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Reform the Pentagon
A freer military would allow future presidents to manage the force more nimbly.

Soldiers with the Army's First Cavalry Division train at Fort Hood, Texas. (Photo: Specialist Fred Brown)

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A witty liberal could balance the federal budget in just four letters: N-A-V-Y. Unfortunately, that’s pretty much what the president was allowing to happen with the “sequester,” a brainchild of the Obama administration, according to that old scallywag Bob Woodward.

But suddenly, there’s hope for real Pentagon reform, thanks to the budget negotiations between Representative Paul Ryan (R., Wis.) and Senator Patty Murray (D., Wash.). Their proposal relieves by half the gouging of the defense budget in 2014 but, more important, introduces some unprecedented reforms.

Set aside the illogical squabbling over whether a budget compromise can ever be pure enough, and celebrate the tiny but real breakthrough achieved in dealing with federal pensions and military personnel. The final deal seems to give the Pentagon more flexibility in the timing of what were blind and dumb sequestration cuts. That paves the way for the military to radically reform itself as a Total Volunteer Force, a move that would improve morale, national security, and the bottom line.

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Generals, admirals, and defense secretaries from both parties have been ringing the alarm for over a year, but the reality is that the U.S. military was the proverbial odd man out in a budgetary game of musical chairs. There are three players: revenues, entitlements, and discretionary spending. The first two are basically sitting pretty, even after the Ryan–Murray deal, though we all know their reckoning will come another day. What’s at issue is discretionary spending — notably, defense dollars.

As many analysts have noted, the Obama White House was planning a major drawdown of the Defense Department even before the ongoing fiscal stalemate between House Republicans and Senate Democrats. The sequester served as a convenient scapegoat for the equivalent of eliminating one of the major service branches.

The sequester, of course, is the set of the automatic cuts taking place under the Budget Control Act of 2011, half of which were designed to fall on defense spending, even though it makes up just one-fifth of federal outlays. Some conservatives correctly tut-tut that the sequester cuts barely made a dent in the federal budget. But the impact on national security was severe and will worsen over the coming years.

It may be true that the Pentagon is ripe for some belt-tightening in the aftermath of two hot wars, but Americans would be aghast if they knew how crudely defense dollars are being slashed. Especially given existing contracts, the BCA provides little flexibility for Pentagon leaders to manage their budgets in the coming decade, so the cuts are devastating to soft targets, like training and operations, or involve huge legal fees resulting from broken promises. Here’s Mackenzie Eaglen, of the American Enterprise Institute, on congressional testimony by the service chiefs on November 7:

Marine Corps Commandant James Amos noted that penalties arising from canceled aviation contracts resulting from the cuts will cost $6.5 billion alone. Chief of Naval Operations Jonathan Greenert further emphasized this point: “We are not saving costs, we are deferring costs . . . that are going to come home to roost.”

By the Numbers
This fall, the Bipartisan Policy Center (BPC) issued a devastating report, arguably the most insightful analysis to be found anywhere, on the full impact of the mindless havoc being done to the U.S. military as a result of Washington’s fiscal dysfunction.

Sequestration will slash nominal defense expenditures by $48 billion per year over the next ten years. But the cuts are front-loaded: Defense outlays dramatically decrease in FY2013 and FY2014, before nominal growth resumes afterward. While the 2013 impact didn’t seem too painful, recent testimony by the chiefs made clear that gimmicks deferring the impact are no longer available — 2014 is crunch time. The Ryan–Murray deal appears to provide relief and flexibility in 2014 while maintaining the hard line over the longer term. That’s a bargain worth taking.

The longer-run impact of DOD cuts is probably clearest in recent projections from the Congressional Budget Office, which said that the sequester will ultimately cut defense spending by one-third in terms of its size relative to GDP, from 4.3 percent in 2012 to 2.8 percent in 2023. For perspective, consider that 10 percent of GDP was spent on defense spending in the 1950s, down from 17 percent in the 1940s. That figure dropped to 9 percent in the 1960s and then to 6 percent in the 1970s and 1980s. For the past three decades, defense spending has held steady around 4 percent of GDP. It has never been below 3 percent. The opposite trend has been driving entitlement outlays. They eat up tax dollars at an unsustainable rate, putting America on a well-worn path of great-power decline. (For that story, see my recent book Balance, co-authored with Glenn Hubbard.)

But never mind all that history. It is a liberal fantasy that our budget problems can all be tidied up by clipping the Air Force’s wings.

The main objection defense experts have to sequestration is its inflexibility, not just the bottom-line numbers. Why force Pentagon leaders to allocate all of the cuts to only half of the DOD budget? Until the Ryan–Murray agreement, much if not most defense-related spending was off the table: pay, pensions, and most everything related to personnel. As my colleague at the Hoover Institution, Admiral Gary Roughhead (ret.), recently warned, spiraling personnel costs “threaten to transform it [the Pentagon] into an agency whose primary mission is administering benefit programs, not protecting the nation.”

Congress was listening. Murray–Ryan will curb the galloping inflation in military-retirement costs. It does not affect growth of benefits for retirees over age 62. Nor does it affect veterans who retired owing to disability or injury. Basically, you’re talking about healthy veterans who are almost all in second careers. The growth of their lifetime retirement checks will be scaled back to the cost of inflation minus 1 percent, but they go back to full cost-of-living adjustments when they reach age 62. This is a financially small, but symbolically huge, step for reform.



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