About My Prediction On Military Spending

I took a great deal of heat late last December in response to something I said in a post about Martin Feldstein's assertion that, even though it might not be an efficient way to to do it , increased military spending should be part of an economic stimulus package.  Most of the heat was directed at my assertion that Feldstein was wrong when he said the Pentagon budget would decrease from 2009 to 2010.

I held my fire back then because the only thing that would actually settle the issue was the Obama budget, which we now have.  The increase (yes, I said the increase requested for DOD is 4 percent.  As I said back in December, that absolutely is less than the 13+% increase the Pentagon had been hoping for, but it is an increase nonetheless.

Update: Here's more from the Henry L. Stimson Center

Analysis: President Obama Releases FY 2010 Defense Budget Top Line
Two weeks ago, OMB issued its budget guidance to DOD setting the top line 051 function budget at $524 billion.  This Thursday, the Obama administration released its official request of $533.7 billion for FY 2010.  This is more than a 4% increase over the FY 2009 base appropriation of $513 billion (including military construction).  Such an increase would be near the norm for post-9/11 base defense budget increases.  Despite this boost in spending, many defense experts are calling this increase a cut.  This is because last fall, the Bush Administration’s DOD compiled a wish list budget of $584 billion that was not formally presented to Congress or OMB, but rather a DOD view of what the Pentagon hoped to include in its FY 2010 budget.  In reality, however, the defense budget has experienced exceptional growth in the past decade and the FY 2010 budget continues that trend.

Since 2000, the base defense budget has grown by more than 75% in current dollars, from $281.8 to $513.1 billion, averaging a 7% increase each year.  If Congress passes the FY 2010 defense budget at $533.7 billion, it would constitute growth of nearly 90% during the past decade.  In terms of Gross Domestic Product, the FY 2010 budget of $533.7 is approximately 3.7% of GDP and would be the largest base budget as a percent of GDP since the early 1990’s.

Real budget growth trends show the impact supplemental appropriations have had on total defense funding – this includes both the base and supplemental budgets annually approved by Congress.  In the eight year period between 2000 and 2008, more than 55% of the nearly $1.3 trillion in increased real defense spending (both base and supplemental budgets) has been in the form of supplemental funding.  Thus, less than half of total real budget growth originated from the base budget.  To put this into context, the base DOD budget has increased by more than 39% in real terms while supplemental funding has grown by 1730% since 2000.  In 2008, nearly 2/3 of real budget growth over FY 2000 came from supplemental appropriation bills.  These increases will likely lead the FY 2010 DOD budget to over 4.4% of GDP, a level not seen since the waning days of the Cold War.

Recent defense budget growth is also historically high in both real terms and as a percentage of GDP.  From FY 2000 to FY 2008, total DOD (base and supplemental) real spending has increased by 80%.  Such increases have resulted in a 1.5% jump as a percent of GDP (3.0% to 4.5%).  This growth is larger than both the Vietnam era’s .9% increase and Reagan’s 1.3% boost of GDP during his Cold War buildup.  Thus, by this measure, post-9/11 budget growth constitutes the largest defense budget increase in the last 50 years.

Along with top line budget growth, war supplemental budgets have increased from 6% of total defense spending in FY 2001 to more than 28% in FY 2008.[1]  The services have used war supplemental funding to buy platforms with long-lead time and only tangential relation to the wars in Iraq, Afghanistan, and against Al-Qaeda.  Historically, such funding has been folded into normal DOD budget requests after the first stages of a conflict; this has not been done with recent war supplementals.  This dramatic and historically unusual increase in supplemental funding has become a way for the Pentagon to hide actual defense spending increases and is a crutch for the services to lean on when spending exceeds normal financial limits.

Despite the unprecedented growth over the past ten years, the Joint Chiefs’ internal DOD planning document called for $60 billion (14%) budget growth over FY 2009 levels.  If accepted, the Chiefs’ budget would have equaled the largest one year post-September 11th budget increase.  The Pentagon was using this enhanced top line as a bargaining chip to up the ante in this year’s budget game and may have succeeded in using it to push the administration’s top line higher than the last projected Bush amount for FY 2010.  At the same time the administration has started to move selected non-emergency expenditures from the supplemental to the base budget.  The size of the budget “wish list” hints at the amount of non-war related funding the supplemental allocations have concealed.  Non-war related funding may exceed 10% ($60 billion) of the top line defense budget – meaning that the Pentagon’s true base line is closer to $600 billion.

The Obama administration’s updated FY 2010 DOD top line budget increase is within post-9/11 norms and larger than previously expected.  Critics contend that the budget increase is a cut, but support such assertations with unrealistic numbers that inflate already historically high defense spending.  Furthermore, the Pentagon’s reaction to the debate may mean that war supplementals have been used as an even larger crutch than previously known.  What is known for certain, though, is that the annual budget wars have begun in earnest and show no signs of abating.