Archives: February, 2012

The Pentagon Budget: Myth vs. Reality

Over the past few weeks, a number of pernicious myths have popped up regarding the Pentagon’s budget. Here I want to dispel these myths with an exhaustive, and exhausting, look at the details. The charts below, compiled with my colleague Charles Zakaib, should help.

The President’s Budget officially requests $613.9 billion for the Pentagon FY 2013, broken down between $525.4 billion in the Pentagon’s base budget, and another $88.5 billion for Overseas Contingency Operations (OCO)—mainly the war in Afghanistan. This compares to a base budget and OCO of $530.5 billion and $115.1 billion, respectively, for FY 2012. (For other good overviews, see Chris Hellman’s analysis for the National Priorities Project; and Carl Conetta’s “Keeping Pentagon Cuts in Perspective” [.pdf] for the Project on Defense Alternatives).

There are, however, other costs in the budget that should be lumped under the rubric of national defense. For starters, there is about $33 billion in the non-Pentagon portion of what is official classified as “national defense.” Aside from the Pentagon and the wars, that includes the cost of the nation’s nuclear weapons (chiefly within the Department of Energy), and some mandatory spending not captured in the DoD base budget and OCO figures shown above. That brings requested defense spending to $647.4 billion. In addition, as Winslow Wheeler of the Center for Defense Information points out, the Obama administration has requested $137.7 billion for Veterans Affairs, and $46 billion for homeland security (that’s a government-wide total compiled by the Office and Management and Budget, excluding the defense portion). Wheeler also points to another $29.4 billion in military retirement and DoD retiree health care costs (these show up under budget functions 550, 650, and 950). All the items above total about $860 billion.

Americans likely spend even more on things loosely connected to national security. For example, there might be some additional intelligence spending that is not captured in the above numbers. Wheeler suggests that we should also count the International Affairs budget ($69.8 bn), and the DoD’s portion of interest on the debt ($63.7 bn). According to Wheeler’s calculations, the actual “defense” budget proposed for 2013 weighs in at a whopping $994.3 billion.

In the charts below, however, I have chosen to focus solely on the Pentagon’s base budget, excluding the wars, and the various other costs mentioned above that are not counted under the “National Defense” budget function (aka 050 for budget geeks).

Chart 1 shows different baseline projections for DoD spending, beginning with President Bush’s final budget in FY 2009 (the dark red line). All are shown in constant 2012 dollars. The President’s Budget for FY 2013, the bright pink line, will average $517 billion over the next decade. The ten-year projections from his earlier budget requests for FY 2011 and FY 2012 are shown as dark blue and light blue, respectively. The dark green line shows the budget levels dictated by the sequestration provisions of last year’s Budget Control Act.

At first glance, the changes appear to be quite significant. The administration claims that its budget achieves $486.9 billion in savings by 2021, but that is in nominal dollars, and measured against the FY 2012 baseline. By my calculations, the gap between the top line shown in the chart (FY 2011) and the most recent request accumulates to $667 billion in real, inflation-adjusted savings over nine years.

Either way, it looks as though a lot of money has been shaved off the budget. Taxpayers and deficit hawks should be pleased. The “defending defense” crowd is appalled.

But there is less here than meets the eye (or more, depending on your perspective). The following three charts show how the Pentagon’s base budget compares to the past 15 years, and the past 35 years. In all cases, the figures are shown in constant, FY 2012 dollars.

The first shows that the Pentagon’s budget, according to the Obama administration’s projections, will average $517 billion over the next decade, slightly more than what we spent in 2008 ($511 bn), and 38 percent more than we spent in 1998 ($375 bn).

The second chart below displays the new projections in a wider historical context, going all the way back to 1976. We spent, on average, $523 billion during the Reagan Era (1981-1990).

Finally, I have included one chart that shows all of these figures, from 1976 to 2022 against a Y-axis starting at $0. Starting the axis at $300 billion (as I have done in the other charts in order to differentiate the projected baselines) can produce the visual effect of apparent sharp increases or declines, when in fact most of these have been quite modest.

The bottom line? People may disagree about whether national security threats are more urgent today, and therefore require much more money than we spent in the 1980s to defeat the Soviet Union. For my part, I have long argued we are vastly safer than we were a generation ago. But it isn’t accurate to say that the Pentagon’s budget has been gutted or cut to the bone.

Obama: Running on Empty

Last week’s energy speech was vintage Obama: repeating the same bad ideas that he has advocated since his pre-2008 election campaign and misrepresenting both his actions and the opposition.

To be sure, he is correct that the Republicans are overstating what can be done immediately to alleviate oil price spikes.  However, he falls into the same trap as the Republicans in believing that a sensible policy exists to avoid the inevitable fluctuations in world oil prices. These fluctuations are more tolerable than the possible alternatives.

His selective statement of his policies ignores at a minimum its general anti-fossil fuel thrust with slowdowns in oil and gas leasing on federal land, the temporizing on the Keystone XL pipeline, and the massive anti-coal regulations promulgated by the Environmental Protection Agency. He continues on the paths of dictating fuel-efficiency standards and pursuing dubious alternative energy incentives. Moreover, Republican criticisms of these actions belie the assertion of exclusive concern with drilling.  There may be no silver bullet, but there are more sensible policies than Obama’s.

Otherwise the speech differs in no substantial respect from his prior efforts. Every key point from the America-can-do-it pep talk to his misleading argument about tax benefits to the oil industry was critiqued in my Cato Policy Analysis: “The Gulf Oil Spill: Lessons for Public Policy.”

Conservative Government Makes Spain One of Europe’s Highest Taxed Countries

Today we published a short study showing how Spain’s new conservative government has decided to deal with its deficit of more than 8 percent by cutting some spending and raising income and other taxes significantly, making Spain among the most highly taxed countries in Europe. The Spanish authors of the study point out that the measure will have pernicious effects on the economy and slow private sector recovery. As the graph below shows, the problem has been too much spending.

Spanish recovery requires significant reforms in the labor market, financial sector, business regulation and the welfare state. Some progress is being made in the first two areas, but the government still has room to do much more in all of the above. For those reforms to have greater chances of success, a better approach to fiscal policy is needed. Luis de Guindos, now Spain’s minister of the economy, provided a reminder of good policy at a 2003 Cato conference when he explained how Spain since the 1990s had eliminated its large deficit by cutting spending and taxes. That advice is as good now as ever.

There Is No Objective Definition of ‘Medical Necessity’

California regulators are coming down on Kaiser Permanente. According to HealthLeaders Media, the regulators reviewed a batch of coverage denials and “found that in excess of 75% of the cases the services indeed were medically necessary, and 10% were not.” Indeed?

Now seems like a good time to post what University of Tennessee law professor Haavi Morreim wrote about “The Futility of Medical Necessity“ in Regulation:

Clinical artificiality The ill fit between “necessity” and ordinary medical care is immediately obvious in the question facetiously bandied about when health plans first considered what to do about a recently approved drug for male impotence: How often per month (per week? per day?) is drug-assisted sexual intercourse “medically necessary”?

As typified by that case, most medical decisions do not post clear choices of life versus death, nor juxtapose complete cures against pure quackery. Rather, the daily stuff of medicine is a continuum requiring a constant weighing of uncertainties and values. One antibiotic regimen may be medically comparable to and much less expensive than another, but with slightly higher risk of damage to hearing or to organs like kidneys or liver. For a patient needing hip replacement, one prosthetic joint may be longer-lasting but far costlier than an alternative. Of two equally effective drugs for hypertension, the costlier one may be more palatable because it has fewer side effects and a convenient once-a-day dosage.

Across such choices, it is artificially precise to say that one option is “necessary” — with the usual connotation of “essential” or “indispensable” – while the other is “unnecessary” — with the usual connotation of “superfluous” or “pointless.” Various options have merits, and often no single approach is the clear, “correct” choice. A given option might be better described as “a good idea in this case,” “reasonable, given the cost of the alternative,” “probably better than the alternative, given a specific goal,” “about as good as anything else,” or “not quite ideal, but still acceptable.”

In many cases, the real question is whether a particular medical risk or monetary cost is worth incurring in order to achieve a desired level of symptomatic relief or functional improvement, or to reduce the risk of an adverse outcome or a missed diagnosis. A huge array of treatments fits that description: more or less worthwhile, but the patient will not die without it and other alternatives (that might have some drawbacks) exist. [Emphasis mine.]

More broadly, concepts like necessity, appropriateness, and effectiveness can only be defined relative to a goal. For example, antibiotics are not clinically effective for all illnesses; they are effective against bacteria but, barring placebo effect, they are ineffective against viruses. Hence, it makes no sense for a physician to prescribe antibiotics to eradicate a viral infection. However, if the goal is to placate a relentlessly demanding patient who insists on antibiotics for his viral infection, the prescription may indeed serve that latter aim – which is probably why so many physicians write so many antibiotic prescriptions for viral illnesses.

Choices in this realm require a level of clinical complexity that is not reflected in simplistic notions like necessity, and that should not be hidden under blanket categories connoting a façade of precision. It would be far better to acknowledge that, across a broad spectrum of such choices and trade-offs, it is legitimate for people to come to different conclusions about what sort of price is worth paying, medically and financially, to achieve specific goals. To presume that a medical intervention is objectively either necessary or unnecessary belies the legitimacy of such variation in human goals and values.

So the question becomes: who will do a better job of deciding whether and when hip replacements or antibiotics or Viagra are “medically necessary?” Regulators? Or patients choosing health plans (in part) based on how those plans define medical necessity?

‘Even Though Earmarks Are Gone, There Are Still Billions of Dollars Available’

That quote from a local government official in California sums up why banning earmarks won’t do much to rein in the size and scope of the federal government. The quote comes from a McClatchy Newspapers article on lobbying expeditions to Washington undertaken by local government officials who want federal taxpayers to pick up the tab for projects in their backyards.

From the article:

[Fresno County supervisor Henry] Perea has joined 19 other Fresno County business, academic and political leaders in this week’s three-and-a-half day lobbying venture on behalf of transportation and other projects. Separately, a four-member delegation from the Merced County city of Livingston also is on the prowl.

Billed under the unifying ‘One Voice’ banner, the Fresno County wish list ranges from a transportation bill that might help improve State Route 99 to assistance with controlling air pollution and streamlining environmental reviews for roadwork…

Underscoring the potential regional competition, four representatives from Livingston are separately making the rounds this week in their own search for federal assistance.

‘We want to hit up some congressmen,’ Livingston Mayor Rodrigo Espinoza said Monday.

Federal grants, too, are part of the Livingston delegation’s agenda, with city officials targeting a variety of potential opportunities, including funding, to help nurture a downtown cultural arts district.

If local officials in Livingston want funds for a cultural arts district, then they should be traveling around Livingston “hitting up” local taxpayers to pay for it. But with “billions of dollars” available in Washington, why would Livingston officials take the politically unpleasant route of asking their voters to foot the bill? Of course, federal policymakers are typically only too happy to oblige because they’ll get to attend the ribbon cutting ceremony and brag about their ability to bring home the bacon. Meanwhile, the federal taxpayer continues to get soaked, the government’s debt mounts, and the Beltway Neros fiddle.

Bring home the bacon? But isn’t there an earmark ban? There is, but the programs that policymakers were earmarking money from still exist. That means that the federal dollars continue to flow; the only thing that changed is the course of the river. An earmark ban is good, but as I’ve repeatedly discussed, earmarks are only a symptom of the problem.

So let me make a suggestion to reporters: the next time you’re interviewing a federal policymaker who supports keeping the ban on earmarks, ask them if their staffers are helping the folks back home obtain federal grants, loans, etc. When they respond in the affirmative but argue that they’re merely making sure that their constituents receive their “fair share” of the loot, ask them how the federal government is supposed to get its finances in order if policymakers won’t stop putting parochial concerns ahead of the national interest. You might have to keep pressing, but eventually the hypocrisy will expose itself.

See this Cato essay for more on federal subsidies to state and local government.

A Jury’s ‘Secret’ Power

This month’s Wisconsin Lawyer has an article entitled “Nullification: A Jury’s ‘Secret’ Power,” by Erik R. Guenther. Here is an excerpt:

When “[t]he purpose of a jury is to guard against the exercise of arbitrary power – to make available the commonsense judgment of the community as a hedge against the overzealous or mistaken prosecutor and in preference to the professional or perhaps over-conditioned or biased response of a judge,”should the jury be kept in the dark about its fundamental power to decide the justness of the law as applied in a particular case? Should the power remain a secret (which is referred to only by a pejorative – nullification) rather than be acknowledged as an inherent, appropriate, and recognized part of the jury function?

Read the whole thing.  The feds are still fighting hard to keep the jury’s power ‘secret’—so hard that free speech must be punished.

For additional background, go here and here.

France Will Show U.S. How (Not) to Do It

Francois Hollande is a man on a mission—to increase the top rate of tax on income to 75 percent. The Socialist candidate, who is poised to beat Nicolas Sarkozy in the French presidential election, said, “Above 1m euros [£847,000; $1.3m], the tax rate should be 75% because it’s not possible to have that level of income.”

Hollande’s “unassailable” logic aside, the measure would remind those who are too young to remember the 1970s of what happens when the rapacious state makes work really unprofitable. I can just see the Whitehall mandarins wring their hands with joy as thousands of French high-earners, from actors to businessmen, pour across the English Channel to London. If anything, the disastrous effect of the French tax will be greater than four decades ago—the world, after all, has become even more competitive and the cost of relocation has fallen appreciably. Karl Marx is supposed to have said that “history repeats itself, first as tragedy, second as farce.” Hollande may well prove him right.