Trillions to Burn?

A Quick Guide to the

Surge in Pentagon Spending

Carl Conetta

Project on Defense Alternatives

5 February 2010

[This web memo is based on two recent publications of the Project on Defense Alternatives:

An Undisciplined Defense – Understanding the $2 Trillion Surge in US Defense Spending and

The President’s Dilemma: Deficits, Debt, and Defense Spending, both dated 18 January 2010]

With his decision to further boost defense spending, President Obama is continuing the process of re-inflating the Pentagon that began in late 1998 – fully three years before the 9/11 attacks on America. The FY 2011 budget marks a milestone, however: the inflation-adjusted rise in spending since 1998 will probably exceed 100% in real terms by the end of the fiscal year.

Taking the 2011 budget into account, the Defense Department has been given about $7.2 trillion since 1998, when the post-Cold War decline in defense spending ended. Approximately $2.5 trillion of this total is due to spending above the annual level set in 1998. This added amount constitutes the post-1998 spending surge.

Military operations overseas are responsible for less than 17% of all the money spent since 1998, and for less than 50% of the funds added above 1998 levels. Chart 1 gives a visual overview of the rise in spending between 1998 and 2010, showing how much was allotted variously to war and to normal peace-time military activities.





Chart 1 also compares recent and planned spending to the averages for (1) the highest spending years of the Reagan administration and (2) the most costly years of the Vietnam war period. The result: whether one looks at total DoD spending or just that portion unrelated to overseas operations, recent and current budgets surpass the Reagan and Vietnam-era flood tides.

Chart 2 gives a longer-term perspective on defense spending, looking back to 1948. All the budget figures have been converted into 2010 dollars, thus taking inflation into account.





What Chart 2 makes clear is that (1) defense spending has moved in waves historically and that (2) the most recent surge reaches uniquely high. Indeed, total spending (actual and planned) after 2001 appears much above the average for the preceding five decades. The Obama administration is contributing substantially to this trend. It plans to spend more on defense in real (inflation-adjusted) terms than did any administration since 1948 – a period encompassing the entire Cold War, including two large-scale, protracted regional wars: Korea and Vietnam.

Comparing several eight-year administrations we find that:

· Ronald Reagan spent $4.1 trillion on the Defense Department (in 2010 dollars),

· G. W. Bush spent $4.65 trillion, and

· Barack Obama plans to spend more than $5 trillion.

How does the 1998-2011 spending surge compare to previous surges? The most ready comparisons are to the 1958-1968 (Kennedy-Johnson) surge of 43% and the 1975-1985 (Reagan) surge of 57%. Notably, the 1998-2011 surge is as large as these two predecessors combined.

The “Kennedy-Johnson” surge (which actually began in the last years of the Eisenhower administration) involved efforts to recapitalize the military and, later, to conduct the Vietnam war. The “Reagan” surge (which actually began in the mid-1970s) involved a shift from a conscript to a volunteer (or “professional”) military, increased funding for force support, and a major program of recapitalization.

Another curious feature of the trend in defense spending apparent in Chart 2 is that the end of the Cold War looks like just another cyclical dip in the flow of funds to the Pentagon. One would hardly guess that the period 1989-1992 marked the demise of a peer global military competitor – one unlike any adversary existing today. Nor would one guess that the West had put behind itself a military contest involving dozens of well-armed nations and 30 significant insurgencies and civil conflicts.

Why Worry About Defense Spending?

Substantial concern about increased defense spending (as well as other federal spending) focuses on the recent, remarkable increase in the national debt. Chart 3 shows the change in debt, actual and projected, as a percentage of Gross Domestic Product (GDP) for the 80-year period 1940-2019.

Much of the recent increase in debt is due to the financial crisis that commenced in 2008. However, debt accumulation is poised to continue through to the end of the period in 2019 – and beyond.

The most ready comparison to America ’s current circumstance are the years of the Second World War. Back then, the level of debt rose higher than it has today, but the period during which the burden exceeded 100% of GDP lasted only 4 years. Today, by contrast, it looks as though the period during which debt will equal or exceed 100% of GDP will last for more than twice as long. If we think of the mid-1940s as representing “the Mount Everest” of US debt accumulation, then the period after 2008 should represent “the Tibetan plateau” (which is not as high as Everest, but far wider.)

What feeds debt accumulation is deficit spending. Chart 4 shows deficit spending as a percentage of GDP for the years 1946-2019. Even after the deep deficits associated with the current crisis pass, the Obama administration is set on a path of deficit spending comparable (on average) to those of the period 1982-1993. This reflects the administration’s decision to combine higher levels of domestic spending with high levels of defense expenditure.

Deficits and Debt – So What?

Are the planned deficits and rising debt reason for grave concern? One worry is that the mounting national debt will lead to a surge in inflation, a weakening of the dollar, and higher interest rates. But such outcomes would depend on other factors as well, for instance: Is the economy in recession and, if so, how deep? After recovery, how close is the economy to full employment? What is the overall debt burden of the nation, public and private, and is it growing, declining, or holding steady? How does the change in debt compare with the change in GDP? Is the debt ratio getting worse or better? And are there alternatives to investing in the dollar and in the United States that are both sizable and more “attractive” (that is: reliably profitable and secure)?

There are several things of which we can be sure:

· First, as Chart 3 illustrates, we are entering new territory with regard to the combined scale and duration of national debt.

· Second, the world is generally displeased with recent US economic leadership and some nations are actively seeking to diversify their holdings of foreign currency (although, at present, the options for “fleeing the dollar” are not inviting.)

· Third, the growth in debt and an eventual rebound in interest rates will mean that a greater portion of the federal budget will be consumed by servicing the debt. Between 2006 and 2017, the portion of federal outlays devoted to interest payments will grow from 8% to 14%. Moreover, the surplus income from social security is dwindling and will soon disappear as a source for paying other bills.

These developments imply greater contention in the future over how the federal government allocates its resources. Concerns about the size of the national debt will further feed this contention. In this light, a modestly cautious approach might be to:

1. Avoid steps in the near-term that imperil economic recovery,

2. “Economize” by ensuring that deficit dollars are used in ways most conducive to recovery and sustainable growth, and

3. Adjust spending priorities to ensure that federal expenditures closely correspond to the nation’s most critical needs and shortfalls, current and emerging.

While privileging the goal of recovery, this approach requires that we revisit and toughen our calculation of national needs and priorities.

Does DoD Need More? Can Less Do?

A first, essential step in answering this question is understanding why DoD’s stated “requirements” have ballooned by 100% in real (after inflation) terms since 1998. The most facile answer is that “ America is at war and wars are expensive.” But this explanation is not sufficient. Including the funding in the FY 2011 budget, the wars account for only half of the increase in DoD funding since 1998.

Moreover, the wars themselves have been exceptionally expensive in comparative terms – but why? Measured in 2010 dollars,

· The Korean conflict cost $393,000 per person/year invested;

· The Vietnam conflict cost $256,000; and

· The Iraq and Afghanistan commitments have cost $792,000 (through 2010).

Rather than adequately explain the post-1998 spending surge, the high cost of recent military operations adds to the mystery.

What is driving DoD costs upwards?

In our recent study, An Undisciplined Defense, we discerned several reasons for the unprecedented increase in DoD’s stated “requirements”. The cost drivers that we identified also pertain to swollen war expenses. And all of these “drivers” point to policy options – choices – that might significantly reduce DoD expenditures.

First, there has been weak prioritization among the many military modernization programs undertaken since the end of the Cold War.

Too much of the $2.5 trillion that was invested in military research, development, and procurement between 1989 and 2002 was “backward looking”, rooted in Cold War programs and concerns. As a result, the post-2001 wars required a new wave of modernization investment.

Also, many of the new technology programs pursued since 1989 – like Predator drones – were simply appended to existing modernization plans, rather than supplanting them. We call this phenomenon of poorly-integrated, over-lapping acquisition programs “discordant modernization.”

Chart 5 shows the real rise in modernization spending between 1978 and 2010 figured on a per person basis – that is: total spending in 2010 dollars divided by the number of full-time military personnel. This is a way of taking into account the change in force size. And what it shows is that recent spending per person is 150% greater in real terms than during the Reagan high-tide. And yet, DoD considers today’s allocations to be inadequate.





Second, America ’s reliance on high-cost “volunteer” (professional) military labor, which began after (and as a reaction to) the Vietnam war experience, is ill-suited to the conduct of protracted, large-scale wars of occupation and counter-insurgency.

Put simply: labor-intensive slogs like those in Afghanistan and Iraq drive personnel costs sharply higher as DoD must pay more to recruit and retain personnel. Between 2001 and 2010, spending on military personnel rose by 50% in real terms, although the number of full-time military personnel grew by only slightly more than 2%. The fact is that America ’s post-Vietnam, post-Cold War military was not designed or built to sustain so many of its personnel in large-scale occupation and counter-insurgency duties for years on end. Of course, the authors’ of the wars had not expected them to evolve into protracted slogs. Still, the 2010 US Quadrennial Defense Review seems to see more undertakings of this type in America ’s future.

Finally and most important: Following the collapse of Soviet power, successive US administrations have set more ambitious goals for the US armed forces. Essentially, as the magnitude of threats dwindled, national leadership pushed the security goal posts forward.

US leaders, Republican and Democratic alike, entered the post-Cold War period seeking both a “peace dividend” and a “power dividend”. The first involved reducing the size of the US military and its budget. Chart 6 shows the change in full-time personnel strength during the 1978-2010 period in percentage terms (with the 1978 total of 2.062 million full-time personnel set equal to 100).

Power Dividend versus Peace Dividend

The “power dividend” that US leaders also sought involved requiring the US military to sustain and expand its continuous global presence, increase peacetime engagement activities, and prepare to conduct more types of missions, faster, across a greater portion of the earth. US post-Cold War strategies have looked beyond the traditional goals of defense and deterrence, aiming to use military power to actually prevent the emergence of threats and to “shape” the strategic environment. US defense planners also elevated the importance of lesser and hypothetical threats, thus requiring the military to prepare for many more, lower-probability contingencies.

The ambitions of post-Cold War US strategy and its vagueness were at odds with the desire to also reduce the military’s size and budget. But the two thrusts were supposed to be reconciled by a series of reforms and innovations that would allow the armed forces “to do more with less.” Reform efforts were to focus principally on trimming DoD infrastructure, streamlining support, renovating business practices, and privatizing various activities. Some leaders also saw in new information technologies the promise of a “revolution in military affairs” that would enable the armed forces to achieve greater integration and efficiency.

As it turns out, the reform agendas fell short of their promise. Institutional resistance and bureaucratic inertia proved stronger than the impetus for change. While reform advocates had hoped that their efforts might liberate between 10% and 15% of the Pentagon budget – or even more – actual savings have amounted to less than 5%.

Squeezed between the failure of reform efforts and the ambitions of post-Cold War military strategy, the peace dividend soon vanished and DoD’s budget began its upward climb. This, combined with a “discordant” approach to acquisition and the conduct of labor-intensive wars in Iraq and Afghanistan , produced the exceptionally high DoD budgets we see today.

Where Did the Money Go?

After 1998, the number of full-time military personnel did not rise by much (see previous chart), despite the wars. But the amount of money given to the Pentagon calculated in terms of dollars per full-time person in uniform soared. Chart 7 illustrates the change in DoD budget authority per full-time per person in uniform. The figure also shows the allocation of the DoD budget among appropriation categories – the main ones being Personnel, Operations and Maintenance (O&M), Procurement, Research, Development, Testing, and Evaluation (RDT&E), and other smaller accounts. All budget numbers have been converted to 2010 dollars.

The upward trend in the DoD budget partly reflects decreased efficiency and a failure to make disciplined choices in procurement. It also reflects the decision to put the military to work in wars of a type for which it was not designed. Finally, it reflects increased readiness, activity, and capability. In some important respects, today’s US military is more powerful than its Cold War predecessor, even though the number of full-time military personnel is 30% less. Among the enhancements are a vast increase in its capacity to attack targets with aircraft and missiles. Also, its capacity to rapidly deploy troops and equipment has improved. In these and other ways, the power of the Pentagon has been re-inflated. And, it is important to recognize, that DoD has taken steps to compensate for the post-Cold War reduction in the number of military personnel.

The Surge in Private Contractors

Since 1989, the pool of DoD military and civilian employees has shrunk by more than 30%. Nonetheless, the total DoD workforce – which includes private contractors – is today as large or larger than it was during the Cold War. The re-inflation of the Pentagon labor pool involves a dramatic expansion in the role of private contractors whose employees have assumed many of the support functions previously performed by DoD personnel. The number of workers on contract to the Pentagon has probably grown by 40% since 1989. This growth partly shows up in the budget numbers as a steep increase in the O&M account. Calculated in per person terms, O&M expenditures are 2.5 times higher today than in 1989. In absolute terms (and corrected for inflation), O&M spending has risen 76%.

The Surge in Military Construction

Military construction is one of the lesser DoD appropriation categories, having seldom accounted for more than 2% of the DoD budget during the past 60 years. The past five years are an exception, however. During 2006-2010, nearly $100 billion was set aside for construction. This makes for a yearly average during the recent period that is 2.5 times as great as the annual average for the preceding 15 years. There are a variety of reasons for the building surge, among them: construction in Iraq and Afghanistan ; the realignment of US bases worldwide, including new construction in Eastern Europe, Central Asia, and Africa ; and, new facilities to accommodate an expanded Marine Corps and Army.





US Military Spending Primacy

The policy choices and failures outlined above have converged to give the United States a historically unique edge in military spending. As shown in Chart 8, the amount America currently spends seems entirely detached from others’ efforts to build military power, whether allied or adversarial. The Chart shows the change in relative shares of military spending worldwide over the period 1989-2006.

· The United States has gone from accounting for only 28% of world spending during the Cold War to 41 % in 2006, and

· The Western group as a whole has gone from a 49% share to a 70% share, while,

· The group of potential adversary and competitor states has gone from claiming a 42 % share to just 16 % in 2006.





America ’s predominance in defense spending is not solely a product of post-9/11 initiatives, either. Throughout most of the 1990s, the United States claimed 31% - 33% of world military expenditures while potential adversary states in aggregate claimed 18-20 percent.

Had Ronald Reagan – who is generally regarded a hawkish president – wanted to achieve in the 1980s the ratio between US and adversary spending that existed in 2006, he would have had to quadruple his defense budgets. And, of course, since 2006, the US defense budget has not receded, but instead grown by another 20% in real terms. By 2011, the United States will probably account for more than half of all global military spending calculated in terms of “purchasing power parity” (which corrects for differences between national economies).

Trillions to Burn?

The US edge in spending has not purchased clear and sure progress toward a more secure and stable world. Nor has it produced an especially efficient military – one closely adapted to the current security environment. The road not taken during the past decade – at a cost of some trillions of dollars – would have involved some combination of:

1. A more forceful and thorough-going approach to Pentagon reform,

2. An integrated or “joint” service approach to force modernization that also closely tailored the acquisition of equipment to new era conditions, and

3. Greater restraint and greater specificity in setting post-Cold War military goals and missions.

That this has not occurred suggests a lapse in attention to the strategic costs and benefits associated with our chosen defense posture. It is as though the nation has trillions of dollars to burn.

Can defense spending be rolled-back? A key enabling condition for the types of problems identified above is the “permissive spending environment” that insulates the Pentagon budget. At present, both Democratic and Republican leaders seem disinclined – each for their own reasons – to rethink the ways America uses its military or to press for the type of budget constraints that might prompt reform. Put simply, there seems to be little political gain (and much political risk) in stumping for DoD budget restraint. But emerging fiscal realities may soon compel increased attention to how the nation allocates its resources among competing goals – foreign and domestic, military and non-military. And this might put the nation on the road to a more disciplined defense.

Bibliography

An Undisciplined Defense: Understanding the $2 Trillion Surge in US Defense Spending, PDA Briefing Report #20, 18 January 2010. Print copies are available for $11 ($16 to overseas addresses) by check or money order to Commonwealth Institute at POB 398105, Cambridge MA 02139 . On request one copy will sent free to non-profit libraries.

The President's Dilemma: Debt, Deficits, and Defense Spending, PDA Briefing Memo #45, 18 January 2010.

Forceful Engagement: Rethinking the Role of Military Power in US Global Policy, PDA Briefing Report 19, December 2008

Re-Envisioning Defense: An Agenda for US Policy Debate & Transition, PDA Briefing Memo #44, December 2008.

Toward a Sustainable US Defense Posture: An Option to save $60+ Billion Over the Next Five Years, PDA Briefing Memo #42, 02 August 2007.

Data Sources

Chart 1. DoD Budget Authority with and without contingency operations.

US Department of Defense (DoD), National Defense Budget Estimates for FY 2010 ( Washington DC : US DoD, June 2009), Table 6-8 DoD BA by Appropriation Title, FY 1948 to FY 2010;

US DoD, FY 2010 Budget Request Summary Justification ( Washington DC : US Department of Defense, May 2009), Figure 1.1 Historical DoD Funding, p. 1-6;

US Office of Management and Budget (OMB), Analytical Perspectives, Budget of the United States Government: Fiscal Year 2010 ( Washington : GPO, May 2009), Table 26-1 Budget Authority and Outlays by Function, Category, and Program; and

Nina M. Serafino, Peacekeeping and Related Stability Operations: Issues of U.S. Military Involvement ( Washington DC : Congressional Research Service, may 2006).

Chart 2. DoD Budget Authority 1948-2019. See sources for Chart 1.

Chart 3. Gross Federal Debt as % GDP, 1940-2019.

US OMB, Mid-Session Review, Budget of the US Government, Fiscal Year 2010 ( Washington DC : GPO, August 2009), Table S–15. Federal Government Financing and Debt;

US OMB, Historical Tables, US Budget Fiscal Year 2010 (Washington: GPO, 2009), Table 1.1 Summary of Receipts, Outlays, and Surpluses or Deficits 1789–2014; Table 1.2 Summary of Receipts, Outlays, and Surpluses or Deficits as Percentages of GDP 1930–2014; Table 1.3 Summary of Receipts, Outlays, and Surpluses or Deficits in Current Dollars, Constant Dollars, and as Percentages of GDP 1940–2014.

Chart 4. US Federal Budget Surplus/Deficit as % of GDP 1946-2019. See sources for Chart 3.

Chart 5. DoD Per Person Budget Authority for Modernization 1978-2010.

US DoD, National Defense Budget Estimates for FY 2010 ( Washington DC : US DoD, June 2009), Table 6-8 Budget Authority by Appropriation Title FY 1948-FY 2010, Table 7-5 DoD Manpower FY 1940 to FY 2010.

For 2009 and 2010 data see: US DoD, Budget Amendment to the FY 2010 President’s Budget Request for Overseas Contingency Operations (OCO), Summary and Explanation of Changes (Washington DC: Office of the Undersecretary of Defense Comptroller, August 2009), pp. 6-9;

US DoD, FY 2010 Budget Request Summary Justification ( Washington DC : US DoD, May 2009), p. 1-9; and

US OMB, Analytical Perspectives, Budget of the United States Government Fiscal Year 2010 ( Washington : GPO, May 2009), Table 26-1 Budget Authority and Outlays by Function, Category, and Program.

Chart 6. US Military Full-Time Personnel 1978-2010.

US DoD, National Defense Budget Estimates for FY 2010 ( Washington DC : US DoD, June 2009), Table 7-5 DoD Manpower FY 1940 to FY 2010.

Chart 7. Figure 5. DoD Per Person BA by Appropriation Title 1978-2010.

See sources for Chart1 and also: US DoD, National Defense Budget Estimates for FY 2010 ( Washington DC : US DoD, June 2009), Table 7-5 DoD Manpower – FY 1940 to FY 2010.

Chart 8. Trends in Military Construction 1951-2010.

US DoD, National Defense Budget Estimates for FY 2010 ( Washington DC : US DoD, June 2009), Table 6-8 DoD BA by Appropriation Title FY 1948 to FY 2010;

OMB, Historical Tables, Budget of the US Government, Fiscal Year 2010 ( Washington DC : US Government Printing Office, 2009), Table 5.1 Budget Authority by Function and Subfunction 1976-2014; and,

Daniel Else, et. al., Military Construction, Veterans Affairs, and Related Agencies: FY 2009 Appropriations; –FY 2008 Appropriations ( Washington DC : CRS, February 2009, February 2008).

Chart 9. World Military Spending Shares 1986-2006

Chart 9 counts as US allies all NATO states plus Israel , Australia , New Zealand , Japan , Taiwan , and South Korea . The category of “potential adversary and competitor states” includes, for 1986: the Soviet Union and other Warsaw Treaty states, China , Cuba , Iran , Iraq , North Korea , Libya , Syria , and Vietnam . For 1994, it includes the former Soviet Union and Warsaw Treaty states are replaced by Russia and Belarus . In 2000, Vietnam is removed from this category. In 2006, Libya is also removed, but Venezuela is added.

Sources:

US ACDA, World Military Expenditures and Arms Transfers 1995, 1999-2000 (Washington DC: US Government Printing Office, 1996; 2001); and,

International Institute for Strategic Studies, The Military Balance 1996/97, 1995/96, 1994/95, 1993/94, 1992/93, 2002-2003, 2008 (Oxfordshire: Routledge, 2008; London: Oxford University Press, 2002, 1996-1995; London: Brassey's, 1992-1994).

Inflation estimates

US OMB, Mid-session Review, US Budget Fiscal Year 2010 ( Washington : GPO, August 2009), Table 3. Comparison of Economic Assumptions;

US OMB, Historical Tables, US Budget Fiscal Year 2010 ( Washington : GPO, May 2009), Table 10.1 Gross Domestic Product and Deflators Used in the Historical Tables: 1940–2014; and,

National Defense Budget Estimates for FY 2010, Table 5-6 DoD Deflators, BA by Appropriation Title.

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