smandal pointed me at this excellent analysis on Ars Technica.
Regarding the initial news reports, I don't know that it's so much that the reports were intentionally slanted, so much as that they were written from the viewpoint of the general news media's typical appalling ignorance about science: they don't even know enough about the subject to know what parts are actually important. They don't understand why in-space refuelling matters. Heavy lift capability is funny science words to them. They don't understand the technical shortcomings of ARES. But "The entire Constellation program is cancelled"? THAT, they understand. So that's what they reported.
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7 Billion in development of engines isn't wasted money. It's science and engineering that you can continue to use. If we're pulling parts back from the Saturn V program then money spent there is STILL paying dividends.
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I agree with the central theme of the piece: Apollo was a crash program meant to one-up the Soviets, but it was also immensely inspirational -- we can learn from both aspects. We don't have a Great Enemy to justify spending ~1% of GDP on a race, but we have to do better than missions that only satisfy PhDs.
So, what should budgetary priorities be? Unmanned scientific missions for sure, but I would add:
1. A tiebreaker in favor of inspirational and culturally significant scientific missions, like the Mars landing and Hubble. One idea would be robotic missions to search for life on outer moons.
2. A research program to address the technical issues of manned space flight, rather than rehashing 60's technology.
There should be a way to move into the future without replaying old glories or simply paying lip-service ...