The Defense Budget Gamble

by Reihan Salam

Shortly after revisiting Ramesh Ponnuru’s January column on deficit reduction, a friend recommended that I read Todd Harrison’s new Foreign Affairs essay on the U.S. defense budget, which addresses how peacetime defense spending has changed in recent years:

In previous buildups, as the budget increased, the size of the military grew as well. But during the most recent buildup, the size of the military did not significantly expand. From 1998 to 2010, the overall defense budget grew by 108 percent in real terms (or by 58 percent excluding war-related costs). Yet over the same period, the number of active-duty military personnel remained relatively flat, fluctuating between 1.4 and 1.5 million troops. The number of aircraft in the Air Force declined from 6,228 to 5,244, and the average age of its aircraft increased from 19.6 years to 24.4 years. The Navy reduced its fleet from 344 to 288. Instead of getting larger, the military became smaller, older, and more expensive.

The rise in peacetime costs can largely be attributed to two areas of the defense budget: paying troops and keeping them ready to fight. From 2001 to 2012, annual compensation costs per active-duty service member grew 57 percent in real terms, not including war-related expenses or the cost of veterans’ benefits for injured or disabled service members. This growth resulted mainly from higher than requested pay raises, new and expanded benefits, and skyrocketing health-care costs. Likewise, the investment per person for readiness — the training, maintenance, and support that keeps the military prepared for battle even during peacetime — grew 34 percent in real terms over the same period. Excess bases and facilities, and the Defense Department civilians needed to support them, make the cost of maintaining readiness substantially higher than it would be otherwise. By the Defense Department’s own estimates, it currently operates roughly 20 percent excess capacity in bases and facilities, and the number of civilian workers has grown by more than 100,000 over the past decade.

When coupled with the prospect of a declining and uncertain budget, this internal cost growth portends a difficult set of choices for the Pentagon. [Emphasis added]

Harrison argues that policymakers essentially have to choose whether to adopt a long-term focus on modernization efforts that would entail more near-term risk in capacity and readiness or a near-term focus that would avoid politically difficult internal reforms while making it more likely that the military will be ill-prepared to deal with the threats of the future. Harrison seems to steer us in the direction of a long-term focus, and with good reason:  

A long-term approach must also begin the process of making systemic internal reforms in the Pentagon, including slowing the growth of military compensation costs, reshaping and resizing the Defense Department’s civilian workforce, and eliminating excess bases and infrastructure. Despite the upfront costs and political risks involved, the sooner such reforms are implemented, the sooner savings can begin to accrue. Savings from structural reforms, such as reducing the size of U.S. forces, will improve the effective buying power of defense dollars, enabling the United States to afford a larger and more capable military than would otherwise be possible.

The bulk of the required savings under the long-term approach would come from near-term reductions in capacity and preparedness, which, while never ideal, could be mitigated somewhat by adopting tiered readiness within the services or dissimilar readiness levels across the services. Moreover, the long-term effectiveness of U.S. forces could be enhanced by the advanced technologies and weapon systems funded by a near-term reduction in readiness.

Policymakers will understandably be reluctant to pursue the long-term approach because it requires stepping on many of the so-called third rail issues in defense. Reforming military compensation and cutting the Defense Department civilian workforce, for example, would anger the many veterans’ service organizations and federal employee unions whose members could be affected. Supporting another round of base closures would require many members of Congress to vote against their own parochial political interests. Making targeted reductions in acquisition programs and force structure would upset the status quo in the defense industry.

Yet he acknowledges the seriousness of sacrificing capacity and readiness, as it would necessarily constrain U.S. foreign policy — potential adversaries might be “less deterred by the threat of military force,” and “reduced preparedness could compromise the performance of U.S. forces in battle.” 

Internal cost growth is a difficult issue for Congress, and for conservatives, to handle, as there is a widespread desire to offer military personnel generous compensation, including generous pension and health benefits. If the U.S. military were a conventional for-profit business enterprise, offshoring might be the strategy of choice; but instead the military aims to attract and retain high human capital U.S. workers, many of whom have lucrative employment opportunities in the private sector. When skilled labor is scarce, it is important to embrace automation and, more broadly, disruptive innovations that can be utilized just as effectively by less-skilled and moderately-skilled workers. We can make this transition sooner or later. My working assumption is that while the next few years will not be free of serious global threats, the threats facing the U.S. will grow more serious over time. And so I would be willing to sacrifice some degree of capacity and readiness in the near term to improve capabilities over the long term. But this is definitely not a no-brainer, and I find it hard to imagine members of Congress agreeing with me. Those who are willing to sacrifice capacity and readiness in the near-term are generally those who are quite happy to sacrifice it in the long-term as well, for a variety of reasons.