Sunday, January 13, 2013

The next fiscal battle (Part III)

Sometimes we bring missiles; sometimes we bring medicine.
In the first part, we looked at the two major targets lined up in Republican crosshairs for spending cuts, asked why they’re targets, and asked why cutting them aren’t good ideas. 

What I left out is that, in classic economic model, decreasing expenditures and increasing taxes are both recessionary measures: they slow down a booming GDP and decrease a stagnant GDP.  At least in theory; analysis of the effect of marginal tax changes over the last forty years doesn’t give us confidence that tax cuts do anything towards job creation plus or minus.[*]  Theoretically, if we’re looking to boost the economy, then the last thing we should do is cut spending … in fact, if anything, we should spend more.

In the second part, I stopped to answer the question, “What’s specifically Catholic in your position?”  The answer is that, beyond some rough outlines, the Compendium of the Social Doctrine of the Church gives no specific policy directives.  On the one hand, it can be argued that a balanced budget is good and proper stewardship of the people’s money.  On the other, while the Church doesn’t mandate a statist answer to the problems of unemployment and business regulation — in fact, she has long rejected socialism and communism — she does encourage the State’s active participation in both. 

I also argued that too much dependence on deficit spending encourages an unhealthy closeness between government and the finance industry, facilitating cronyism and regulatory capture, and creating a “government of the 99% by the 1% for the benefit of the 1%”.  Enlightened self-interest is, in the end, still self-interest; if financing transfer payments requires massive government borrowing, will the banks say, “No, no, no, that would be harmful in the long run”?

In the first part, I also promised that we would delve a little further into defense spending:

Most of the military budget over the last fifty years, it could be argued, has been paid for by deficit spending — except for the last three years, when the extra spending could have paid for a defense establishment almost twice its current size.  Ranked by numbers of active duty personnel, we have the second-largest military — eighth, however, when reservists are included, and 65th when ranked by personnel per 1,000 capita.[†]  At Number One in military spending, we come just about $100 million shy of outspending the next fourteen on the list of big budgets — but, as a percentage of GDP, we rank 10th; smaller nations such as Jordan, Chad, Israel, the UAE and Saudi Arabia plow a lot more of their national treasures into their defense establishments, with Eritrea leading the pack at a whopping 20.9%.

In absolute terms, then, the US military establishment is big … really, really big.  But is it too big?  To make that judgment, we have to answer the question “Too big for what?” with something more than unfocused emoting.

The criticism, “The Pentagon is always preparing to fight the last war,” is not only cliché but fast losing any shreds of truth that still cling to it.  So far as the Cold War mentality still survives, it does so in our remaining treaty obligations with NATO, a legacy organization with questionable modern relevance.

Over the last thirty years, American forces have been involved in several different kinds of conflicts, ranging from invasions (Grenada, Nicaragua, Iraq, Afghanistan) to offshore interdiction strikes (Libya) and UN peacekeeping support (Croatia), as well as humanitarian relief efforts in places such as Haiti and Japan.  The next five to ten years could see a second outbreak of the Korean War, or a complete collapse into chaos of the Middle East as Iran lobs missiles into Israel, or civil war in Cuba — anything could happen.

Given the variety of locations and situations in which we could be called on to act — anything from “show the flag” to OSOW (operations short of war) interventions to full-scale blitzes to carrying food and medicine to disaster-stricken people — while still maintaining our treaty obligations with our allies, flexibility as well as raw power is called for.

For instance, the much-maligned carrier strike group is expensive, costing upwards of $23 billion annualized each.[‡]  Why do we have ten of them?

Well, we would have eleven except that the Theodore Roosevelt is being refueled and overhauled; the refuel phase of a nuclear-powered carrier takes about three years.  And that’s part of your answer:  At any given time, only two or three strike groups are actually on their sea rotation; the rest are either in drydock for overhauls and upgrades or just off the US coast training for the next rotation (one group is permanently forward-deployed to Japan).  Were another major war to break out, the strike groups not up on the grease rack could be called upon to assist in operations. 

Nevertheless, the best answer to the question, “Why do we have ten?” is “Because we don’t need twenty right now.”  A strike group — one carrier with its embarked air wing, one or two guided-missile cruisers, two or three guided-missile destroyers (for anti-aircraft and anti-submarine support, though they also provide offensive punch), and one or two attack submarines (also stocked with Tomahawk missiles) — provides plenty of options depending on the level of engagement and size of the opposition.  Throw in a Marine Expeditionary Unit (Special Operations Capable) and you can do quite a bit more, from small raids and amphibious invasions to evacuations and riot control.  All told, $23 billion per year buys a lot of foreign policy options … and we have two or three available at any given time.

The real question is, “Do we want such options?”  Put differently, we can’t know whether our current defense establishment is too big without knowing the answer to a major question: Where do we go from here as a nation?  What role do we want to fill in world politics for the next twenty years or more?

Does the Pentagon waste money?  Of course they do.  For instance, the Air Force recently shut down a project that was supposed to integrate all their legacy software into one system, after ten years and over $1 billion produced some of the worst kludge imaginable.  Like any other bureaucracy or corporation, the people in the Pentagon tend to “vest in un-success”: that is, to spend more on failing programs or pretend expensive mediocrities work just fine.  They too are prey to civilian contractors who know how to game the system to get maximal rewards for minimal effort.

But before we go hacking and slashing at line items, let’s first think clearly about what our obligations are, and where the hot spots over the next ten years are likely to be.  Let’s also remember that the Pentagon purchases millions of labor hours from tens and hundreds of thousands of people, that a stroke of the pen can put a thousand more mortgages in HAMP modification and add a couple thousand more to the list of transfer payment recipients.

Once we think about all that, we may come to the conclusion that the military’s size is just right after all.  But if we do decide to cut, let’s at least leave the remaining people with the newest and the best equipment possible, so we’re not caught in another humiliating scenario like the failed Iran hostage rescue.

[*] The Center on Budget and Policy Priorities noted in March 2009, “Small business employment rose by an average of 2.3 percent (756,000 jobs) per year during the Clinton years, when tax rates for high-income filers were set at very similar levels to those that would be reinstated under President Obama's budget. But during the Bush years, when the rates were lower, employment rose by just 1.0 percent (367,000 jobs).” The same disparity is noted when one compares the 1970s (higher marginal rates, more jobs created) and 1980s (lower rates, fewer jobs created despite a larger population base).
[†] Distressingly, we’re outnumbered mostly by nations who aren’t our BFFs: 1) North Korea, 2) Vietnam, 3) India, 4) China, 5) South Korea, 6) Iran and 7) Russia.
[‡] The exact figure hasn’t been published, so far as I know, since 1993, when it was $10.1 billion annualized; the figure above is adjusted for inflation.