The Macroeconomics of US Defense Spending

The US faces growing pressures on its defense spending. The US is still dealing with two ongoing wars and has a very different role in global power projection than its allies. So far, it has not made realistic efforts to project the cost of these wars in its defense budget, and the Afghan war is almost certain to put major new pressure on the defense budget in FY2012 and beyond.

The broad marcoeconomic impacts of these pressures are analyzed in a new Burke Chair report called The Macroeconomics of US Defense Spending: This brief is available on the CSIS web site at https://csis-website-prod.s3.amazonaws.com/s3fs-public/legacy_files/files/publication/101108_FY11_macro_defense.pdf.  It begins by comparing US economic prospects and defense spending with those of the rest of the international community. It then focuses on the interaction of the US federal budget and defense spending in the context of the domestic macroeconomic realities which the US faces. In particular, this brief pays special attention to the potential threat that rapidly rising entitlements spending and debt service payments pose to national security.

This briefing is part of a series of briefings that are now being updated and which will be issued over the coming weeks. The other briefings include:

• The Growing Challenges in Defense Spending and the Defense Budget: An Overview, which is available on the CSIS web site at https://csis-website-prod.s3.amazonaws.com/s3fs-public/legacy_files/files/publication/101015_growing_challenges_defspending.pdf. It analyzes the impact of growing pressure on the US federal budget from deficit spending and a potential crisis in entitlements spending that already affects all government spending and which will begin to sharply accelerate in FY2014. These pressures have helped lead Secretary Gates to seek some $100 billion in defense cuts over the next five years, but such cuts will at most buy time for the FY2012 budget request. It shows that the proposed cuts laid out to date would only amount to a maximum of roughly half of the $100 billion under the best possible conditions, and even if the entire $100 billion cut took place it could not possibly deal with the broad range of pressures on defense spending. CBO estimates indicate that they would only amount to something like a third of the likely escalation in the Department’s probable need for funds above the Department’s Baseline budget request, even if one makes extraordinarily low estimates of the future cost of the Afghan conflict.

• The Uncertain Cost of War(s): A PDF of this brief is available at https://csis-website-prod.s3.amazonaws.com/s3fs-public/legacy_files/files/publication/101011_FY2011.UncertCostofWar.pdf. It examines possible ways to assess the past and future real costs of the wars in Iraq and Afghanistan. The brief focuses on the problem of the Department of Defense's over-reliance on "emergency" supplemental funding for Overseas Contingency Operations in Iraq and Afghanistan and identifies a past budgeting and planning errors that may have a major impact on future operations overseas. 

Other briefs still to come in this series include:

• The Coming Challenges in Defense Planning, Programming, and Budgeting: This brief analyzes the budgeting and planning challenges the Department of Defense (DOD) faces at it enters FY 2011. In particular, it focuses on the budgeting and planning challenges raised by rising Operations and Maintenance costs, sustained high tempo of operations, rising Military Personnel costs, procurement process inefficiency and expanding entitlements for military personnel and their families. (To be updated shortly)

• "Unplanning" for Uncertainty: This brief focuses on recent changes in and additions to the DOD's planning priorities as laid out in the 2010 Quadrennial Defense Report. Moreover, this brief analyzes how planned outlays stated in the DOD's FY 2011 Budget Request reflect or fail to reflect these stated planning priorities. (To be updated shortly)

It is important to note that these are topical briefings. They do not address the failure of the QDR process to provide a meaningful basis for shaping the defense program and budget, the failures of the Department’s so-called “performance budgeting,” and the increasingly dysfunctional nature of the Future Year Defense Program. These issues are addressed in more depth in US Defense Planning: Creating Reality Based Strategy, Planning, Programming, and Budgeting, which is available on the CSIS web site at https://csis-website-prod.s3.amazonaws.com/s3fs-public/legacy_files/files/publication/101015_defenseplanning_reality.pdf. It is extraordinarily unlikely that the Department can find a valid approach to formulating a strategy that can be translated into real world force plans, procurement plans, adequate readiness and man power, and affordable budget unless the need for structural reforms in the US defense planning, programming, and budgeting effort outlined in this analysis are dealt with in depth.