Many Americans – except perhaps the very small percentage nowadays who actually have served in the American armed forces – have a stereotypic image of "military efficiency" and thus assume that any cuts to the defense budget will make the nation less secure. In reality, however, the U.S. Department of Defense (DoD) has the same problem as every other government agency: bad incentives to adopt rational and efficient policies. Like other governmental organizations, DoD is spending other people’s (the taxpayer’s) money. This is always a recipe for trouble.
In fact, DoD is even less efficient and more irresponsible than other government agencies in managing funds. DoD’s accounting system is so broken that, for years, it has been unable to account for trillions – yes, trillions – of dollars worth of expenses. Significantly, DoD is the only federal agency that cannot pass any type of financial audit. Yet that hasn’t stopped Congress and presidents from slathering the department with money since 2001 (and even before that). Since 9/11, the defense budget, after adjustment for inflation, has increased more than 50 percent.
One reason that DoD manages money worse than other government agencies is because of the shield of secrecy it stands behind. Despite their poor incentive structures, most other government agencies experience some cleansing effect of at least some transparency to the public. Less so with DoD.
Yet if DoD’s financial management continues to be so broken, why do Congress and presidents continue provide it with the largesse? How do we know that most of this added cash is going to improve U.S. security instead of just being wasted? We don’t.
The money is being shoveled out to satisfy powerful political constituencies that clamor for added government goodies (a euphemism for welfare for the upper and middle classes). Yet now that rumblings are afoot that such constituencies will no longer all get fatter on increasing budgets, consternation among the subsidized groups has arisen about actual competition for cash among them. Although "budget cutting" in Washington is rarely as draconian as portrayed in the media, especially with regard to national security, a little competition among the suckers on the federal teat might be fun to watch.
Two very strong political groups among DoD’s constituencies are the military-industrial complex (weapons contractors) and armed forces personal and retirees. Congress can rarely squander enough money on these two groups, but they likely now will be competing for a smaller pot of cash at the end of the rainbow. DoD has the problem that personnel costs are exploding and are eating the lunch of other defense programs – including weapons research, development, and procurement. Pentagon Comptroller Robert Hale, my old boss, recently reported that military pay and benefits have almost doubled since 2001 and now make up one-third of the defense budget. Of course, Congress doesn’t want to be deemed unpatriotic during wartime (or any other time), so military compensation has never been reined in. Thus, after years of hefty pay increases, military compensation– when age, experience, and education are held constant–exceeds that of 75 percent of civilian jobs. Another example of Congress’s timidity in being financially responsible concerns health care for military retirees; the legislative body recently passed up a chance to modestly increase health care fees for military retirees who have found a second job after retiring, for example, in their forties.
A standard joke at the Pentagon is that unless such military personnel costs – especially health care expenses – are contained, military personnel may end up operating a force of one tank, one aircraft, and one ship. Of course, this is an exaggeration, but nevertheless illustrates the problem of military personnel costs swamping everything else in the budget.
However, the military-industrial-complex – including large and small weapons manufacturers, who refer to themselves as private companies but don’t do much commercial business these days and thus are largely wards of the state – should not escape blame. DoD loves expensive, complex, and gold-plated weapon systems – after all the United States is the world’s only superpower. So fewer and fewer of these more and more expensive weapon systems can be produced. Also, because there is little real competition in DoD’s protected market for weapons, these companies operate with flagrant inefficiency. Therefore, over time, most weapon systems experience huge cost growth and are years behind schedule, as their technological performance is scoped down.
Instead of gearing up to fight each other for a smaller pot of cash, perhaps both groups should reform. For military personnel, either pay and benefits (including lavish health care and retirement outlays) need to be cut or the number of people in the armed forces needs to be slashed. Doing some of both would be the best solution. Regarding the defense industry, the Pentagon should reduce excessive military-unique specifications and open weapons contracts to real competition from genuine commercial companies now outside DoD’s realm–especially at the subcontractor level. With greater competition, efficiency and performance have nowhere to go but up.
Yet none of this probably will happen. Instead, the coming battle for defense resources will tell us only who has the strongest lobby – military personnel or weapons contractors.
