The growth in the Pentagon budget over time is even greater than you think—and the scale of the increase is obscured by a special method used to calculate inflation in defense spending.
Wheeler’s posts are rooted in a key point: to track public spending over time, economists, budget analysts, and policymakers have to devise measures to adjust for inflation. There’s no one obvious “right” way to make these adjustments. But measures used within the Pentagon and at the White House’s Office of Management and Budget to measure trends in military spending are forgiving—they assume that the Pentagon experiences more inflation than other government agencies, and so it takes more money to keep the “real” level of spending flat.
Then Wheeler asks a provocative, and obvious, question:
What would the Pentagon’s budget history look like if it lived by the rules followed by the rest of the federal government and the American economy?
The answer: the US would have spent quite a bit less on defense. And while the annual gap is biggest in earlier decades—contributing to a higher baseline that carries forward to the present—it persists today. The difference between the Pentagon adjustment and the federal government’s standard adjuster is still billions of dollars in yearly cost growth imputed to inflation—about $8 billion each in 2009 and 2014.
In Tuesday’s post, Wheeler explains:
What the Pentagon measures for itself as inflation, the [alternative government-wide] OMB/GDP measure shows to be cost growth due to factors other than inflation. Potential explanations could range from more complicated than expected hardware simply costing more, increases in Defense Healthcare Program costs due to higher profit margins among companies providing Tricare for Life, or troop pay increases above the rate of inflation—all real issues.
Similarly, for the period beyond 2014, the Defense Department argues that it needs more money just to “stay even” with inflation—an extra $2.7 billion in 2018, for example. It’s a deeply embedded and esoteric cost cow, and the extra money it generates over time can be immense.
One way to think about Pentagon inflation measurements is as the inverse of the debate over Social Security. There, proposals are circulating to cut cost-of-living adjustments by using a less robust inflation adjuster known as “chained CPI,” which would cut benefits by about a third of a percentage point in the first year—but because of compounding, would mean a huge cut in benefits over time.
Chained CPI would mean retirees having to get by on 6.5 percent less in total benefits from normal retirement age to 85, with annual income at age 85 alone reduced by $1,139 compared to the inflation adjuster now in place, as CJR’s Trudy Lieberman has pointed out here and here.
So while President Obama and leaders of both parties in Congress indicate they want to use a deflated inflation adjuster to subtly cut Social Security retirement benefits, the Pentagon uses its inflated inflation adjuster to argue for a bigger slice of the federal budget.
This in-the-weeds budget analysis allows Wheeler to scrutinize the warnings now being issued about declining defense spending. As he wrote in Monday’s post, “The key fact is that we are now spending more on our military than during the Reagan Administration.”
And on Tuesday:
[I]f the additional cuts mandated by the Budget Control Act of 2011 via sequestration are allowed to take effect—thereby trimming the 2014 amount by $52 billion to $560 billion—it would return U.S. military spending to roughly 2003’s level. This amount would exceed every prior year all the way back to 1945, except the year 1985—the peak of the Reagan years—which reached about the same level as 2014 would be with sequestration.
Finally, the shrill claims of some that reductions of the magnitudes currently being debated would cut defense spending to “dangerously low” levels or trigger a “doomsday” scenario are historically ignorant, and biased, contentions. They are intended to keep spending at near-unprecedented levels, rather than to return to norms for relative peace, once U.S. troops have left Afghanistan after a dozen years of war there.