Getting Defensive

August 2nd, 2012 at 6:37 pm

All the angst around the sequestration, especially on the defense side, has led me to wade back into the world of defense spending.  You get a lot of knee-jerking on both sides of the issue, from “cutting one dollar from the Pentagon undermines our troops!” on one side, to “make the Pentagon fund themselves through bake sales!” on the other.  So I thought we should take a look.

Some of the extreme stuff about job cuts among defense contractors as a result of even a whiff of sequester seems trumped up (e.g., see this critique of a defense industry study that somehow finds a 7.5% cut will lead to about a third of the industry getting laid off).

Then there are these points made by Merrill Goozner about the time it takes for spending cuts to make their way through the industry, a sector which, according to his analysis, has already been downsizing.  That too would suggest layoffs from new spending cuts would likely be more gradual than sudden.

On the other hand, automatic, across-the-board cuts are a scandalously ridiculous way to deal with any agency, especially one with so many moving parts as defense.  That’s the whole point: make the sequester so ugly no one would go there.  But, yet…there we go.

The first figure shows defense spending as a share of GDP and as a share of the federal budget over the last 30 years.  The Reagan build-up in the 1980s lifted defense spending to over 6% of GDP and almost 30% of the budget (he too was a military Keynesian).  Military spending fell over the 1990s, and hit 3% of GDP by 1999, the lowest share since right before the build up to WWII.

Source: OMB

The Mideast wars of the 2000s took the GDP share up to 5% and the budget share up to about 20%, where it stands today, though planned cuts in defense outlays, even before sequestration, have it coming back down to around 3% of GDP in the President’s budget (that path is, howver, by no means assured).

How much has defense grown in the past few years relative to non-defense spending?  Quite a bit.  Even with the ramp up in non-defense spending associated with the Great Recession, real defense spending was up 84%, 2000-11, while everything else went up 48% after inflation.  If we leave out the recession, defense was up 56%, 2000-07, and non-defense rose 21%.

Source: OMB, BLS for CPI deflator.

Is this good?  Bad?  Just right?  Is non-defense getting squeezed?

A few rough answers:  Re defense squeezing non-defense, frankly, I’m worried.  You hear much more gnashing of teeth over the defense sequester than the non-defense side, though indiscriminate cuts there can also be terribly damaging (that point is well explored here and here’s a good e.g. of how these non-def cuts can play out).  The R’s are pushing hard to suspend the defense cuts and have the non-defense part of discretionary budget carry the full weight, though the D’s appear to understand how unacceptable that is and are holding the line against it.

Re spending levels, clearly the wars are in those growth numbers just cited, and as they wind down, thoughtful cuts in defense spending must occur.  For most of us, what’s thoughtful translates into who’s thoughtful.  One guy I trust on this is Michael O’Hanlon, a non-partisan defense analyst who comes across as a dawk (some combo of dove/hawk).  Note his ideas for budget consolidation at the end of this commentary, including streamlining ground forces, downsizing the F-35 fighter program, a “more economical nuclear force,” and changes in compensation practices.

Larry Korb is another analyst with excellent granular knowledge of areas to cut without comprising our security.  Here he is putting the defense sequester into a useful historical context and downplaying some of that angst I noted above.

It is these types of analyses that should guide the way forward.  That would be far better than either automatic cuts or freaking out about such cuts.

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2 comments in reply to "Getting Defensive"

  1. Bearpaw says:

    It’s worth noting for perspective that people who claim that *any* “defense” cuts undermine national security can regularly be found expousing that view on TV, while the bake-sale proposers are limited to bumperstickers. (And tend to mean it as tongue-in-cheek commentary rather than a serious proposal.)

  2. Nick Pisano says:

    The problem that I have with O’Hanlon is that his prescriptions for DoD are all too similar to non-DoD proposals in cutting the budget: he wants to do it on the backs of soldiers, sailors and Marines, especially those who are near the bottom. No other profession requires that one make the supreme sacrifice, if necessary, not the mention the family separations and dangerous conditions during normal operations, but O’Hanlon will continually attack military pay, allowances and the few benefits that still exist like commissaries and exchanges which, by the way, are run using non-appropriated funds and don’t impact the DoD budget in any way. But, just like the Washington elite’s attacks on old people (Social Security, Medicare), O’Hanlon doesn’t hesitate in shifting the argument to some false equivalence of “shared sacrifice” that will turn American economic reality into one consisting of hereditary aristocrats and serfs. That these serfs die to defend the economic interests of the aristocrats is, I guess, simply a premium. As Korb noted in his analysis, sweep up money (and money that never gets expended) will offset virtually all of the sequester given effective management. I know this is true because I’ve been there and implemented similar measures during previous drawdowns.