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Who Will Win: Guns Or Butter?

Defense policy sage and go-to source for defense reporters, Loren Thompson, of the Lexington Institute, wrote a post last week titled “Five Reasons Weapons Spending Won’t Fall.” He contends that even with a resurgent Democratic party taking pretty much all the reins of power in Washington, spending on weapons will continue to grow. “Democrats presided over four of the last five big weapons buildups in the last century,” he writes. Yet, surveying the perilous state of the American economy and the increasing shambles that is the federal budget, there are a number of reasons to expect weapons spending will indeed fall.

First, Thompson says, economic forces don’t drive defense spending, threats and domestic politics do. And threats ultimately trump politics. True, but, while the world can be a dangerous place, it’s just not quite dangerous enough to merit the dramatic growth in the defense budget over the past eight years that has put defense spending near all-time highs. The Pentagon spending spree came in response to the need to wage two simultaneous wars and to make-up for the 1990s “procurement holiday.” As these things tend to be cyclical, the current buildup will likely be followed by a downturn.

There are no enemies out there that pose a credible conventional threat to the U.S. Waging a long war against shadowy terrorist enterprises, such as Al Qaeda, does not justify spending billions on new jet fighters, submarines and mobile howitzers for use against opposing armies. In the wake of Russia’s invasion of Georgia, there was a rush by some to portray a revanchist Russia as the next boogeyman. Yet a sober assessment of Russian military performance in that incursion, such as this one in the Economist, reveals an often bumbling, none too professional and rusting force. Any “threat” posed by China, the one country many defense planners pin their hopes on to engage with in a new arms race, remains hypothetical.

The Iraq war is likely to lose it’s most vocal constituency, the Republican Party. After the election, if current trends hold and Obama wins, Iraq will no longer be seen as Bush’s, and hence the GOP's war. The default Republican foreign policy of isolationism that prefers missile defense to costly nation building operations in distant lands will likely re-assert itself. Much of the current high levels of defense spending came from sending hundreds of thousands of heavily armed troops and their weapons to wage war in Iraq.

Second, spending on operations and personnel will moderate as Iraq winds down. Most of the funding for combat operations in Iraq came from the emergency supplemental spending bills. Congress’ willingness to shell out that money will drop as troops leave Iraq. Deployments to Afghanistan will increase, but the American footprint in Afghanistan is and will remain much smaller than Iraq and hence much less costly.

But the biggest driver of the operations and maintenance account is personnel costs, including salaries and benefits. Compensation per service member has increased by over 30 percent since 2000, much of that rise caused by soaring health care costs. And the Pentagon is quite literally adding to the problem. Last year, the Pentagon decided to increase the Army and Marines by 92,000 troops. The Air Force also recently announced plans to increase their end strength. The Pentagon, like America as a whole, has not figured out how to control runaway health care costs and to continue to attract and retain quality people, military salaries will continue to rise.

Third, it takes years to change military spending priorities. Yes, but sometimes it doesn’t, look at the abrupt cancellation of the Army’s Crusader and Comanche programs. The most likely time for major weapons cuts is within the first two years of a new administration. Obama’s secretary of defense may not be as willing to raise the ire of an entire service, as Rumsfeld did when he targeted the Army for special attention, but expect all costly programs to come under serious scrutiny and for some of them, such as the Army’s FCS, the Air Force’s F-35 and the Marine Corp EFV, to be in for a serious hair cut.

Spending can drop rather quickly. There have been two post build-up drop offs since World War II; post Vietnam, the defense budget actually rose. The first drop in defense spending came after the Korean war, when the defense budget was cut in half from 1952 to 1955. The biggest hit fell on the procurement account, which dropped off a cliff, going from $29 billion in 1952 to just $6 billion three years later. Spending on R&D actually increased after the end of the Korean war, and continued on an upward trajectory through today. In the desire to garner a “peace dividend” after the Reagan-era buildup, procurement accounts declined steadily. From the spending high point in 1989, procurement dropped from $80 billion to $42 billion by 1994.

Fourth, weapons programs will be fiercely defended by their constituencies in Congress and the services. There is no precedent for what’s about to hit the federal budget in terms of the entitlements crisis caused by retiring baby boomers, what former GAO director David Walker has tried mightily to warn anybody who would listen. Walker’s predictions of pending doom can only be worsened by the current economic crisis. Economists now acknowledge that the U.S. economy is in recession, the discussion has moved on to how long it will last. Some say at least two years. Those are the optimists. Then there are people like Tiger Management founder Julian Robertson who recently said on CNBC that the U.S. economy won't recover for at least a decade.

As income and corporate tax revenues fall because of a sagging economy, the federal government will have to scramble to pay the entitlements that Americans expect and will increasingly come to rely upon. As government debt rises as we try to make good on those promises, other spending will be squeezed. Congress will want to shift more money into the discretionary accounts that have been long neglected, such as infrastructure. There is only so much money in those discretionary accounts, and defense eats up much of it. The Democrats have powerful constituencies for non-defense discretionary spending.

Fifth, weapons spending stimulates the economy. It can, but not by enough. If the unemployment rate climbs to 7 percent or higher, as some are predicting, there will be huge pressure on Washington to fund big infrastructure projects that employ many, not just a few highly skilled engineers turning out aerial drones. The federal government will be forced into the position of massive spending to stimulate the economy and replace the private consumer who is no longer able to drive economic growth as they have for the past quarter century. That means big infrastructure projects, roads, railways, airports, new energy projects, all of which will be paid for from discretionary accounts, likely squeezing out defense.

The reality is that a huge gap already existed between the Pentagon’s list of desired weapons and the amount of money available in even the rosiest of future budget predictions. The next administration will be forced to either cancel or at least severely curtail a number of costly weapons programs. A paper by two RAND researchers that came out last summer urged the Pentagon to use the opportunity provided by the next Quadrennial Defense Review to undertake a much “needed reassessment of the rules of the game: a redetermination of the real and most important dangers to the country and how to shape and size the military capability” in a time of limited resources.

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