Federal Spending: Time For A Butter Versus Butter Debate

Public Policy 101 says that whenever the United States faces an economic crisis there must be a guns versus butter debate. The argument always goes the same way. We are told that we can either have guns or butter, meaning national security or domestic security by way of entitlements and non-defense discretionary spending. Inevitably, there are the calls for reduced defense spending. Pundits and scholars alike all make pronouncements to the effect that of course defense must share the pain and sacrifice associated with bringing the nation’s financial house back into order. There are always those, including President Obama, who declare that economic security is national security and unless we have a strong economy our security will be weakened. It follows that we must sacrifice national security in order to improve economic security.

But the reality here is that there is not a guns versus butter problem. We could eliminate the entire defense budget and it would not eliminate this fiscal year’s debt. Nor would it make a dent in the trillions of dollars of unfunded liabilities confronting the federal government. Ironically, reduced defense spending generally means less spending on procurement and R&D. This means fewer high wage jobs in the defense sector, reduced exports of U.S. defense products, the loss of the multiplier effect that exists when defense dollars are spent for hardware and R&D, and an overall depressive effect on the economy.

What we have is a butter versus butter crisis. Administration after administration has allowed domestic spending and entitlements to explode. The Obama Administration is the worst. In what the White House repeatedly called the worst economic crisis since the Great Depression, the administration not only engaged in an orgy of ill-conceived rescues, bail outs and government take-overs of private industry but increased domestic spending by 21 percent. Even if all the Bush tax cuts are rescinded, in 2014 the United States will face a budget deficit of between $700 and $900 billion as a result of expected growth in domestic programs. All this before pursuing health care reform that by the best case estimates will cost $900 billion over the next decade (based on ten years of income and only seven years of expenditures) and by the worst case estimates will cost $2.5 trillion over the same period. Then there are the fifty states, all but two of whom have budget deficits of their own.

Nor are we likely to be able to grow our way out of the problem. Even before the current economic crisis, the Social Security Administration’s 75 year projection of U.S. economic performance predicted growth rates declining to an average of a little over 2 percent annually, starting in this decade. The reason for this is the massive retirement of the Baby Boomers and the loss of their contributions to economic activity.

The reality is that we cannot afford not to spend on national security. Not only do we live in a dangerous world but the United States has global interests that no one else can or will protect. The last 9/11 cost the U.S. economy over a trillion dollars; imagine what another one would mean. Absent the U.S. military in the Persian Gulf, who would be able to ensure the free flow of oil to the world if Iran decided to close the Straits of Hormuz? Anyone want to bet on whether or not China, Russia or even India will commit to protecting our economic interests or citizens abroad in the event of a crisis or conflict somewhere in Eurasia?

What we need is a butter versus butter debate. We simply cannot continue to spend as we have been doing on domestic or “butter” programs. The demands for increased spending on entitlements, including for health care under the plans passed by both the House and Senate, will soon force the elimination of all discretionary spending, both defense and non-defense. That means no defense spending but also no NASA, Department of Education, National Endowment for the Arts, National Public Radio, highway beautification, FBI or EPA. We are going to have to make choices regarding how much we are willing to spend on entitlements and domestic programs and to set priorities.

My colleagues will chastise me for being politically naive. They will argue that defense spending simply must take a hit both because, in the absence of a serious threat, it lacks the political constituency of Social Security, Medicare or even the snail darter and because if restraint is to be achieved defense must also take a hit. Absolutely true and also irrelevant. Since we cannot afford our projected spending plans for “butter” items, it matters not what we do on defense spending. The guns versus butter equation simply helps to obscure the real problem.