A hollow budget

This isn’t the first time that the defense budget has commanded headlines or the defense industry has perceived itself a victim of policy.

But today two different narratives exist.

The Pentagon – pressured by a government faced with severe economic austerity – has been asked to reduce spending. Its objective is to cut costs but maintain capability. On the other hand, the industry is afraid that cuts will eliminate programs that feed into its bottom line. Its goal is to emerge relatively unscathed, preserving its technological edge and growing revenues.

The untold story here is that the budget may remain high while programs will, in fact, be slashed. In this scenario, both the government and industry lose. And this is concerning.

Budget prophecies

As Lawrence Korb highlights, the baseline defense budget has grown “in real terms for 13 years, and it is now $100 billion above what the nation spent on average during the Cold War.”

The budget faces two potential cuts. First is the $450 billion (over ten years) cut the Pentagon and policymakers agreed upon last year. This would only slightly alter current growth and – after some initial reductions – keep the budget growing at pace with inflation. This “modest trim” in FY13 will be “37% higher in real terms” than the budget in 1998.

The second set of cuts may be caused by a trigger mechanism that the Budget Control Act of 2011 authorized if the supercommittee failed, which it did. This could bring another ~$500 billion in cuts over 10 years to the military. For sake of argument, let’s consider that Congress won’t interfere and this will happen. The impact is still not as dramatic. In fact, the base budget would fall to $472 billion in FY13, which is almost equal to FY07, adjusted for inflation.

According to Todd Harrison all these “cuts” may reduce the base budget 14 (or 17) percent in real terms from its peak in FY10.” But this would still keep it high, compared to cuts that five other presidents have managed to accomplish in previous eras.

However, because certain goals will have to be met, defense programs are in for a slashing. “Dozens of weapons programs face terminations or big cutbacks in FY13,” say defense officials. And judging by proposed lists (see here, here, and here to name a few), weapons and platforms of all varieties may fall under this budgetary guillotine.

These dynamics could create a hollow budget, not force. A new budget that is large and intimidating, but not capable of maintaining future military needs.