Why Stable Defense Spending Is A Fantasy

Defense secretary Robert Gates has repeatedly stated that his goal for the Pentagon’s future budgets is to maintain stable spending after inflation. That certainly seems necessary if the Pentagon is to achieve the prevail-prevent-preserve-prepare goals set forth on the Quadrennial Defense Review. But Gates will have to abandon his plans to depart government service anytime soon and get ready to fight tooth and nail for stable military spending, because fiscal pressures are rising fast. In the absence of some urgent new threat, it’s hard to see how defense outlays could do anything other than fall in the years ahead.

Most observers now recognize that President Obama doesn’t care much about defense, and is more interested in the domestic initiatives that you would expect a former community organizer to be pursuing. Beyond that, we’ve been hearing about the budgetary consequences of baby-boomers retiring for years. But the really big challenge the government will face in sustaining current levels of military outlays results from an under-performing economy. This part of the puzzle is barely grasped at all by most policymakers.

When the current decade began, the U.S. economy was generating about a third of global output and the federal government was sustaining about a third of global military spending. Today, the U.S. share of global output has shrunk to about a quarter, while the U.S. share of global military spending — according to Gates — has risen to nearly 50%. It should be obvious to anybody that 5% of the world’s population isn’t going to continue sustaining 50% of global military outlays while only generating 25% of global output. The waning strength of the economy translates into a shrunken tax base that cannot support the current scale of federal spending, and defense is one of the items that will have to fall.

The mid-year review released by the Office of Management and Budget in late August provided a disturbing picture of just how severe fiscal pressures have become. Some people were heartened by the fact that the projected deficit fell $262 billion in fiscal 2009, to $1,580 billion. But the review also raised projected deficits by an average of over $200 billion in each of the subsequent six years. In fact, the projected deficit for fiscal 2010 is now similar in size to that for 2009, meaning the government will continue spending over $4 billion each day that it does not have. Interest payments on the accumulated debt already exceed $500 billion annually, but if interest rates rise even moderately while the debt keeps ballooning, then annual interest payments could top a trillion dollars by the end of Obama’s current term. It would take a very big threat indeed to keep defense spending stable in these circumstances.