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Posts Tagged ‘Defense’

My latest column at the Christian Science Monitor makes the case that defense spending deserves close scrutiny as America evaluates its fiscal priorities. Excerpt:

This year the US will spend about $110 billion in Afghanistan and $44 billion in Iraq. Regular defense spending is even larger, at about $550 billion. Military spending will total more than $700 billion this year.

That spending gets far less scrutiny than it deserves. Discussions of our long-run budget challenges usually emphasize the big entitlement programs – Medicare, Medicaid, and Social Security – and the need for new revenues. Congressional budget debates, meanwhile, have bogged down on the sliver of spending that goes to domestic discretionary programs [written before the 2011 budget deal].

Defense should be on the table as well. Military spending has more than doubled over the past decade. Some of that increase has been necessary to respond to the 9/11 attacks and the new challenges they revealed. But not all. Some of the increase has simply been excess.

Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, made this clear in remarks in January. Because of the dramatic expansion of the Pentagon budget, he said, “We’ve lost our ability to prioritize, to make hard decisions, to do tough analysis, to make trades.”

We also have embarrassingly little ability to track that spending. When the Government Accountability Office recently audited the government’s finances, it concluded – as it has for many years – that the Defense Department’s books are so poorly kept that they can’t be audited. Taxpayers are thus giving $700 billion a year to an organization that can’t prioritize and can’t tell us where the money is going. That’s unacceptable.

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Over at ABC News, Devin Dwyer and Luis Martinez report that the first week of the U.S. intervention in Libya has cost at least $600 million. According to their sources, the most costly items include

  • 191 Tomahawk cruise missiles – $269 million
  • F-15E fighter – $60 million+
  • Fuel for jets and ships
  • Other munitions

Other news sources report lower costs for missiles and the fighter, so I would take ABC’s numbers with a grain of salt until there’s official sourcing. Still, they give a useful sense of the financial costs of the operation.

By any normal standards, $600 million (and counting) is great deal of money – bigger, indeed, than some of the programs that Congress is fighting over in its never-ending debate over the 2011 budget.

For full context, though, keep in mind that we are on track to spend $110 billion in Afghanistan this year and $44 billion in Iraq.

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The U.S. military is now a major player in economic development. In Iraq and Afghanistan, for example, economic stabilization is a core tenet of its counterinsurgency strategy. Which makes good sense, in theory, but raises a troubling practical question: does the military actually know anything about economic stabilization and development?

In a recent essay in Foreign Affairs (Expeditionary Economics: Spurring Growth after Conflicts and Disasters), Carl Schramm answers in the negative. The U.S. military does not have these skills in anywhere near the measure that it should. He then recommends that:

[P]ostconflict economic reconstruction must become a core competence of the U.S. military. … It is imperative that the U.S. military develop its competence in economics. It must establish a new field of inquiry that treats economic reconstruction as part of any successful three-legged strategy of invasion, stabilization or pacification, and economic reconstruction. Call this “expeditionary economics.”

Schramm goes on to argue that expeditionary economics should emphasize entrepreneurship and “messy” capitalism, not just large-scale infrastructure efforts that often get the most attention. If you are interested in these issues, his essay is definitely worth a read.

For more context and other views, you should also check out the conference that Kauffman held to discuss these issues. You can read highlights from the conference here.

Some excerpts (not attributed to any of the specific participants):

The core idea behind the Marshall Plan was to stimulate the private sector through direct financial support of businesses rather than distribution through local government institutions, and it continues to serve as a potential model for efforts today, especially insofar as it deeply considered the nature of the war and the pre-existing institutional conditions in Europe.

Stability and economic development operations in Iraq and Afghanistan have been problematic for quite different reasons. In Iraq, the United States squandered the opportunity to demonstrate a real concern for the welfare of the Iraqi people in the months after the invasion because it failed to adequately plan for stabilization and reconstruction activities after major combat operations—as a result, both the economic and security planning systems failed. Many government agencies were complicit in this failure, including the military. In Afghanistan, the rush to respond and the limits of time constrained stabilization and reconstruction planning along with a desire to maintain a light footprint. Military, political, and development strategy was cobbled together as the conflict progressed. This meant the United States began trying to catch up with ideas, and has been trying to acquire and deploy resources ever since. As part of a “peacebuilding” strategy for the future, the military should address these core challenges to improve its stabilization operations

One pre-requisite of a market economy might be the rule of law, although China’s success over the past few decades offers an interesting challenge to that premise.

There is debate and uncertainty over what we mean by the phrase, “rule of law,” and whether it simply includes a justice system, courts, and efficient policing or extends beyond that to contracts, finance, commerce, and beyond. The answer is no one knows, and the rules of the game don’t have to be perfect—they just have to be certain and perceived as fair. The two things businesses always look for are stability and certainty.

In war, just as there are human casualties, there also are financial casualties, and we need to accept this reality. Some dollars will be misappropriated, and some will go to the enemy, to criminal networks, to ineffective local leaders, and to bad projects. This doesn’t make it okay, but we need a productive dialogue to determine what is a reasonable level of these financial casualties.

Some disagree that economics is … a soldier’s job. Yet, economics is required to win, and a soldier’s job is to win. The military has no choice but to use economics as a weapon in stability operations, so let’s be as good as possible at it. What we need to be thinking is, “What are the appropriate economic principles we can teach military leaders so they can use them to accomplish their mission?”

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Good Budget Reads

1. Jeff Frankel tops my National Journal post with nine more ways to trim the deficit.

2. EconomistMom Diane Lim Rogers scores the budget quote of the week: “‘Loosey-goosey’ out, loosey-goosey’ back at ya.

3. Bruce Bartlett makes the case for a war tax: “wars financed heavily by higher taxes, such as the Korean War and the first Gulf War, end quickly, while those financed largely by deficits, such as the Vietnam War and current Middle East conflicts, tend to drag on indefinitely.”

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This morning’s headlines include some important follow-ups to recent posts:

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Yesterday delivered a small piece of good news on the budget front. As reported by the Washington Post:

The Senate voted Tuesday to kill the nation’s premier fighter-jet program, embracing by a 58 to 40 margin the argument of President Obama and his top military advisers that more F-22s are not needed for the nation’s defense and would be a costly drag on the Pentagon’s budget in an era of small wars and counterinsurgency efforts.

As I noted in a recent post, President Obama deserves kudos for threatening to veto any appropriations defense authorization bill that would include extra funding for the F-22. And the Senate deserves credit for agreeing. The House wasn’t as frugal, including $369 million in initial funding for additional fighters in its version of the appropriations authorization bill. So the next test will be to see what emerges from the House-Senate conference on the bill. (Update: And then, as Stan Collender reminds us, what happens in the actual appropriations.)

The amounts of money are, of course, small relative to today’s trillion-dollar deficits. But perhaps they are a first step toward some semblance of fiscal discipline. Budget hawks are rightly concerned about the growth of spending on the major entitlement programs — Medicare, Medicaid, and Social Security — but defense spending should also get close scrutiny. With annual appropriations reaching almost $700 billion, reductions in defense spending will almost certainly be part of any effort to put our fiscal house back in order (barring major new hostilities).

P.S. Back in 2006, I testified before Congress about some of the budget gimmicks that the Air Force was then trying to use to get funding for more F-22s. One trick was to try to get a small amount of initial funding for planes in one year, so that in later years it could go back and say “well, we already started these planes, so you have to give us $x billion to finish them.” Sounds like the folks in the House were considering something similar.

Disclosure: I have no investments in any aerospace company.

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Over the past year, the U.S. government has acquired an unprecedented investment portfolio, including a majority stake in GM and a large ownership stake in Chrysler. These investments have raised a plethora of difficult policy challenges. One of the most important is the ongoing risk that private business decisions may get transformed into public policy issues. Or, put more bluntly, that policymakers might use the ownership stakes as justification for and leverage to pursue their own policy agendas, regardless of whether they would be good for the companies.

Yesterday’s newspapers provided an excellent example of this risk. Some lawmakers want to use legislation — the annual appropriations bill that funds financial services and general government — to restore the franchise agreements of several thousand dealers who were terminated as part of the restructuring of GM and Chrysler. It’s easy to see how such a proposal can gain traction in the House of Representatives. Every terminated dealership will get a sympathetic hearing, at a minimum, from their local representative. But such meddling is not in the interests of GM and Chrysler, nor the nation at large.

Happily, the Obama Administration has come out against these efforts. In a Statement of Administration Policy on the appropriations bill released Wednesday, the Administration wrote:

(more…)

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