The Pandemic Depression
The Global Economy Will Never Be the Same
It is hard to know what to make of this year’s proposed U.S. defense budget. Secretary of Defense Chuck Hagel bills it as a novelty: “the first budget to fully reflect the transition DoD is making after 13 years of war.” The New York Times portrays it as an antiquity: “Pentagon Plans to Shrink Army to Pre-World War II Level,” reads its headline. Senator Lindsey Graham (R–S.C.) paints it as a travesty: “ill-conceived, ill-designed, bad defense policy, detached from reality.” In truth, it is none of those things. Rather, the proposed budget represents a continuation of nearly three years of defense retrenchment, which is modest in scope and prudent in purpose.
For starters, there is far more continuity than novelty in contemporary retrenchment. Since early 2011, the Obama administration has consistently limited the defense burden by slowing military spending, reducing forces overseas, and privileging diplomatic statecraft. In January of that year, Robert Gates, who was secretary of defense at the time, announced an initial plan to trim defense spending by $78 billion over the next five years. The Budget Control Act, passed in August 2011, placed new caps on security-related spending, which resulted in an additional $24 billion being stripped from that year’s base defense budget. Matters came to a dramatic head, of course, in March 2013, when the failure to pass a deficit-reduction bill triggered sequestration, which threatened to cut some $600 billion from defense over the next nine years. As a result of all of these changes, the Pentagon’s spending has shrunk: Whereas it had planned an average base budget of $582 billion a year between 2011 and 2015, it is now on pace to spend an average of $509 billion a year over the same period. Retrenchment is nothing new: It is the new normal.
Nor is the extent of retrenchment unrealistic. Even with these dramatic reductions, the proposed 2015 base budget still exceeds its 2006 counterpart by almost $10 billion in constant dollar terms. And the base budget is only part of the picture. The administration will also request additional war-related funds, which have remained in excess of $80 billion over the past two years, despite the withdrawal of upwards of 30,000 troops from Afghanistan over the same time frame. It has also announced its intention to seek an additional $26 billion as part of an Opportunity, Growth, and Security Initiative, with an eye toward preserving readiness. In relative terms, reduced U.S. expenditures would still dwarf the estimated $132 billion that China plans to spend on its military this year -- and China is the second-biggest military spender in the world by a wide margin.
It would also be wrong to view this year’s budget as archaic. Although the army is slated to shrink, it will not reach 450,000 soldiers until 2019, and the 2019 force will be only six percent smaller than the one that secured an initial success in Afghanistan back in 2001. Further, although the number of personnel is falling, moreover, this is not your grandparents’ military. Old workhorses such as the U-2 spy plane are scheduled to be replaced by the Global Hawk unmanned aerial vehicle. The budget represents an attempt to invest in quality over quantity. That is, instead of preserving large forces designed to support ambitious nation-building efforts, the budget seeks to create what Hagel describes as a “smaller and more capable force.” To this end, the budget calls for the expansion of special operations and cyberwarfare capabilities. Far from regressing, the Defense Department is evolving.
Back when Gates inaugurated the latest era of retrenchment, critics warned that paring back military spending would ruin the defense industrial base without making a dent in the deficit. The Brookings fellow Robert Kagan claimed that defense cuts would “increase the risk of strategic failure in an already risky world, despite the near irrelevance of the defense budget to American fiscal health.” Neither of these predictions came true. Between 2010 and 2013, the top three U.S. defense contractors -- Lockheed Martin, Boeing, and Northrop Grumman -- averaged a four percent annual increase in net income and 16 percent annual increase in stock price. The Aerospace Industry Association likewise estimated that net profits in the aerospace and defense industry increased by almost $8 billion over the same period, driven in part by a 26 percent increase in military exports. Meanwhile, the Congressional Budget Office estimates that the deficit will fall to $514 billion this year, down from $1.4 trillion just five years earlier, in large part due to cuts in discretionary spending, including defense.
But what is retrenchment good for? Potentially nothing if it turns into isolationism, inertia, or appeasement. But none of those outcomes looks likely. For better or worse, the United States remains deeply engaged in the world, although it brandishes fewer threats while doing so. Notwithstanding fears that defense cuts might unnerve allies, the United States has retained --and in some cases strengthened -- crucial partnerships. Witness the recent state visit of French President François Hollande and intensified military exercises with Japan.
Similar warnings that adversaries would exploit U.S. weakness proved overblown. The recent crisis in Crimea has raised fresh concerns about sagging American prestige, but Russia has shown a consistent willingness to use force opportunistically in its near abroad. Critics are wrong to argue that retrenchment has fueled the ambitions of Russian President Vladimir Putin. After all, Russia engaged in similar aggression in Georgia in 2008, when U.S. defense spending was at its apex. In any event, this is not a situation amenable to military solutions, and Secretary of State John Kerry’s recent pledge of financial assistance to the new regime in Kiev appears the most promising approach to what is a difficult situation. Furthermore, in Syria, it was the threat of force combined with multilateral pressure that resulted in an unprecedented deal in which Syrian leader Bashar al-Assad agreed to surrender his stockpile of chemical weapons. Firm diplomacy has likewise led to an interim deal on Iran’s nuclear program, which, while not solving the problem, affords critical breathing room to reach a more comprehensive deal.
Even if additional retrenchment is in the cards, it remains to be seen exactly what form it will take. Many of the potential savings in the proposed budget depend on congressional support, which may not be forthcoming. Lawmakers are generally allergic to base closings and realignments, although Hagel has threatened to take matters into his own hands if necessary. Cutbacks to the U.S. Army Reserve and the National Guard will undoubtedly prove unpopular. Congress has walked back changes to military retirement benefits in the past, so new proposals related to military salaries, housing allowances, commissaries, and health contributions may encounter similar resistance. Many weapons systems have their own personal champions on the Hill, as is the case with Senator Kelly Ayotte (R–N.H.) and the A-10 Thunderbolt. Yet whatever the wins and losses this round, retrenchment will probably continue for the foreseeable future, not least because the more stringent sequestration caps are set to return in fiscal year 2016 absent congressional action.
In other words, all that remains to be seen is whether the government handles retrenchment wisely or not. And on that front, there is cause for concern. There are many areas in which even greater economy than the proposed budget allows would be the better part of national security. Some suggestions include reducing the number of aircraft carriers and further curtailing purchases of the F-35 Joint Strike Fighter, a program that is seven years behind schedule, 70 percent over budget, and of dubious utility. Another suggestion is to make cuts to the United States’ nuclear triad. The budget makes no changes here, but the current force could cost as much as $640 billion to maintain over the next ten years, even though the United States could preserve its deterrent with far fewer than the 1,550 deployed strategic warheads permitted by the New START agreement. In addition, there is a genuine danger that the air force’s new long-range bomber and the navy’s replacement ballistic missile submarine will gobble up scarce procurement dollars in coming years. Perhaps most important, aside from the modest steps mentioned above, the budget largely avoids the thorniest questions related to military compensation, which, if left unchecked, could consume the entire defense budget by 2039.
Reducing defense burdens is only a means to an end, not an end in itself. From this standpoint, it is disappointing that the Pentagon’s latest strategy document, the Quadrennial Defense Review, was reportedly drafted with an eye to budget caps rather than strategic needs. Unless retrenchment is underpinned by a clear and coherent strategy, it is nothing more than an invitation for competing bureaucracies to cling to outmoded concepts and programs. And there is no reason to avoid tough questions: Even with modest cuts in defense spending, the United States will still have more than enough resources to remain engaged around the world in the regions that matter most. Getting retrenchment right creates opportunities for reflection and reform and can spur innovation and adaptation. Sometimes cutting back is the best way to move forward.