précis Interview: Cindy Williams, Principal Research Scientist, Security Studies Program, MIT
Cindy Williams, Principal Research Scientist, MIT Security Studies Program
CW: Increased military spending after 9/11 was a major factor in running up the national debt. The $1.4 trillion already spent on the wars in Iraq and Afghanistan is widely reported. But most people don't know that even the non-war part of the defense budget rose by nearly 50 percent in real terms. That rise in spending added another $1.4 trillion to defense budgets over the years. Since none of that new spending was offset by taxes, it all went straight into the federal debt. And of course we now owe interest on all of it, which compounds every year. So I'd guess defense spending accounts for at least a quarter of today's $12 trillion debt held by the public.
CW: At about $90 billion this year, spending for the wars is about half of what it was a few years ago, when combat operations in Iraq were at their peak. But the Department of Defense (DoD) is finding it hard to rein in its non-war spending. The department likes to advertise that it cut almost $500 billion from its budget last year. But that figure measures what they saved over a ten-year period in comparison to a ten-year budget they hoped for but were never going to get. The actual drop in funding from 2012 to 2013 was only a few billion dollars, but the department is finding it hard to make ends meet even with that tiny haircut. The main reason is that some costs inside of their budget—especially the costs of pay, health care, and new weapons—keep growing much faster than inflation. [Of course, all of this is complicated by the fact that the department has to be cut down by about 10 percent if Congress doesn't rescind the Budget Control Act that Congress passed in 2011].
CW: Probably the most fun thing about defense economics is how fast the subject of military spending can turn a belt-tightener into a Keynesian. The bottom line is that lots of military spending—especially in the non-war budget—pays for American jobs. The debate these days is mostly about how many jobs, and how good they are. I think the best work on the subject was done last year by researchers at U Mass Amherst. They note that defense workers generally earn more than, say, teachers or workers in the alternative energy sector. As a result, they find that military spending leads to fewer jobs than public spending in other areas—because the money is spread around to fewer people.
Of course, that thinking skirts the other question you are asking—whether the military is the best place to invest public R&D money for future payoff. My own answer is no. But others would argue that since non-military R&D projects can be a tough sell politically,we should be happy to take R&D investments where we can get them.
CW: It's both. The military is plagued by two types of weapons cost growth. The first is what you might call "generational cost growth." We used to say that costs would double between generations. Now they triple or even more. To a large extent, that cost growth comes because the capabilities improve from one generation to the next. Unfortunately, the tripling in unit cost does not buy enough added capability for the service to agree that it only needs one-third as many units!
The other type of cost growth is what happens between a new system's first formal cost estimate and the final cost to deliver it to the field. There are several reasons for that cost growth. One of the most common is the low-balling of initial cost estimates by people who hope that once the system gets started, it will be hard to turn off. Cozy relationships between lobbyists and Congress and between contractors and program offices—the so-called "iron triangle"—exacerbate that problem. Another is related to expecting too much of immature technologies; if you don't know how to make something work, it's hard to estimate what it will cost. The services also have a history of starting production before developmental testing is finished. That kind of concurrency between development and production is an invitation to expensive redesign as problems are discovered in systems that were already produced.
CW: Most of the U.S. intelligence budget—including that of the CIA—falls somewhere in the defense budget. During the past decade and a half, intelligence spending rose even faster than the rest of the defense budget. Yes, intelligence is important, but its budget can be trimmed significantly and still be vastly larger than it was before 9/11.
CW: It's hard to get a good comparison of personnel costs from one country to another, because different countries offer different benefits to everyone and provide soldier benefits in diverse ways. For example, we offer college tuition as a big perk for military service. In Western Europe, college tuition is generally cheap enough that it wouldn't be seen by potential recruits as an attractive inducement to join up. On the other hand, we offer very little to help service members get settled into new jobs when they leave the military. In contrast, for anyone who serves in the French armed forces for four years, France provides a full year of pay while they make a plan for the future, identify a new employer, and get started in a new job. What we can say is that U.S. military personnel costs are very high compared with a decade or so ago. Beginning in about 2000, military cash pay shot up much faster than pay in the private sector and greatly outstripped the consumer price index. At the same time military health care spending more than doubled in real terms.
CW: Not really. Obamacare will expand access for Americans who today find it hard to get coverage. But military retirees and their families can get coverage under the DoD system, called Tricare, that is cheap or free to them—so Obamacare won't attract them. In fact, a major factor pushing DoD's health costs up is that military retirees with other coverage options have moved into Tricare because it's so much cheaper for them than any other coverage they can get. The only way to make other insurance choices look better to military retirees is to raise the Tricare premiums significantly, which Congress has so far refused to do.
CW: I'd say it's all of the above. Nobody wants to shortchange the service members and families who have contributed and sacrificed so much during the wars in Iraq and Afghanistan—especially when such a small fraction of the youth population volunteers for service. There is a big political factor here too. For years, the Bush administration and then the Obama administration have asked Congress to slow down military pay raises and increase the share of health care costs borne by military families and retirees. But Congress—often of the opposite political stripe from the President—voted against those measures, claiming the high road in looking out for the nation's men and women in uniform. Concerns about filling the ranks with the right people can also play a role, though in recent years the strategic concerns are not much in play; with the wars coming to an end and high jobless rates in the private sector, recruiting and retention are very good right now.
CW: Mostly it's about limiting future growth. Military pay climbed so fast in recent years that limiting across-the-board raises to the level of GDP inflation would save the government a bundle of money while still holding troops' buying power steady and keeping them well ahead of their private-sector counterparts.
CW: You don't—not if you want to do it quickly. The Army typically loses nearly 20 percent of its troops each year to separations and retirements anyway, and has to replace them through recruiting. So in theory, the service could just stop or slow recruiting for a couple of years and be done with it. But the Army brings nearly all of its soldiers in at the entry level—as privates in the enlisted force or second lieutenants in the officer corps; they don't hire experienced people in as sergeants and majors. That means that if the Army stops recruiting for a year, four years from now there will be nobody there with four years of experience. That cohort will remain empty for the next thirty years. So the better strategy for the Army is to encourage the right people to leave at a variety of ranks and years of service. It can encourage that by threatening to fire them, or it can actually fire them. But leaders hate doing that to people who stepped up and served when the country needed them. In the last big downsizing, the services got money from Congress to pay people to volunteer to leave. In a study a few years ago, analysts at Rand found that the Army used that money very effectively, so that people it wanted to lose walked away and those it hoped to keep stayed in. Congress would be smart to make that "voluntary separation pay" available again.
CW: It's hard to say what will happen on the personnel side. The service chiefs are just about beside themselves right now, because those costs are eating up the money available for force structure, readiness, and equipment. I think they will push Congress hard to accept some slowdowns in the growth of pay and benefits.
CW: I recently wrote one of two reports on future defense spending for the Hamilton Project. The other was written by Admiral Gary Roughead, the former Chief of Naval Operations. The two of us did not collaborate on our reports. But it's uncanny how much they overlap, both in world view and in recommendations for spending cuts. Among other things, the two papers are in complete agreement about the need to slow down the growth of pay and benefits for military personnel.
CW: The biggest impacts this year seem to be in cutbacks to training for units that are not already deployed or soon headed to a theater deployment. The Air Force is cutting back on flying time; the Navy is returning some of its ships to port; and the Army is cutting back on field training and exercises. If they continue, some of the changes will be hard to unwind. For example, Air Force pilots must fly a certain number of hours each month. If they do not, they have to re-train before getting back into the cockpit at a later date. That re-training will create turbulence within the force and cost money.
Another example is the Navy's decision not to send the USNS Comfort—one of two hospital ships—out on its mission to Central and South America previously scheduled to begin in April. Over the spring break, we visited the Comfort in port in Norfolk, VA, on a field trip with SSP graduate students and military fellows, and I can tell you the ship is an amazing example of U.S. soft power. The fact that it is sitting at home will be noticed by people abroad who hoped to take advantage of its extensive modern medical facilities.
CW: For decades, defense leaders have distributed money among the services according to the same formula year after year, regardless of the security environment or the military strategy. Now the department says it wants to rebalance toward Asia. Most observers think that such a strategy favors maritime forces, but DoD has yet to rebalance its budget in the direction of the Navy. If it doesn't do so, it's hard to see how it can claim to match its budget to its strategy.
CW: It's hard to say. The Department of Defense rightly points out that both chambers of Congress give defense a stake in the budget resolutions they passed this year. So I suppose it is conceivable that the House and Senate will come to an agreement that spares defense from the cuts currently mandated by the Budget Control Act. On the other hand, the way the House and Senate plans offset the mandated defense cuts are vastly different—largely through entitlement cuts in the House version and through tax increases in the Senate version. Finding a compromise between those two versions is likely to be just as hard this year as last year. If a compromise can't be reached, then Defense will face the same problems with its 2014 budget as it did this year with the 2013 budget.
To be honest, I think the cuts in some form are here to stay. It's easy enough to say that "Congress never intended for the Budget Control Act cuts to take effect, because everyone was sure that the threat of those cuts would force Republicans and Democrats to compromise on higher taxes and lower spending in other areas." But the truth is that if you're not at least toying with the idea of committing suicide, you don't play Russian roulette. Defense cuts are on the table because defense is where the money is, and because the wars in Iraq and Afghanistan are soon to be over.
Even if the Budget Control Act itself is overturned—and even if defense is spared major cuts next year—the fiscal pressures facing the federal government are so significant, and the other choices for addressing them so unpalatable that defense will ultimately become a big bill payer for deficit reduction. That does not mean that the administration has to give up on plans to rebalance toward Asia, though. Even after a sizeable budget cut, the U.S. military will still be by far the strongest in the world, with lots of room for strategic reallocation.