Last week, the defense industry brought out the big guns, announcing that, since sequestration would kick in on January 1, 2013, the WARN Act (which requires that employers give their employees 60 days' notice about layoffs) would require defense contractors to issue layoff notices on November 2, 2012-4 days before the presidential elections. That's when Lockheed Martin said that it therefore plans to notify the "vast majority" of its 123,000 employees that their jobs could be lost due to sequestration. Defense hawks immediately seized on the warning as a political weapon; Senator Lindsey Graham (R-SC) has even called on defense companies to start issuing layoff notices sooner to force Congress into repealing sequestration.
The defense industry's new line is a potent political offensive designed to hit legislators where it hurts: their districts. It's a variation on the long-standing industry strategy of spreading the production of weapons systems across numerous congressional districts in order to ensure political support for the programs. Taking the economic tack -- particularly in an election year in which the political punditry has decreed that "it's the economy, stupid" -- is also a useful way to separate the defense spending debate from its proper historical context. Many of the people now animated by the industry's jobs claims are unaware of the recent history of the U.S. defense industry and its taxpayer-financed bonanza.
The offensive has certainly spooked members of Congress with military installations or defense industrial operations in their districts (basically, everyone). Rep. Buck McKeon (R-CA), the chairman of the House Armed Services Committee, has been particularly vocal, declaring that sequestration would "cripple our economy and defenses in a single blow." Senator Kelly Ayotte (R-NH) has also taken up the call, along with Senator John McCain (R-AZ).
While these tactics are designed to cause legislators and their constituents to panic, the fact of the matter is that defense companies are overstating the impact of sequestration. First, sequestration would require the Pentagon to reduce its budget by about 10 percent next year. While a 10 percent reduction in weapons procurement certainly would not be good news for defense contractors' bottom lines, it would hardly require companies to lay off their entire work force. Lockheed Martin, for example, would still be contracted to build new F-35s, if perhaps not as many as anticipated, and provide maintenance and spare parts for numerous aircraft already in service.
Additionally, defense industry leaders have kept quiet about another trend bolstering their businesses: foreign arms sales. The State Department announced in early June that it had approved over $44 billion in sales of military parts or equipment by private U.S. companies abroad in 2011, up $10 billion from the previous year. This equipment was researched, developed, and tested in large part with U.S. taxpayer funds, but the defense industry has been strangely silent regarding Uncle Sam's seed capital.
Moreover, sequestration impacts budget authority -- that is, how much money Congress sets aside for programs each year. Not all of this money, however, is spent in the year it is appropriated. Right now, for example, the Department of Defense has an unobligated or unspent authorized balance of $88 billion. As a result, the Pentagon's outlays -- that is, how much the Department spends in 2013 -- will almost certainly be considerably higher than what Congress appropriates, even under sequestration, so there is some economic breathing room. Massive and immediate layoffs would be both premature and an overreaction.
But the most dangerous result of these strong arm tactics by the defense industry has been to prompt budget hawks on the Hill to attempt to divorce the defense cuts from a comprehensive debt reduction plan. The sequester was, after all, the stick intended to force a grand bargain, and in that way it is working. We should not allow the parochial concerns of defense company executives -- even dressed up as sudden concern for economic stimulus -- to distract from this broader public policy debate.
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