Tag: defense spending

Congress Should Stand Firm on Spending Caps

Rumors abound that budget negotiators are nearing a possible deal to reverse spending cuts required under the 2011 Budget Control Act (BCA).

Senate Republican Leader Mitch McConnell is hoping his colleagues will stand firm and reject any deal. He told reporters last week that it would be “a bad idea to revisit a law that’s actually working and reducing spending.” But he is competing with military spending advocates such as Reps. Buck McKeon and Mac Thornberry. They claim that the dangers confronting the United States today are graver than ever, that the costs to address these threats are rising and cannot be contained, and removing the defense spending caps is necessary to ensure the United States remains safe and secure.

They are wrong on all counts.

First, some context on spending: The Pentagon’s base budget, excluding the costs of the ongoing war in Afghanistan, remains 26 percent higher than in 2000, in inflation-adjusted dollars. Under the spending caps established by BCA, Pentagon spending would average around $528 billion per year from 2013 to 2021, over 18 percent higher than during a typical year in the Cold War.

This is curious considering the threats facing the United States were far greater then. The threats today are declining, not rising. In fact, all forms of violence, from cataclysmic great power wars, to civil wars and ethnic conflicts, have declined to historic lows.

To be sure, some insurance against potential threats is wise, in the unlikely event that current favorable trends are reversed, but we can maintain our safety while spending less because technological advances allow today’s military to address possible threats with fewer people and fewer platforms. U.S. naval vessels have far more striking power than the early 20th century dreadnaughts, just as precision-guided munitions have rendered today’s aircraft at least 10 times more capable of striking targets as their dumb-bomb-dropping precursors. To be sure, these new platforms are much more expensive, but the military services and their suppliers are more cost-conscious today than a decade ago, as when the Air Force recently killed a plan to outfit the next-generation bomber with a $300,000 kitchenette. Such excesses might be resurrected if BCA opponents succeed in changing the law.

The reforms extend well beyond procurement. In 2011, then-Chairman of the Joint Chiefs of Staff Mike Mullen admitted that the military hadn’t been forced “to make the hard choices” because they had all the money they requested, plus a little more. Today, the spending caps are forcing the services to prioritize.

For example, austerity has focused attention on the military’s antiquated compensation system. Today’s soldiers, sailors, airmen and Marines are better compensated than those who served during World War II or the Cold War. And they should be. A modern military must compete to attract and retain the best and the brightest, and that costs money.

The current trajectory of personnel costs is unsustainable, however. Pay and benefits are already eating into other Pentagon spending accounts, including procurement, operations and maintenance, and training. The net effect may impair military readiness. Now, even outspoken military spending advocates, such as Reps. Duncan Hunter and Adam Kinzinger, both veterans of the post-9/11 military, have endorsed changes, including expecting working-age retirees to pick up more of their health care costs.

There is, in fact, broad, bipartisan support for proposals that touch what were once thought of as the third-rails of Pentagon politics. In addition to compensation reform for active-duty military personnel, a letter signed by scholars from the American Enterprise Institute, the Center for American Progress, and the Brookings Institution, among others, also calls for shrinking the Pentagon’s sprawling civilian workforce and reducing overhead, including eliminating excess base capacity.

The most important piece of the military spending puzzle remains the United States’ hyperactive foreign policy. Even if we were to implement the sensible reforms made politically realistic by spending caps, we would still spend more than we need to keep Americans safe. That is because today’s military is mainly geared toward defending others. By discouraging our allies from doing more to defend themselves and their interests, U.S. policymakers have ensured that U.S. troops bear disproportionate burdens, and U.S. taxpayers pay disproportionate costs. If we are going to spend less on the military in the next ten years than we have over the last ten, we must ask our smaller, cheaper military to do less. And we must expect others to do more.

The Budget Control Act, for all its flaws, has managed to deliver something once thought impossible: actual spending cuts. Our military remains second to none, despite those cuts, and might be stronger in the future because of them. A deal to cancel or reverse those cuts threatens to derail sensible reform proposals that could deliver far larger savings to taxpayers in the future.

Sen. McConnell is right: Congress should stand firm.

Barro and de Rugy on Defense Spending and the Economy

Earlier this week, Harvard economist Robert Barro and Veronique de Rugy of the Mercatus Center published a short paper assessing the economic effects of defense spending. Their findings are consistent with those of other studies, including one that Cato published last year by Benjamin Zycher. To wit, from Barro and de Rugy’s abstract:

While the impact of across-the-board federal defense spending cuts on national security may be up for debate, claims of these cuts’ dire impact on the economy and jobs are grossly overblown…

[A] dollar increase in federal defense spending results in a less-than-a-dollar increase in GDP when the spending increase is deficit-financed…

[O]ver five years each $1 in federal defense-spending cuts will increase private spending by roughly $1.30

The Barro-de Rugy paper should be of particular interest to Republican politicians and those who advise them. 2012 GOP presidential candidate Mitt Romney and his fellow Republicans attracted considerable scorn (including from yours truly) during a campaign in which they railed against government spending, but also wailed against military spending cuts. His critique was not primarily, or even chiefly, about the potential impact of sequestration on national security; rather, echoing the hardly objective estimates flogged by the Aerospace Industries Association and the National Association of Manufacturers, Romney asserted that cuts in military spending would result in the loss of hundreds of thousands of jobs. 

Defense Spending Hasn’t Been Cut by $600 Billion

Beltway politicians like to pretend that smaller spending increases amount to spending “cuts.” As Dan Mitchell has pointed out numerous times (see here for one example), that’s baseline budgeting baloney. Now that the 2011 Budget Control Act’s spending caps are in place, politicians are making an even more ridiculous claim: the so-called “cuts” have already occurred.

The caps apply to spending over ten fiscal years – the last year being 2021. We are obviously not in the year 2021, so it’s impossible for the so-called “cuts” to have already been implemented. Yet here are two examples from a recent Politico article where politicians suggest that to be the case:

“There are people that think we need to cut more,” House Armed Services Committee Chairman Buck McKeon (R-Calif.) acknowledged in an interview. McKeon said he’s been pushing back against budget hawks in the GOP conference by pointing to the nearly $600 billion in spending cuts that the Pentagon has already absorbed in recent years — and that’s before sequestration would even begin.

“I think there’s spending that can be taken out of all departments,” said freshman Rep. Ted Yoho (R-Fla.). “And I’ve talked to people from the Pentagon. There’s just areas that, yeah, we can pull back a little more, even though they did their $470 billion already. They said it hurt, but we possibly could.”

I’ll cut Rep. Yoho a little slack because the article indicates that he’s open to cutting defense. Rep. McKeon, on the other hand, deserves no such leniency. (Why McKeon said $600 billion and Yoho $470 billion I have no idea.)

The following chart illustrates why it is ridiculous to act as if smaller future increases in projected spending amount to realized spending cuts. The chart shows the Congressional Budget Office’s August 2001 baseline estimate of defense spending from 2002 to 2011 versus the actual outlays:

The combined difference turned out to be $1.8 trillion.

But, you might respond, those estimates were published a month before the attack on September 11th, 2001, so of course they turned out to be way off!

And that’s my point. With the exception of Keynesian economists, no one can predict the future. All it will take is another major terrorist attack or another war and it’s adios spending caps. I would argue that such unfortunate scenarios are a distinct possibility given the Beltway crowd’s love for empire, but I’ll leave that topic to Cato’s foreign policy experts.

Spending Cuts and National Security

An op-ed by Peter Singer and Michael O’Hanlon in today’s Politico questions the impact of spending cuts on the military. “Substantial defense budget cuts are possible, make no mistake,” the Brookings’ scholars concede, “But they could mean loss of capability, and some may increase security risks.”

Another Brookings scholar, Robert Kagan, is more emphatic, telling Jennifer Rubin of the Washington Post that “[The proposed cuts are] utterly irresponsible and dangerous to national security.” Max Boot agrees. Cuts of up to $1 trillion over the next 10 years “would be nothing short of a disaster.” Lawmakers who are considering such cuts, Boot claims, “are flirting with eviscerating American combat capabilities — and with it the role of the United States in world affairs.” AEI’s Tom Donnelly wails: “Nobody has defense as a high priority. It’s increasingly looking like everybody wants to toss the military overboard.”

Wow. Sounds scary. What is actually going on here?

For starters, the military’s budget has still not been cut. As I noted yesterday at the National Interest’s “The Skeptics”:

The Department of Defense has enjoyed an unbroken streak of rising budgets since 1998. In real, inflation-adjusted terms, U.S. taxpayers now spend more on national security than at any time since the end of World War II. An effort led by South Carolina Republican Mick Mulvaney to hold the DoD base budget to last year’s levels failed. Mulvaney’s amendment, which would have cut $17 billion from the budget voted out of committee, attracted support from more than a quarter of the House GOP caucus, but was ultimately defeated. So the DoD base budget that emerged from the House continues its growth.

Second, the various proposed cuts to future spending are just that: proposed. As with everything else associated with the debt negotations, the details matter a lot. The cuts might never materialize; future Congresses might simply renege on deals made this summer. More importantly, in nearly every case, they aren’t actual cuts. They are projections based against certain assumptions about future spending. And depending on inflation, the growth of the economy, and a host of other factors, those assumptions will change.

Up to this point, Kagan, Boot, Donnelly, and others have succeeded in fending off cuts to military spending. But it was never realistic to believe that one could cut government spending while leaving more than 50 percent of the discretionary budget off the table.

To her credit, Kori Schake is beginning to look past the immediate discussion over whether to cut the Pentagon’s budget, and is thinking about how to do so. The headline at Foreign Policy blares, “Out Come the Long Knives for Defense,” but the gist of her argument is more sophisticated, and far more realistic than the “no military cuts, no way” crowd:

Given the magnitude of our defense spending and the relatively advantageous position we occupy compared to the magnitude of threats facing the United States, we can afford to accept near-term risk by cutting defense spending in order to solve the larger strategic problem of our national indebtedness.

Though Schake likely opposes cuts in military spending along the lines that Ben Friedman and I sketched out here and here, she implores national security planners to begin thinking seriously about which missions are absolutely essential to U.S. national security and which missions that our military has been performing for decades can and should be handled by others. That is the approach that Friedman and I take in proposing a force structure guided by the lessons of the recent past: we should avoid costly and counterproductive nation-building missions; fighting terrorism does not require a massive military deployed in dozens of countries around the world; our allies can and should do more to defend themselves; and we should retain the ability to bring power from the air and sea in those very rare instances when distant crises might pose a direct threat to U.S. national security.

I hope that Schake sketches out more clearly which roles and missions we can afford to shed. And I hope that the claims that all missions are essential, and that any cuts in military spending will pose an intolerable risk, are shown for what they are: indefensible.

How Much Defense Acquisition Waste Is Enough?

Stories in DoD Buzz and the Christian Science Monitor this week cover a new Center for Strategic and Budgetary Assessment report on the Pentagon’s 2012 budget request. Both articles focus on the insightful section of the report explaining how the post 9-11 defense spending explosion has barely increased our war-fighting capacity. Unfortunately, both echo the report’s claim that all money spent on cancelled programs is money wasted and an indictment of the Pentagon acquisition system (page 36 and 37).

Here’s how the Monitor put it:

The new spending involves considerable waste, the report says. The Pentagon has spent nearly $50 billion since the 9/11 attacks on weapons systems that it never used due to technological failures or cost overruns, according to the study.

“These are weapons systems that have been started and then canceled without using any of them – we never saw one system fielded as a result of these programs,” says Todd Harrison, defense budget studies senior fellow with CSBA. “We can’t keep starting programs that are unrealistic and unaffordable and getting them canceled without getting anything out of it.”

In some ways, that complaint is sound. At least some of these programs suffered troubles made predictable by an acquisition process that often allows overly ambitious projects to break the bank. The Marines’ Expeditionary Fighting Vehicle is an example.

The main problem with this analysis is the implication that the correct acquisition failure rate is zero. Reward rarely comes without risk. Successful enterprises often fail. Apple failed with the Newton. Great base stealers often get thrown out.

Militaries are particularly prone to missteps because of their uncertain environment. Their business is competitive as can be, but the competitions (wars) are rare and thus hard to predict. Platforms last longer than enemies and cutting edge technology. This uncertainty means that programs should often be found wanting and cancelled. The question is not how to build an acquisition system that never fails but the right ratio of success to failure.

CSBA counts $46.4 billion in spending over the past decade on programs that got cancelled before procurement. That’s a big number. But it is a modest failure rate. It’s just 6.3 percent of total RDT&E (Research, Development, Testing and Evaluation) spending in the period, 2.4 percent of total acquisition spending (RDT&E plus procurement) and 2.7 percent of the Pentagon’s ongoing major acquisition programs. You could add percentage point or two in each category by including programs that got cancelled after we bought only a handful, like the DDG-1000 destroyer.

I don’t know what the perfect rate of failure is. But I see no reason why this one is unsustainable, as Harrison says. I actually suspect, for a couple reasons, that the numbers are too low; that the Pentagon should fail more.

First, bad programs often survive thanks to the iron triangle—services bureaucracies that want a new platform, contractors that make it, and Congressmen representing districts where they build. Cancellation shows that the political system can make choices serving the national interest at the expense of parochial ones. Parochialism usually wins.

Second, we foolishly limit competition that would increase cancellations. Our four services largely manage their own procurement, with oversight from feuding officials in two branches. This dispersal of power produces diverse solutions to military challenges. We also launch more acquisition programs than we can afford, encouraging low bids to hide costs that everyone knows are coming. Wealth encourages us to replace manpower with technology, increasing the need for innovation. The natural result of these forces is competition for survival among programs. Contrary to conventional wisdom, that competition is useful. It encourages program managers to outshine rivals on cost and capability.

Rather than harvest this creative destruction, we suppress it. The Pentagon’s culture of jointness quiets public fights where program managers attack rival programs. Fixed budget shares encourage them to cover procurement shortfalls by growing the entire pie, rather than competing. Ever-increasing defense budgets delay reckoning. Embracing competition would produce more innovation and more cancelled programs, which CSBA would call waste.

* Cross-posted on National Defense Magazine’s blog.

Gauging the Mood of Congress on Military Spending

Amidst the wrangling over a debt deal between the White House and Congress, the most interesting movement pertains to military spending. Several reports today suggest that up to $700 billion in military spending cuts is under consideration, which would amount to a bit more than 10 percent less than current projections over the next 10 years. A more realistic bottom line might be $300 billion, which could be achieved by allowing the budget to grow at the rate of inflation (in other words, no real cuts in spending).

As always, the devil is in the details. From what baseline? Over what time period? Would the cuts apply only to the base DoD budget, or all national security spending, including the costs of the wars, as well as the budgets for the Departments of Homeland Security and Veterans Affairs? Most important is timing. If the savings are all backloaded in the out years, they may never materialize. Today’s budgets project spending out five or 10 years, and the “savings” really just amount to a new set of projections against that baseline. Plus, these agreements are rarely binding on future congresses; a different cast of characters will be responsible for passing DoD appropriations bills in 2018 or 2020.

One thing is clear, however. People here in Washington are now considering military spending cuts that they thought strategically unwise and politically impossible just a few years ago. And conservatives are joining in. South Carolina Republican Mick Mulvaney offered an amendment to the DoD budget appropriation bill that would have frozen spending at 2011 levels, a $17 billion cut below the amount voted out of committee. Meanwhile, three Democrats and three Republicans co-sponsored an amendment to cut the proposed increase in the FY 2012 budget in half, generating savings of $8.5 billion. The bad news for taxpayers is that both amendments failed. The good news is that some in the GOP are starting to match their rhetorical zeal for spending cuts with actual votes that do so; 43 Republicans voted for both measures. (h/t DSM)

It is no longer credible to declare military spending off limits in the search for savings, and most Americans understand that we can make significant cuts without undermining U.S. security (William Kristol being one of the predictable outliers).

I’ll hazard a prediction: I think that military spending in FY 2012 will be slightly less than President Obama initially requested, but still not less than will be spent in FY 2011 (in other words, they’re still only faking cuts).

To get real cuts, Washington is going to have to clear some things off the military’s plate. If we want a military that costs less, we have to ask it to do less. And I don’t see a lot of enthusiasm for that—yet. Starting a new war in Libya (and signaling that similar missions are in the military’s future) doesn’t help.

Perhaps the key will be to connect two seemingly disconnected dots: our subsidizing defense spending for other rich countries has allowed them to divert money to dubious social spending and a too-large public sector with too-generous pay and benefits. I don’t know how Republicans (or Democrats, for that matter) can go to their constituents and say they’re cutting popular programs here in the United States, and holding the line on the DoD’s budget, so that our European and East Asian allies can fend off cuts in their pensions and avoid taking responsibility for their own security.

For more, see the video after the jump.

Cross-posted from The National Interest.

Pawlenty Understands Incentives, Except When It Comes to Defense

Former Minnesota governor Tim Pawlenty’s brief visit to Cato yesterday elicited some snide commentary in the blogosphere, especially this piece by the Huffington Post’s Jon Ward. Ward notes how the just-declared presidential candidate has been pretty adept at annoying audiences with his answers to questions. This one rankled the questioner, and a number of others in the auditorium.

I’m not one who is going to stand before you and say we should cut the defense budget.

[…]

I’m not for shrinking America’s presence in the world. I’m for making sure that America remains the world leader, not becoming second or third or fourth in the list.

One can sort of forgive a governor for not knowing much about foreign policy, although governors who aspire to be president should probably know that the U.S. government could cut military spending in half and still spend more than our next two potential rivals, combined.

The average governor, however, should know that people don’t feel obligated to pay for things that you are willing to give them for free. And Pawlenty does understand this when it comes to domestic spending. Check out his comments about the difference between a cash bar and an open bar at a wedding reception, via the Daily Caller:

If people have the impression that things are free, and they get to consume it endlessly, and the provider has the only incentive to provide on volume, and the myth or the lie is created that the bill goes somewhere else and that a third party pays for it, that is a system that I can tell you is doomed to failure and inefficiency. And that’s much of our government, unfortunately.

But the same principle applies in military spending. Our European and East Asian allies are consumers of the security provided by the U.S. military, and all Americans are the third party payers. As my colleague Ben Friedman likes to say, we agree to defend our allies, and they agree to let us. We shouldn’t blame them for under-providing for their own defense; it’s our fault for agreeing to do it for them.

Cato President and Founder Ed Crane’s quick take on Pawlenty’s view on defense military spending is worth repeating:

There is a difference between military spending and defense spending. The Constitution provides for a military to defend the U.S—not to democratize the world. One would hope that presidential candidates would consider America’s commitments overseas very seriously before endorsing those commitments.

Cato scholars have been out in front for years making the case for a principled, constitutional view of “defense” that does not include defending others who can and should defend themselves. If we adopted a strategy of restraint, we could responsibly make significant cuts in military spending, deliver the savings to American taxpayers, and remain the safest and most secure country on the planet. Yesterday, Tim Pawlenty took the opposite tack. He argued that the U.S. military should continue to serve as the world’s policeman/armed social worker, allow other countries to free ride, and require U.S. taxpayers to foot the bill.

Although that might be popular elsewhere in Washington, I can’t imagine it will sell in Cedar Rapids, Iowa, or Manchester, New Hampshire.

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