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The Unbearable Lightness of Barney By: Stuart Koehl
The Weekly Standard | Tuesday, November 04, 2008

One reason nobody takes Democrats seriously on matters of national security are statements like those of Representative Barney Frank (D-Mass.) to the effect that he wants to cut the Defense budget by a mind-numbing 25 percent in order to reduce the deficit and to pay for programs he and his Democratic colleagues hold near and dear to their hearts. Aside for the questionable wisdom of cutting the defense budget at all when more than 200,000 American troops are deployed in combat zones around the world, Frank's proposal suggests that the man, for all his years in Congress dealing with budgetary matters, simply does not understand the military or how the country pays for it. Because any halfway informed person, hearing Frank's proposal, would realize that it is not physically or fiscally possible to do what he wants.

"Why?" one might ask. After all, we will spend some $650 billion on the Department of Defense next year. Surely, it should be possible to eliminate a measly $162 billion, just by cutting "waste, fraud and mismanagement." In fact, the Defense Department is actually quite well managed as compared to some of Barney Frank's more favored government bureaucracies, like the Department of Housing and Urban Development, or the Department of Health and Human Services. If all the inefficiency and corruption were squeezed out of the Defense Department, I doubt that one could save more than $20-30 billion. So when Frank calls for cuts, he means real cuts. So let's look at how that would have to be done.

The first thing to know is the Defense budget is not a pot of money. In fact, it consists of several different pots of money, known as "accounts"; each fiscal year (which runs from October 1 to September 30), the president submits a budget to Congress that indicates how much money is needed in each account, and Congress appropriates that money and authorizes the Defense Department to spend it. Money can be moved from one pot to another during the fiscal year to respond to emergencies, but this causes serious disruption throughout the military, since each service has planned how it will spend its money. It's robbing Peter to pay Paul, and it's best to avoid it, if possible.

The four main accounts are Military Personnel (MILPERS); Procurement (PROC); Research and Development (R&D); and Operations & Maintenance (O&M). MILPERS includes all funds used to pay the troops, provide subsistence for their dependents, their pensions and retirement pay, and their medical expenses (housing is paid out of a separate but relatively small account). Procurement is money spent to buy equipment--everything from rifles to aircraft carriers, including money spent to upgrade existing weapon systems. R&D is money spent to develop the next generation of weapon systems, to ensure that the U.S. maintains a technological edge over our adversaries. Finally, O&M is the money used for training, to buy fuel and food and other consumables, to fix broken equipment, and to sustain forces in the field.

O&M is by far the largest account, mainly because the country is at war, and wartime operations are expensive. In Fiscal Year 2008, the total defense budget (including $141 billion in supplemental appropriations to pay for the war in Iraq and Afghanistan) came to $624 billion. Of that, some $165 billion (26 percent) went to O&M in the "baseline" appropriation. But about two-thirds of the $141 billion "supplemental" appropriation was also directed to O&M. So the total O&M account comes to $258 billion (41 percent). If we exclude supplementals from the calculations and use only the baseline submission, then O&M accounts for 35 percent of the budget.

MILPERS is the next largest account, at $119 billion. About 15 percent of the supplemental goes to MILPERS, for a total of $140 billion (23 percent of total DoD expenditures). Again, if we only consider the baseline request, MILPERS accounts for 25 percent of the budget.

Procurement includes $102 billion in the baseline submission, plus about 19 percent of the supplemental, for a total of $129 billion, or 21 percent of total DoD expenditures; using just the baseline submission, it accounts for 22 percent of the budget. Almost all of the $75 billion allocated to R&D is paid out of the baseline submission (16 percent); if we include the supplemental, this falls to just 12 percent.

Now that we know where the money is going, we can try to meet Barney Frank's goal of cutting 25 percent from the budget. The easiest thing to do would be eliminating all supplemental appropriations for the war--assuming that somehow one could instantly end the war and return all our troops to the U.S. But reality interferes with this fantasy: the war is not going to end overnight, and even a total U.S. withdrawal from Iraq would not substantially reduce the tempo of operations and the need for supplementals. Following candidate Obama's policy (to the extent that one can nail Jell-O to the wall), one might expect that any savings in Iraq would be diverted to Afghanistan, where, even if the number of troops is lower, the cost of sustaining them in the field is much higher. At best, we might see supplementals to support the war fall to half their present level, or about $70 billion, an 11 percent saving. We now have to find the remaining 16 percent.

Let's agree from the outset that MILPERS cannot be reduced. The troops need to be paid (they get fussy if they are not), their expenses have to be met. The Democrats are on record as supporting both an increase in the number of troops and improvements in their quality of life, so this actually requires an increase in MILPERS, perhaps to as much as $130 billion--which puts back 2 percent from the 11 percent we just saved off the supplemental, requiring us to find cuts worth 18 percent from the Procurement, R&D and O&M accounts.

O&M is by far the largest account, so surely we can find something to cut there. But most of the cuts we took from the supplemental already come from O&M, and, as we noted, the tempo of operations will remain high, even if we pull out of Iraq. So we will have to keep spending about the same on O&M as we are today, unless we intend to cut back on training and maintenance, which would put the lives of troops at risk and create the kind of "hollow" forces we saw in the late 1970s and almost saw again in the mid-1990s. So we aren't going to be able to cut O&M.

That leaves just Procurement and R&D, which together account for about 36 percent of the DoD budget. To meet Frank's goal, we would have to cut spending in both categories by half. This means that most of the new weapon systems now in production could not be acquired in the numbers needed to replace the aging systems (most of our inventory was purchased during the Reagan era) in the numbers necessary to maintain front line strength. Many programs would have to be terminated, others would have to be cut back or "stretched out," leading, paradoxically, to higher costs in future years (because the unit cost of the items we do buy will be higher, and because the older systems we need to keep longer will become more expensive to maintain and operate).

Cuts in R&D amount to eating our technological seed corn. In an era of rapid technological change, a failure to invest today could lead to technical inferiority a decade or more from now. Worse, the U.S. will not be able to develop the kinds of systems it will need to fight the asymmetrical enemies we are most likely to face. For better or worse, our soldiers will have to prepare to fight the last war because they will be armed with the last war's weapons.

This is only a cursory analysis of the budget at its most superficial level, but it is enough to reveal that Barney Frank's desire to cut defense by 25 percent is either fantasy or lunacy--or a cynical attempt to play to the pacifist wing of his own party while distracting attention from his own culpability for the current financial crisis. In any case, Frank is very much alone in his desire to make such deep cuts in defense (though Obama makes noises of this sort from time to time, he is quick to backtrack). In fact, there is an emerging consensus that the U.S. must maintain its defense spending at close to its present levels for the foreseeable future.

The best way to understand what that means is defense as a percentage of gross domestic product (GDP). Though it is commonly believed that defense spending is at unprecedented levels (it is, if one just counts dollars), relative to the size of our economy, we are only spending about 4 to 4.5 percent of GDP on defense. This compares to 11.7 percent during the Korean War, 9.8 percent during the Vietnam War, 6 percent during the Reagan defense buildup, and 4.6 percent during the first Gulf War. Despite fighting a war on two fronts for six years while simultaneously attempting to modernize our forces, despite spending more money on defense than ever before, our economic growth has outpaced the growth of the defense budget by a wide margin. From an historical perspective, current spending levels are both affordable and the minimum appropriate level, given the global security situation.

The real threat to the defense budget comes from what has been called "entitlement squeeze"; i.e., the growth of "entitlement programs" such as Medicare, Medicaid, Social Security and the like, which go up every year in response to inflation and new government mandates, without Congress even having to appropriate the money--it's just taken off the top, automatically. That leaves less and less room for "discretionary' funding--money which Congress has to appropriate and authorize every year. Defense constitutes the single largest pile of discretionary funds, and is also the one with the least domestic support, since its benefits are not visible (unless there is a war). Congressmen and senators would much rather spend money on programs that directly benefit their constituents, since these are most likely to be rewarded with votes on election day. But given the present growth of entitlement programs, the only way to do this without either increasing the federal deficit or passing unpopular tax increases (the sponge that is the "super rich" has just about been squeezed dry) is to take money from one pile of discretionary money and move it to more popular ones. Defense is the only significant discretionary funding that can be raided in this manner. Bill Clinton did it during his administration which is why we managed to get increases in domestic spending and a budget surplus. All it cost was a military force that was undermanned and undercapitalized when we needed to go to war. But, hey, that was a calculated risk, one which Clinton seemed to have won--9/11 wasn't on his watch, after all.

So when Barney Frank talks about a 25 percent cut in defense spending, know (a) that it cannot be done; and (b) if anyone tries, the result will be disastrous. Playing games with the defense budget will not solve our fiscal problems--but it does distract from the real, and unpopular solution, which is serious entitlement reform.

Stuart Koehl is a senior fellow at Johns Hopkins University's Center for Transatlantic Relations.

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