The Pentagon on Defense

Our politicians are delirious when it comes to defense spending—we need to rein in expenditures, and the Pentagon’s budget should be on the chopping block.

With tax revenues plunging as the economy heads south and the federal government committed to spend hundreds of billions of dollars to shore up financial institutions, the next president will inherit a mounting deficit. Sooner or later, spending cuts are likely to be in the cards. If either John McCain or Barack Obama is serious about staunching the flow of red ink, military spending should be on the table.

The Pentagon's budget is now about $520 billion-over $700 billion if you count the wars; more than 20 percent of federal spending and more than the rest of discretionary spending combined. Not including war costs, inflation-adjusted defense spending has grown by about 43 percent since 2000.

There is little reason to think that this explosion of new spending has made us safer. Most of the increases have gone to conventional forces, like fighter aircraft and warships, designed to fight conventional militaries-not insurgents and terrorists we combat in Iraq and Afghanistan.

Yet neither candidate has offered feasible plans to rein in runaway defense costs. Like the Democratic Congress, Obama apparently believes that backing defense cuts during war is a political loser. He also endorses President Bush's ongoing effort to expand our overall ground forces by ninety-two thousand soldiers and marines, an odd stance for a candidate promising to end the Iraq War. Once that commitment ends, the need for new troops will disappear-unless one plans on having more wars like it.

McCain calls himself a fiscal hawk, but when it comes to defense spending at least, he is no such thing. His plans to limit military spending are vastly outweighed by other proposals that would increase it. Take, for instance, McCain's call to get rid of earmarks and cost-plus contracts.

Earmarks are projects attached to spending bills by legislators that the agency being funded did not request. If McCain could get rid of earmarks-which is doubtful since they are a result of congressional power-he would save the taxpayers little. In 2008, defense earmarks totaled about $8 billion, less than what we spend in Iraq in a month.

Eliminating cost-plus contracts would not generate any savings either. In a cost-plus contract, the contractor gets paid whatever it costs to make a good, plus a profit. McCain claims that these agreements encourage contractors to spend as much possible and send the government the bill. This argument is confused. Defense contractors have essentially one customer: the Pentagon. Repeatedly gouging your only customer, one with a small army of auditors, is likely to lead to bankruptcy.

New technology is hard to price. If we used fixed price contracts- as McCain proposes-for new complex projects, like the next-generation bomber the air force will soon build, the contractors would simply ask for more money up front to limit their risks. If we force a low price on them, they will likely blow through what is allocated and ask for a new contract. Because military services badly want the weapons they contract for-and starting over would take years-Pentagon officials would then be forced to rewrite the deal.

These half-hearted efforts at constraining defense costs would be overwhelmed by McCain's other proposals. McCain's support for continuing the war in Iraq, which Obama says he would end within sixteen months of taking office, would cost at least $100 billion a year. McCain has also pledged to increase the size of the U.S. Army and Marine Corps to nine hundred thousand, an additional one hundred fifty thousand on top of the ongoing increase.

By our estimates, these additional troops will cost twenty times what McCain would save if he eliminated every single defense-related earmark next year. According to the Congressional Budget Office (CBO), the existing troop expansion will cost $101.3 billion over seven years. That equates to $1,101,086 per additional active-duty recruit-which means that McCain's additional one hundred fifty thousand troops would cost $165 billion.

Even this may understate the true costs of the additional troops. Attracting more people will require more generous enticements and bonuses. Health-care costs are rapidly increasing, driving up personnel costs even more. And the CBO's estimate does not fully account for the costs of keeping these troops paid, fed and equipped over the course of their military careers, or their retirement benefits.

Cutting defense spending is not without risk. The greatest danger is leaving the military with inadequate funding and manpower for its missions. That is why reductions in military spending need to be accompanied by reductions in military commitments-starting with the war in Iraq.

If we resize our military while rethinking our broader foreign-policy objectives, then the U.S. taxpayer's investment in defense will pay dividends for many years to come. Getting our fiscal house in order requires that the Pentagon no longer gets a free pass.

 

Christopher Preble is the director of foreign-policy studies at the Cato Institute.

Benjamin Friedman is a research fellow at the Cato Institute and a Ph.D. candidate in the Security Studies Program at MIT.