Tuesday, June 12, 2012

State Department Pays $6,600 per Kindle for 2,500 Kindles

Yup, the State Department has awarded a $16.5 million contract to Amazon to stock designated libraries and U.S.-friendly educational centers around the world with 2,500 Kindle e-Readers, procurement databases show, according to Nextgov.com. The contract includes 50 titles, a secure central management system and round-the-clock help desk service.

The purchase works out to a cost of $6,600 per reader. No doubt there may be extra support and software that comes with these Kindles, but $6,000 plus worth? Kindle's on Amazon's web page now sell for between $79 and $379.

Is this a procurement horror story reminiscent of years past that saw the Defense Department by claw hammers for $435, toilet seats for $640 and coffee makers for $7,600? It sure smells like it. But don't expect the State Department to own up to it.

During the Reagan Administration, when President Reagan learned of the outrageous prices for hammers, toilet seats and coffee makers along with news that the military was paying $1,118.26 for a spare plastic cap for a navigator’s stool on a B-52 bomber (worth about two cents), he demanded answers from Secretary of Defense Casper Weinberger. Weinberger promised he would get to the bottom of the outrageous prices.

What happened though is that Weinberger appeared on Capitol Hill and defended the shocking prices.

Murray Rothbard made the case that all government spending is waste and should be subtracted from GDP and this is correct. As Mark Thornton writes:

...government spending does not have its value tested with consumers in the market, and much of the spending is actually bad for the economy. Government could pay people to dig ditches and other people to fill the same ditches, [Or it could pay $6,600 for kindles!-RW] and it would increase GDP, but no one argues this is the path to prosperity...
Murray Rothbard addressed the problem of measuring a big government economy with the concept of private product remaining (with producers), or PPR, which basically takes GDP and subtracts from it twice the amount of government spending. Government spending is subtracted once to obtain gross private product and it is subtracted again to account for all the resources that government has siphoned off from the private sector.
Rothbard has the theoretical point about ALL government spending right, but it is nice to come across an example of government spending that appears so totally absurd, that even Warren Buffett and Henry Blodget will have to think twice before defending the expenditure and calling for higher taxes to pay for the expenditure. It's a teaching moment.

Clearly, what really needs to go on is cutting of government expenditures and cutting and cutting. Not increasing taxes to pay for bureaucratic government spending.

22 comments:

  1. I take exception to the title. We pay $6,600 per Kindle.

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  2. Its stuff like this that makes me feel so warm and fuzzy when I cut the government a check each quarter. To make myself feel better I just tell myself its "protection money" to keep the government mob from beating down the door and cleaning me out.

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    1. The kindle fire i am using to write this cost me $199 at bestbuy.

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  3. NextGov updated the article, as the $6,600 figure is misleading. It looks more like a 16.5 million dollar contract for up to 35,000 units. It still works to almost 500 bucks a unit though. It is, hands down, a pretty wasteful idea. They're going to buy them and ship them off to help people in other countries learn English. I mean, really?

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  4. Your facts look wrong...

    I love your site, but you need to be more careful about what you write or else you're going to lose credibility. I checked the nextgov.com link and this is what it said. Very different from what you wrote.

    "The State Department is considering a $16.5 million, 5-year no-bid contract with Amazon that could include as many as 35,000 Kindle e-Readers and content, an agency spokesman confirmed. The Kindles would be used to stock designated libraries and U.S.-friendly educational centers around the world, aiding those who want to study English and learn about America.

    State is willing to guarantee approximately $2.3 million in the first year for at least 2,500 Kindles and content, the spokesman said. It is waiting for Amazon to come back with a proposal for further negotiations.

    The price per unit is currently being worked out. It is expected to be in the ballpark of a recent pilot program where State purchased 6,000 Kindles for $980,000 for educational and e-diplomacy purposes, which works out roughly to a cost of $163 for each device."

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    1. Actually, you need to read more carefully. The nextgov.com page now starts off with:

      "This article originally misstated the terms of the State Department’s agreement with Amazon and was misleading about the cost of each Kindle. NextGov regrets the error."

      Which means that nextgov.com changed the details of the story after I referenced it. In other words, "you need to be more careful about what you write or else you're going to lose credibility."

      Indeed, the commenter above you, Matthew Shrugged, noted the same details, that it was a change by nextgov.com but further commented:

      "NextGov updated the article, as the $6,600 figure is misleading. It looks more like a 16.5 million dollar contract for up to 35,000 units. It still works to almost 500 bucks a unit though. It is, hands down, a pretty wasteful idea. They're going to buy them and ship them off to help people in other countries learn English. I mean, really?"

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    2. I hope it didn't come off as criticizing your post, Mr. Wenzel. I just intended to point out that NextGov had apparently made a mistake.

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    3. @Matthew Shrugged

      Oh no, your comment was fine. I was using you as an example of the correct analysis of the nextgov.com update--which you correctly observed as an update.

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    4. Good that someone cked this out. But could it be that the mistake was rewritten to cover up what they don't want us to know? And it just slipped out. Why around the world I wonder? Our schools, our children need it. Enough with giving to the world constantly while we lack here. Why don't we take care of us first and then spread the wealth?

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    5. Nexgov.com has corrected their error but I don't see any correction note on your post.

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    6. @Anonymous 8:44

      Even with the updated quote from the spokesperson "up to 35,000 units" (let's see if that actually pans out), it still works out to $471 per (unit plus "service"). So, take out the $163 per unit (still, where did they get even that number), and that works out to $308 of service per 5 years.

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    7. $308 for A Kindle + 50 titles + support. That doesn't sound much like a $640 toilet seat anymore.

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  5. Even with the correction, it is still grossly an overvalued price, especially when one adds the consideration that buying in bulk usually brings down the price. Nevertheless, it is for national glory, so you taxpayers better thank the brilliant bureaucrats in DC for doing this _for_ YOU!

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  6. The price is irrelevant. A deal in which the orcs in Mordor-on-the-Potomac paid half the going retail rate would not justify expropriating the productive class for their self-serving wet dreams.

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  7. 16.5 million here, 16.5 million there; pretty soon, we'll be talking about some real money. Also, the price of these kindles (my 3G/wifi model) cost is $140, frequently has been on sale and prices in the future will fall. A government should not be procuring BOOKS at all. They should be cutting back on libraries along with roads, workers, salaries. I left the USA 4 years ago to escape this theft.

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  8. Where did you move to?

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  9. So are you going to post a correction in this page?

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  10. The real problem is the gov't procurement process, which ties the hands of gov't buyers. The process was designed to prevent corruption but often has the effect of preventing purchase of much cheaper items "off the shelf". Of course, that assumes something needed to be purchased in the first place, often incorrect in the case of gov't.

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  11. Where Navalniy with US-pil project?

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  12. What is everyone complaining about? Is this not a wise use of taxpayer money? (end sarcasm)

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  13. Why is the State Dept. sending any kindles to other countries at all? We probably have to borrow the money to do it. I am really getting tired of sending stuff to other countries when we are in such shape ourselves. Does anybody else feel that way?

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