM might also double as laser target designator. Overall, compact DIRCM in (strike) fighters may be one of the two new big things in air warfare.

The Russian 101KS-O DIRCM ...
... and points of installation (behind & below cockpit).

(2) Rear-looking smartly devised AESA radar
'Stealth' aircraft, ground-based standoff jammers, long range SAMs and long-range air-to-air missiles make the life of AEW&C aircraft such as the famous AWACS miserable and short in wartime. Our combat aircraft would not be able to lean much on AEW support, and certainly not when over hostile ground. 
Fighters should thus better have a good all-round situational awareness without AEW support. Passive sensors such as DAS are limited in effective range due to their resolution, and datalinking to enable multiple aircraft to join their radar data is very imperfect. You'd still need to have some allied fighter to look to the rear, and that quite impractical much of the time, particularly on strike missions over hostile ground.

The simple technical answer is to have 360° radar field of view with onboard radars. This sounds extremely expensive because high performance AESA radars such as APG-77 have only a field of view of about 110...120° because the antenna is fixed. That's too primitive. An angled AESA antenna (say, angled by 40°) that can be rotated 360° can turn a 100° field of view AESA antenna into a 40°+100°+40°=180° field of view AESA antenna (just not all 180° in a fraction of a second).* It's also possible to combine typical 1980's mechanical antenna steering with active electronic steering as for the European CAPTOR-E radar antenna. The latter approach fits better to non-rotation-symmetric radomes and antennas (those with far from circular shape)

Such a hemispherical field of view is half of a spherical field of view, so you can achieve the latter by adding a second (tail) radar. That's why having two engines (thus having space for an antenna radome behind and in between the nozzles) makes even more sense than we're used to.

Such a pair of radars with lots of quite automated modes (including jamming in their frequency ranges) would address many tactical challenges. The rear radar wouldn't even need to be as big as the front antenna; a quarter of the antenna modules (and thus sectional area) yields about a third of the range. That should be enough for most purposes.

Such 360° RF coverage could double as quite directional RF datalink emitters and receivers. It could also detect incoming low signature missiles in time for ECM or DIRCM efforts.

An important purpose of a rear radar would be the tracking of already detected aircraft (which requires somewhat less power than detecting). The rear radar could on its own track a target that a missile has been launched at, upload target info updates to the missile - all while the fighter itself is running away at supersonic speed.

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The disconcerting thing is that the Russians thought of ventral and dorsal DIRCM in their Su-57, and were pioneers regarding modern (strike) fighters with tail radar in the Su-34/-35 series. The Su-57 features a tail radar as well.

Another disconcerting thing is that the Franco-German concept for a new fighter shows off neither DIRCM nor a tail radar in its admittedly very basic published model:

Avionics have been huge drivers of combat capabilities in modern combat aircraft, and also huge drivers of their price.** I suppose it's important to reserve the volume, power supply capacity, cooling (or heat sink) capacity and surfaces for key avionics in future combat aircraft. An aircraft without such reserves could be uncompetitive by the time it becomes operational, quite as non-'stealth' aircraft cannot really be upgraded into 'stealth' aircraft.

Though there is one thing to remember; no matter how sophisticated fighter avionics become, such fighters will be irrelevant against small near-ground drones. A post-2025 high end "air war" might be de facto split into a mixed on-ground and near-ground drone war, conventional air war, ballistic missiles (defence) and and space war. We shouldn't focus resources on the conventional air war domain that we got used to.


*: This is an analogy to the smart use of rotating AESA antennas on modern warships. Some warships use a single AESA antenna or a two-sided rotating AESA antenna high up instead of using much bigger, heavier, larger and more expensive fixed AESA antennas. That's more economical and due to the higher vantage point it even pushes the radio horizon farther out despite lesser power.
**: Turbofans are obscenely expensive as well.


NATO's boundaries

I suppose all readers have noticed that some (U.S.) Americans complain about NATO not being of use, just a drag.
Well, much of the costs of the U.S. military in Europe actually stem from either learning from exercises or from supporting stupid small wars using infrastructure in Europe.
The current gentleman's agreement appears to be a give-and-take that Europeans provide bases for U.S. politicians' military adventure games and the U.S. remains in turn involved in deterrence and defence for Europe(an NATO).*

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Hawaii became a U.S. state in 1959, a decade after the original North Atlantic Treaty. It's not covered under the treaty.** The PR China could nuke Honolulu and the U.S.' NATO allies would not be obliged to do anything against the PRC under the North Atlantic Treaty.
Americans should maybe recognise that the alliance with European protects the continental United States; the Chinese may nuke Guam and launch missiles at Hawaii, but they surely wouldn't want to pull UK, France, Italy, Spain, Netherlands, Norway and Germany into a hot conflict against them. Low information Americans may disrespect the military of those nations, but their combined air and sea power is easily large enough to be undesirable for Chinese war planners and strategymakers.
So right now NATO is a factor that (likely) has a limiting effect on how a Sino-American 21st century war would look like. The treaty might make such a hot conflict a lot less messy by being restricted geographically.

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Still, Americans may at some point wish to renegotiate the geographical limitations of NATO out of greed and obliviousness about the aforementioned effect. This could happen in the context of another accession treaty, that is when some country wants to join (Bosnia? Serbia? Finland? Ukraine?).

Europeans who do professionally think about the alliance or foreign policy strategy should be prepared for this, and make up their mind in time.
  1. Would we want to allow the Americans to drag us into a stupid Pacific (Cold) War?***
  2. How important is it to us to get some more country or countries into the boat?
  3. How important is the probable limiting effect that NATO has on a possible stupid Pacific War to us?
  4. Would we want to spend the extra resources on preparing for an air/sea war with extremely long logistics lines?
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Personally, I'd reject such an expansion of coverage.


*: I still suppose the biggest utility of NATO is that it kept the U.S. and EU from becoming antagonists over the many diverging interests and opinions, of course. The Europeans don't need the actually small American contributions to their deterrence and defence against Russia; most of the U.S. armed forces are irrelevant for Europe anyway, and almost all of the others would only come into effect long after a Russia could have overrun three European NATO members and possibly defeated the forces of a third one.
**: The original article 5 of the treaty was modified by the accession protocol for Greece and Turkey (in article 2) and still includes no Pacific islands.
***: Keeping in mind how needlessly aggressive and reckless their own behaviour is. Germany ought to have learned its lesson from standing by the side of an aggressive and reckless Austria-Hungary in 1914.


Link drop November 2018



This means nothing unless they get rid of the deconfliction requirement in between, though the potential consequences are huge. There's nothing keeping us from doing the same with modestly upgraded 1970's strike fighters, of course. The technology is not the inhibitor; the inhibitor is whether you want to give the FAC the command authority (not just ability to request) over artillery assets.


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-> Maritime transport -> World merchant fleet -> Ships built ...
Sort this table by gross tonnage built. It reveals a picture of what nations are shipbuilding nations and which basically revel in memories about shipbuilding. Think about this with a hypothetical Pacific arms race in mind. I suppose it would be about as fair as this race:

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It's war porn, alright. The impact pattern is also a clear reminder about how indirect fire support tends to have a greater dispersion in range than to the left and right.
The "MLRS" in the video is nonsense. "MLRS" is a specific and different type of "MRL" (multiple rocket launcher). "ISIS" is likely nonsense as well. ISIS territory did not extend to the vicinity of Latakia. The targets were much more likely FSA troops if the "Latakia" reference is at least approximately correct.

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I mentioned earlier that the USN is a land attack navy that only pretends to protect maritime trade. Now they make it public knowledge that they wouldn't even only secure their nation's military sealift ships.

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 WTF does Mauritania need a LST for? To order such a ship is insanely inane corruption. They could have been corrupt about orders for new railway equipment instead. That would at least have offered some actual benefits to the country.

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(At the time of this writing it's still unclear whether four or up to 22 F-22 were left behind.)

Look how flimsy the hangars were constructed in a hurricane-threatened area, especially relative to hardened aircraft shelters.

That's what happens when an armed service pays most attention to shiny prestige objects and it's also what happens if there's a hollow force syndrome; expenditures are allocated to maintain or expand what the leaders like the most (especially quality and quantity of platforms) instead of doing an all-round optimisation.

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A critique on "CNO" @ Navy Matters blog:

(you can disregard the comment in the middle, and please graciously ignore the typos, too)
 is not okay if the blog post says this

(He did indeed delete the first comment about that conflict and he deleted that above-documented (slightly typo-ridden) comment as well.)

That's contrarian argumentation for the sake of defending one's position, damn the facts. On top of that there's some unprovoked arrogant insult involved.
I've encountered such behaviour a couple times and it always makes me wonder whether my at times a bit combative approach to pushing back against some comments takes similar wrong turns at times. I don't remember doing anything equivalent to deleting a comment that points out a 100% 180° conflict between a post and a comment of mine.
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hated it

still do

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I was already wondering if and when they would try to lease Rabaul. This one is close.

What's next? Palau? It has an international airport with a 7,200 ft runway.

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Can you imagine that a song like this could be created nowadays? It feels as if the very sentiment is at odds with the Zeitgeist today. The same country has 'shithole' insults on Twitter instead, in addition to the Zamunda fantasies that were already known in the (later) 80's.

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They can now dive, too. We're lost. ;-)

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Funny side note; more than 11 years of mil blogging, and just a few days after Canada legalised marijuana some company offered me to send me a free leather gun holster for review. It was the first unsolicited hardware review offer. Hmmm....

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