The Fiscal Cliff Sequel

Why the Pentagon will only make a cameo appearance.

"Our revels now are ended. These our actors, as I foretold you, were all spirits, and are melted into air, into thin air." Prospero, The Tempest, Act IV, Scene 1

The curtain has closed on the shadow play "The Fiscal Cliff." The actors have left and the journalists are sweeping the stage. As foretold in August 2011 it was theater, not a reality show, and certainly not reality itself. But gird your loins for the next round; the fight is far from over.

The endgame drama was a tax bill, not a spending bill, and certainly not a Grand Bargain. It did not affect spending very much at all, as nearly two-thirds of the Republican members of the House pointed out yesterday in voting against the deal.

Because it deferred virtually all of the spending issues, it opened up the opportunity for a new theatrical performance to come to town, one everybody will recognize: "The Debt Ceiling: The Sequel."

We will get to fight the sequester fight all over again in the next two months, without the tax issues to balance it out. Senator Lindsey Graham, already on the record for saying (wrongly) that the Pentagon might have to send out 800,000 layoff notices if the Pentagon budget were hit by sequester, has already advertised that his party should "save your powder for the debt ceiling fight."

But this is not going to be the same kind of fight. The markets are not going to bounce up and down about the spending issue, not in the ecstatic way they bounded up today.  The economic consequences of billions of dollars in added taxes are not the same as the consequences of spending cuts this year ($109 billion) that are less than 1 percent of overall federal spending.

Budgets and spending are familiar year-by-year struggles for Congress. Because negotiators could not get even close to a spending agreement last month, they pushed this fight to March -- about the same time that Secretary Geithner has said that the United States will hit the debt ceiling after his ability to shuffle funds around to avoid going over the top will run out of steam. So the same two trains -- spending and the debt ceiling -- are heading toward each other as they were in the summer of 2011.

What does this mean for federal spending and, my beat, for defense? Not much. Defense is still a side show, a "residual" in a larger agreement.

This week's deal postponed the Budget Control Act's spending sequester for two months, which meant some of the savings that were supposed to happen between January 2 and March 1 -- about $24 billion -- needed to be covered in some way. The deal agreed to apply some of the revenues from the tax changes to cover some of that spending gap.

Then, to make sure the FY 2013 budget does not go over the cap for this fiscal year, there will be about $12 billion in spending cuts, $4 billion of which will take place this fiscal year and $8 billion in FY 2014. These cuts would be split 50/50 between "security" (meaning defense, nuclear weapons, foreign policy, homeland security, and veterans' affairs) and "non-security" spending.

This little piece doesn't mean much for defense. If the FY 2013 defense budget went down another $2 billion from what the appropriations committees' bills look like today (they are slightly over the cap), it would affect a tiny fraction of the defense budget -- a rounding error for DOD. And if these cuts were spread out to the other security agencies, it would be even less of a hit. Appropriators find this kind of chump change in their pocket lint, every year.

The long-term sequester is a bigger budgetary deal and it comes March 1, ahead of the cap limitation I just discussed. This is the ten-year defense hit Secretary Panetta (and Senators McCain, Graham, and Ayotte, Chairman McKeon of the House Armed Services Committee, and the Aerospace Industries Association) have been hyperventilating about for more than a year. In the absence of a spending deal that postpones this ten-year sequester, the defense budget would decline by something like $490 billion from the current budget projection.

Now, I gotta tell ya, this is not the big deal these "defenders of defense" make it out to be. Losing $500 billion from the flat defense budgets projected over the next ten years would still be the smallest post-conflict drawdown the defense budget has experienced since the end of World War II -- maybe 15 percent of the ten-year budgets DOD projects today. For FY 2013, this sequester would now mean $43.5 billion out of the FY 2013 defense budget, less than before, but still significant.

But DOD would still have to manage it. Once again, for the record, military personnel are unaffected -- the president has already waived them from sequester, as the law allows. The industry would survive, because they are working on existing contracts, but business would get smaller than they hoped over the next decade. (We are already in a drawdown now, so most of the major defense contractors have already been cutting back in anticipation.) The Office of Management and Budget has made it clear that DOD's operating accounts (Operations and Maintenance) would have substantial flexibility, not what Secretary Panetta has called a "meat axe" approach.

And DOD would retain the capacity to reprogram funds, much of which can be done internally, without prior congressional approval. In fact, over the past 12 years, DOD has carried out more than 1,100 such reprogrammings, ranging from roughly $12 billion in FY 2000 to as much as $49 billion in FY 2008.

A spending deal would be necessary in any case; we need a budget every year. But this year, like the last two, will be something special, courtesy of the debt ceiling's return. Republicans are going to want a pound of flesh for having violated the Norquist pledge and raised taxes on the rich. Defeat is not a pretty thing. And the Democrats are going to want to avoid domestic spending cuts and, especially, changes in Medicare and Social Security benefits. We will be watching this new drama intensely as the new Congress comes in, the media discover the debt ceiling, and March 1 approaches. So get some more popcorn, settle down, and enjoy the show.

SAUL LOEB/AFP/Getty Images

National Security

The Art of Snore

Can't we get some better defense ideas for $1.75 billion a day?

Forget about the Pentagon as potential victim in the stylized Kabuki drama of fiscal cliff negotiations. In an era of exceptional partisan bitterness that all too often forecloses thoughtful political discourse, it is the very lack of divergent views and spirited debate about defense that endangers American national security. In the absence of a clash of ideas about military affairs, the massive Pentagon budget, holding steady in recent years at a cost of $1.75 billion per day (some $630 billion-plus, annually), will continue to be regularly, routinely passed by huge bipartisan majorities in Congress. For example, only 11 senators voted against the latest allocation for Fiscal 2013.

This failure to debate means that the U.S. military will remain largely on autopilot, continuing to invest heavily in systems that are most traditional -- and most comfortable. Like a slightly improved new super aircraft carrier, the Ford class, or yet another generation of jet fighter planes, like the F-35. This despite the diminishing returns and growing vulnerability of carriers, and the total lack of need for a new jet, given that only one American fighter plane has been shot down by an enemy fighter in the last 40 years.

Aside from reflecting our doubling down on an aging technology, the Ford is the poster child for runaway cost overruns, going nearly a billion dollars over budget in 2012 alone. Sen. John McCain has called out the Ford fiasco as "a national disgrace." As for the F-35, it lives in a budgetary world of its own. Acquisition of about 2,400 of these aircraft is slated to cost taxpayers $400 billion -- and their operation and maintenance will run an additional $600 billion. A cool trillion, at a time when American air superiority is hardly under threat -- and at a time when the economy cannot bear the cost.

There are many other problematic systems out there, almost all of the major ones plagued by significant cost overruns. A 2009 Government Accountability Office audit of the 96 largest defense acquisition programs reflected overspending totaling about $300 billion -- 40 percent above contract prices, in aggregate -- an amount that is roughly equal to the entire defense budget submitted by President Bill Clinton in his last year in office.

Since 9/11, total American defense spending has more than doubled. This despite the fact that our declared enemy, the al Qaeda network, could line up every single jihadi they have -- including from its affiliates in Iraq, Libya, Mali, Somalia, Syria, and Yemen -- and still not be able to amass enough manpower to fill out the ranks of even one of our Army divisions. More than a trillion dollars were spent in Iraq; now our forces are gone and al Qaeda is on the march there once again. Nearly as much has been spent in Afghanistan, with equally mixed results.

And when it comes to thinking through the needs of bigger wars, the vast majority of our spending remains focused on relatively old weapons systems -- while others are leapfrogging ahead. For example, the Chinese navy is not emphasizing aircraft carriers; instead, it is focusing on making supersonic anti-ship missiles, brilliant seagoing mines smart enough to position themselves right under the keels of our big vessels, and torpedoes that create a bubble of air in front -- to reduce resistance -- so they can close in on their targets at very high speeds. As matters stand, we are spending more and more, and getting less and less in return.

How has this come to pass? For years, congressional earmarks were pointed to as the principal culprit, as individual members took care of their own bailiwicks with juicy boondoggles. But earmarks never accounted for more than a percent or two of the total budget. Nor is it at all clear that Congress is foisting unwanted systems more generally on the Pentagon. The fact of the matter is that the military is in the catbird seat; whatever it asks for will be approved. Conservatives apply much less scrutiny to the defense budget than they do to other functions of government, while liberals fear looking soft on defense.  

Another effort to explain runaway defense spending focuses on the control exerted by a handful of large defense contractors. This, too, is largely illusory. The companies that specialize in manufacturing military weapons, transport, and information systems will research, develop, and fabricate whatever the military says it needs. These companies have a long track record of doing just this. If there is a problem, it is not because they compel the military to accept costly, increasingly ineffective systems. The problem is that these companies are too responsive to what is requested; they need instead to be more proactive in suggesting the adoption of innovations.

The point is that the military itself has to be more open to moving in new directions. For this is a time when Congress and industry are pliant, and there are no immediate, or even near-term threats of great magnitude out there in the world. If ever there were an opportunity to be creative, to cast off old, expensive systems and move to smaller, smarter, nimbler and more networked ways of operating, this is it.

What would real change look like? A military made of a lot of little things, not a few large things. For example, this sort of "scaling down" could, in the land forces, take the form of moving from today's relatively few brigade combat teams (each with about 4,000 soldiers) to hundreds of battalion-sized (under a 1,000) "units of action." Or more than a thousand company-level units (roughly 250 in each).   

The basis for such a shift is the edge that our forces enjoy in networking -- so neatly demonstrated over a decade ago when just eleven Special Forces A-teams (about 200 sets of boots on the ground), working with an outnumbered force of friendly locals, drove the Taliban from power. Their ability to pass information swiftly, to access close air support, in effect to "swarm" the enemy by striking at many points simultaneously provides a model of how our military might operate against a range of foes, irregular or conventional. For all the "surging" of troops into Afghanistan in the years since, little has been achieved -- and our endgame strategy is increasingly about "going small," the way we started out there.

This sort of organizational redesign would greatly increase flexibility in the field, the ability to give more time to soldiers to rest and retool -- and would still comprise a force that could easily "scale up," if necessary, to confront a large opposing force. On a deeper level, such an innovation might even lead to thinking about sharply reducing active-duty forces, while greatly enhancing Guard and Reserve capacity. This would help to bring down the Pentagon's $250 billion personnel cost -- some 40 percent of the total budget.   

So right now it's crucially important to get past the fiscal cliff mindset -- which is driven simply by numbers -- and begin to focus on three questions that really matter: What should our armed forces look like? Which old systems should be scrapped and which new ones developed? And how will the services operate in peace, crisis, and war?