The largest driver of the long-term federal budget gap is entitlement spending that is slated to grow faster than the economy. But a second key driver -- growth in security spending -- often gets short shrift. That national security is important does not mean that the Pentagon should be exempt from fiscal oversight or off the table when we talk about balancing the federal budget. This is especially true because higher defense spending does not always make us safer.
From the end of the Vietnam War through the end of the Cold War, national defense spending typically ran between 5% and 6% of GDP. With the Soviet threat eliminated, the “Peace Dividend” allowed a reduction in defense spending as a share of the economy, bottoming out at 3% of GDP in 1999 and 2000. This restraint was one of the key drivers of the budget surpluses of the Clinton-Gingrich era.
But since the September 11 attacks, the trend has reversed. In 2010, defense spending will again reach 4.9% of GDP, the same level as in 1980. About half of this increase has been driven by specific costs of the wars in Iraq and Afghanistan, and the rest by growth in base military spending faster than economic growth. With deficits expected to run in the range of 4% of GDP over the next decade, a 2% of GDP rise in defense spending is a huge deal.
Senator Tom Coburn made these points last month in a letter to the chairmen of the presidents deficit commission. Coburn, who sits on the commission, puts a spotlight on rapid, inflation-adjusted growth in military spending and the lack of oversight at the Pentagon as that money is spent.
In his letter, Coburn notes that inflation-adjusted base Pentagon spending (that is, the figure excluding the additional costs for operations in Iraq and Afghanistan) rose from $407 billion in 2001 to $553 billion -- a 36% increase -- by 2011. “Supplemental” spending to cover the wars in Iraq and Afghanistan will add a further $159 billion in 2011.
Is all this spending necessary to protect America? Coburn gives reason to believe that it isnt, and proposes measures to ensure that military spending is more efficient in the future.
Coburn notes first that even though military spending has risen significantly in real terms -- and will continue to do so under the Obama administrations current plans -- we are spending more to get less. Per-unit costs for weapons systems are rising at a pace far faster than inflation, and the number of units we buy is often declining even as total costs rise.
For example, the F-35 Joint Strike Fighter program has experienced a cost overrun from $226 billion projected in 2001 to $328 billion projected today. This is despite the fact that the number of F-35 planes to be purchased has gone down by 14%; the overrun is driven by a unit-cost increase of 68%. And yet, there are serious concerns about the F-35s suitability for combat operations currently performed ably by its nine-times-cheaper predecessor, the A-10.
It is difficult to track the efficiency of Pentagon spending overall because of the organizations poor financial controls. According to a Department of Defense Inspector General Report, the Pentagons own financial management systems “prevent DOD from collecting and reporting financial information ... that is accurate, reliable, and timely.”
For this reason, Coburn has called for a comprehensive Pentagon audit to seek out waste. Ordinarily, calls to eliminate “waste, fraud and abuse” should be viewed with skepticism -- in many large government programs, especially entitlements, the key drivers of runaway spending are conscious policy choices, not waste.
But the ways in which the Pentagon differs from most federal programs -- it is a vast organization with millions of employees and operations worldwide, not a clearinghouse for transfer payments -- mean an audit is likely to be fruitful.
Beyond the audit, which would mostly relate to procurement, Coburn turns his attention to an especially touchy budget area: pay and benefits. The Pentagon estimates that it will spend $244 billion on pay and benefits in 2010, over a third of its total budget. Therefore, personnel cost decisions make a huge difference in the overall cost of the military.
Coburn urges that pay and benefits “be reformed to the extent that all such benefits are affordable within a DOD budget that assumes zero real growth for the foreseeable future.” In other words: pay restraint is needed.
Coburn is likely to find an ally in the White House, which has sought to rein in the Pentagons spending culture. Obama used significant political capital to kill the overrun-plagued F-22 fighter program, threatening to veto any defense spending bill that did not terminate it. Defense Secretary Robert Gates has been encouraging military brass to reevaluate their decisions about what purchases are useful for todays wars, including an emphasis on widely used -- and less expensive -- unmanned aircraft.
Unsurprisingly, Congress is not always on board with military spending restraint. While Gates recommended a 1.4% pay increase for military personnel in 2011, the military personnel subcommittee of the House Armed Services Committee instead approved a 1.9% increase last month -- unanimously.
Over the medium term, the presidents budget forecasts a steep drop in defense spending as a share of GDP -- from 4.9% in 2010 and 2011 back down to 3.5% in 2015. But projecting that is one thing, and getting there is another. Doing so will require a scaling back of our military operations abroad, and will require that Congress go along with the Administrations plans to restrain cost growth for personnel and procurement.
This assumes that a scaling back of foreign military operations is a good idea. Iraq and Afghanistan are budgeted as “contingency” operations, with the idea being that they reflect temporary spending and should not be included in the ongoing budget baseline. If we expect to have over a hundred thousand troops fighting a war or two abroad on an essentially permanent basis, we should be budgeting accordingly -- and adjusting our tax code or other government programs to accommodate a permanently higher level of expenditure.
But regardless of macro-level foreign policy decisions, Coburns letter gives reason to believe that we can find significant savings in military spending -- though perhaps not as much as 1.4% of GDP -- just by increasing accountability and making wiser spending choices. Given our overall fiscal situation, we can hardly afford not to.
Original Source: http://www.realclearmarkets.com/articles/2010/06/08/sen_coburn_tackles_runaway_defense_spending_98501.html