Navigating the Pentagon’s Inflation Labyrinth: DOD’s Budget Bible Hides Growth and Provokes Excess Spending

Winslow Wheeler. Center for Defense Information, May 2011.
http://www.cdi.org/pdfs/GreenbookInflationMay11.pdf

Excerpt:

The comparison of DOD’s prediction of inflation for itself compared to the commonly accepted GDP measure looms as a major consideration when one considers the time frame that President Obama and Congress are contemplating in the context of deficit reduction. The President’s Commission on Fiscal Responsibility and Reform assumed a budget window of 10 years from 2011 to 2020. In his April 13 speech on deficit reduction the president addressed a budget window going out to 2023, when he implied, but did not explain, a reduction in the planned “security” budget of $400 billion in the 2012 -2023 time frame.

There are multiple caveats and uncertainties in the defense related reductions the president appears to have been talking about; these should be identified before identifying how the inflation issue impacts any contemplated savings. They are the following:

• The manner in which the president addressed past and future “savings” made it unclear the extent to which he was addressing actual reductions in spending, or “savings” as efficiencies (i.e. internal transfers inside the DOD budget as Secretary of Defense Gates has for the most part been conducting);

• No DOD budget figures exist for some of the years the president addressed; available DOD figures go out to only 2016; available OMB figures for defense spending go out to 2021, but the amounts for 2022-2023 are unknown; it is also notable that in recent budget history, most deficit reduction plans have spanned either five or ten years, not twelve; the latter spreads out the annual amount required to be saved, and – more importantly – moving savings out to years as far as ten or twelve years away literally moves them to never-never land;

• No figures were released for any reductions in any year, whether the pre-existing annual budget was known or unknown;

• The target for these $400 billion in “savings” is the “security” budget, not just the Defense Department’s budget. The security category includes not just DOD but the State Department/International Affairs budget function, the Department of Homeland Security, the Department of Veterans Affairs, the nuclear weapons activities of the Department of Energy, and other miscellaneous programs and agencies; the Defense Department’s proposed share of the $400 billion “savings” is unknown, and

• Materials released by the White House at the time of the speech asserted that the new plan had a “goal” to hold DOD spending “below” the rate of inflation. While DOD’s preferred rates of inflation will – as always – be used for the DOD budget, the differences between the DOD and GDP inflation indices for the years beyond 2016 have also not been made available.

… if the Department of Defense is held to the rate of inflation – or just “below” – as calculated by the DOD inflation indices, it is clear from the above analysis that it will be quite possible for the Pentagon to enjoy “real” growth – under the more generally accepted GDP indices.

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