StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between



The Gordon Adams Archives

Posted by Gordon Adams

I wa struck by the juxtaposition of two news stories today.  In the first, the Republican Study Committee issued a report endorsed by 165 Members of Congress calling for a reduction in discretionary spending to FY 2006 levels from FY 2012 through FY 2021, for a total savings of $2.29 trillion (from what baseline is not clear).  Notably exempt from this cut: defense, homeland security, and veterans. 

Posted by Gordon Adams

Secretary Gates is in Asia busily dealing with what are surely exaggerated reports of a growing Chinese threat.  T'were ever thus at budget time.  Meanwhile, the White House insistance that he cut his defense plans has led to a proposed $78 billion reduction in the long-term forecast for defense, announced last week.  Surely they are trimming at the edges, since this would amount to roughly 2% of the projected defense resource over the next six years.

The National Journal regularly asks national security types to comment on such issues, and this week I have posted the piece attached below, in response to their version of the Goldilocks problem: is $78 billion too much, too little, or just right.  It is available here (security.nationaljournal.com/2011/01/whats-next-for-the-pentagons-b.php#1854750 ), where you can see other contributions to the debate, or in full below.

 

Posted by Gordon Adams

Secretary Gates deserves credit for coming to closer terms with reality yesterday in his new defense budget presentation. www.defense.gov/transcripts/transcript.aspx

Of course, the need for him to do so was not by choice. The White House made it clear that the deal he thought he had for the "out-years" (defense-speak for the future) when he negotiated his FY 2011 budget last year was OBE'd - thanks to debt reductions commissions and a newly determined, budget-minded Congress.  The White House jumped in front of the parade and, some say, asked the Secretary to find as much as $150 billion out of his "out year" plan, starting with more than $20 billion in FY 2012.

Posted by Gordon Adams

It is definitely spin season for the budget, especially the defense budget. Bloomberg's Tony Capaccio (www.bloomberg.com/news/print/2011-01-05/pentagon-could-see-modest-growth...) reports today that the DOD base budget (excluding war costs) request for FY 2012, due in February (but leaking already, for the sake of spin) will be $554 billion, which he calls "modest growth" over this year. 

Tony has been spun, but ya have ta follow the bouncing baseline ball to see how.  A DOD base budget of $554 billion would only be growth over FY 2011's budget if the defense budget for FY 2011 were frozen at the FY 2010 level of $531 billion.  But this would be a significant cut of more than 3% this year from the $549 billion the Pentagon asked for and zero growth over FY 2010.  Figure there will be inflation; that's a budget cut. 

Defense Budget Reset

04 Jan 2011
Posted by Gordon Adams

Reuters reported today that Secretary of Defense Robert Gates will make an announcement soon (expect it Thursday) regarding efficiencies in defense management and some hardware "kills" we can expect to see in the next defense budget (news.yahoo.com/s/nm/20110104/ts_nm/us_pentagon_cuts).  The Secretary is having to dig a bit deeper than he had hope, because the down-slope for the defense budget seems to be coming.

Last summer, the Secretary promised efficiency savings through better management, reducing out-sourcing, shrinking the officer corps, and eliminating unnecessary commands (like Joint Forces Command) www.defense.gov/speeches/speech.aspx.  The savings were to come to just over $100 billion, over five years.  Better management and efficiency, not always a core skill set at DOD, but a very good idea, indeed. 

Posted by Gordon Adams

The US has spent upwards of $50 billion over the past decade, outside of pure military spending, to try to reconstruct and stabilize Iraq and Afghanistan.  Our failures are, by now, legend, by now, but we keep trying, and keep spending. 

And we have invented new dogmas, or mantras, about what we are doing, particularly "whole of government" and "post conflict stabilization and reconstruction."  DOD is building massive capacity and doctrine to stabilize, help govern, and rebuild countries, or "build partner capacity," as the recent Quadrennial Defense Review puts it. www.defense.gov/qdr/  State and USAID are busily trying to build on existing capacities to develop an even more ambitious role, as reenforced in the new Quadrennial Diplomacy and Development Review. www.state.gov/documents/organization/153108.pdf.  And the administration still argues that it is doing better at coordinating these efforts across the government.

Posted by Gordon Adams

The tipping point on defense budgets is upon us.  The Inouye Omnibus appropriations bill in the Senate would provide funding for the base defense budget that is $10.5 below the administration's request.  The House year-long CR would go deeper - $19 billion below the request.  Secretary Gates has made his preference clear.  But even the FY 2012 budget request is likely to come in well below the Department's preferences.  National security will survive, but everything is on the table now.  For my views on this, see the blog I did today for The Will and the Wallet.

Posted by Gordon Adams

It is not often we talk here about the State Department and USAID.  After all, at roughly $50 billion for all international affairs funding, it is a rounding error for discretionary spending.  It is also served as a punching pillow for people who are deep in xenophobia, or hate diplomats and think the State Department is inept, or think we are giving away the family store in foreign assistance to other, feckless countries. (For evidence, see the latest blast from the incoming chair of the House Foreign Affairs Committee, Rep. Ileana Roz-Leitenan.)

Posted by Gordon Adams

Some people, like Ezra Klein, think the taxes/unemployment agreement pending before the Congress this week amply demonstrates that "no one [including the Congress] really cares about the deficit," since the package will add roughly $900 billion to the deficit over the next couple of years. Maybe some people are right. Members of Congress have rarely been reluctant to push a pet spending rock when the opportunity presented itself and this agreement is expensive.

But this was a peculiar kind of opportunity – the last gasp of an outgoing Congress. Easy to blame them, when next year rolls around. But when the posturing stops this week and the last Congress slinks out of town, the last month will have been memorable for the way it changed the atmosphere around deficits, particularly with respect to defense.

Posted by Gordon Adams

Rivlin-Domenici calls for $1.1 trillion in defense cuts over the next nine years, through a five-year nominal freeze and growth with the economy.  For a summary  visit The Will and The Wallet at the Stimson Center.  For a blog entry go to DOD Buzz.  More to come.   the debate is heating up!

Posted by Gordon Adams

The Presidential debt commission co-chairs (Erskine Bowles and Alan Simpson) decided to move forward yesterday and present the package they want the commission to discuss over the next two weeks.  In defense, it is a striking package, with a great deal of merit and no small amount of courage in tow.  It also has one critical weakness, which I will come to.

The package puts defense squarely on the table in the overall effort to reduce the deficit and get the debt under control.  It lays out a very detailed set of options, including procurement savings from terminating or cutting back on major programs (like the V-22 and the F-35), a 3-year military and civlian pay freeze, and a variety of efficiency savings, many of which have been advanced for years by the Congressional Budget Office.

Posted by Gordon Adams

I wonder sometimes how the military views the forthcoming budget deluge.  Resources look like they will go south, but are the services anticipating this trend, and if so, how? 

The Army should be sitting pretty today.  It has 67,000 more soldiers than it did ten years ago, bigger than the entire military force of a number of other countries.  And, according to DOD, the Army's budget has grown, more than doubled, from fiscal year 2001 to FY 2010, or 180% in current dollars and 118% in constant dollars. Outstrips the growth in the overall Pentagon budget, and leaves the Army with $215.6 billion this year, about twice as big as China's estimated overall defense budget.

But even with that largesse, and with the wars in Iraq and, soon, Afghanistan, winding down, fear has struck the Army, budgetary fear.  As Lt. Col. Mark Elfendahl put it at the symposium, even the U.S. "credit card has a limit.   When that credit card gets taken away, what do we do?"

Posted by Gordon Adams

As the debate over defense begins to heat up, and it is heating up, the facts are getting muddled.  Seems like people don't know what Bob Gates is and is not doing.  For example, John Guardiano on Frumforum today asserts that Obama and the Democrats have cut $330 billion from defense already and are determined to "gut defense," in cooperation with Rep. Ron Paul.  And Doug Schoen in the Wall Street Journal yesterday "Gates has already voiced his support for significant cuts in defense spending," and Obama should join up with him. 

Check them both out, but keep your salt shaker handy. 

Posted by Gordon Adams

The results yesterday bring a big change, but not the change observers think when it comes to the defense budget. 

For the defense committees, ideology will rear a powerful head, and the rhetorical and political battles over DADT, Afghanistan, the New START treaty,  missile defense, China, Iran, and the Middle East will all provide powerful headlines and verbal fisticuffs. 

But when it comes to budgets, the departure of Ike Skelton and the arrival of the Republicans at the helm of authorizing and appropriating committees simply mean "business as usual." 

The new leadership in defense supports high defense budgets; the old one did, too.  They will lobby for earmarks for their pet rocks and their districts; the old ones did, too.  Tea Party preferences on earmarks won't be likely to stop the old guard.

But there is a difference.  It is outside the defense world and the defense committees, but very rooted in the policy preferences of the new conservatives.  They want smaller government, and they want it now.  They want lower taxes, and they want them now.  They want a balanced budget, now. 

Posted by Gordon Adams

Fiscal austerity has arrived in Europe, and defense is not being spared, which now risks opening a new round of useless bickering over the "defense burden."  The Germans have announced plans to reduce their combat forces by more than one third, or 85,000.  The French are slowing their defense acquisition programs and looking for new ways to partner on projects with their allies.  And the UK announced yesterday a plan to reduce their defense plans by eight percent over the next four years, retiring its Harrier aircraft, elimin

Posted by Gordon Adams

The fear mongers are back in full force in the Wall Street Journal today.  Arthur Brooks, Ed Feulner, and Bill Kristol attempted a preemptive strike against anyone who would touch the sacred defense budget or dare to suggest that it might be included in efforts to reduce the federal deficit. And as usual, they are trotting out old half-facts and fear words to try to make their case.  As Samuel Beckett said in ENDGAME, “Ah, the old questions, the old answers, there’s nothing like them!” 

Posted by Gordon Adams

In a Washington Post opinion piece today, Danielle Pletka and Thomas Donnelly of the American Enterprise Institute, arch-defenders, perhaps the last flame carriers of the neo-conservative vision, open fire on those voices in the Republican Party who think we need some restraint in runaway defense budgets as part of getting our fiscal house in order. 

A circular firing squad is always fun to watch, but the deceptive way in which Pletka and Donnelly manipulate evidence deserves a response.  Items:

Posted by Gordon Adams

Douglas Holtz-Eakin, former Director of CBO and McCain economics advisor told the National Economics Club last week how to get the federal budget to balance by Fiscal Year 2020.  Among other things, he proposed that discretionary spending should fall 23% (current dollars) from an adjusted CBO baseline (including making the tax cuts permanent and indexing the Alternate Minimum Tax).

My G&G colleague Stan Collender pointed out that this would be a pretty dramatic cut in defense budgets.  And it would be, though no more dramatic than the 36% cut (constant dollars) defense budgets took in the last era of deficit reduction, from 1985-1998.   Stan's "Fiscal Fitness" piece in today's Roll Call points to the viscerally negative response Virginia politicos have given to Secretary Gates' proposal to close down the Joint Forces Command as an indication of how hard it is to get cuts in defense budgets and programs.

Posted by Gordon Adams

Quite a discussion today on the Diane Rehm show involving the future of the defense budget.  Kori Schake of the Hoover Institution thinks the budget will not be cut because of emerging threats (China) and because the administration is not projecting a cut.  James Kitfield of National Journal thinks it will be cut, but shouldn't be, because it is a dangerous world, with emerging threats and stabilization needs.  I think it will be cut because the departure from Iraq and Afghanistan, which will undermine political support for high defense budgets, and deficit reduction, which will require everything to be on the table, will combine to lead both parties to agree on cuts.  Listen to the exchange on WAMU.

Posted by Gordon Adams

Even though Secretary Gates has made it clear that he wants to protect his budgets for defense "investment" (procurement and research and development) the industry is already beginning to shiver at the prospect of defense reductions.  Lockheed has offered a buy-out to around 600 senior personnel; Northrop Grumman wants to put its shipbuilding assets on the market and there are rumors Boeing wants to make an offer for all of Northrop Grumman, which would create the largest defense company in the world.

The industry has had happy days for the past decade. Procurement funding has gone from $62.6 billion in FY 2001 to $129.7 billion, growth of 107% in current dollars and a whopping 74% in constant dollars, while DOD's research and development funds have gone from  $41.6 billion to 80.3 billion (93% current dollars and nearly 61% in constant dollars).  This $210 billion market has been enormous for defense industrial and technology suppliers, as their share prices and revenues have soared. 



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