Thursday, May 16, 2013

5/16/13 RD Bulletin: Defense Cuts May Help U.S. Economy Says New Study

 
Highlight
 
House Democrats have unveiled a new economic analysis of sequestration, which argues that defense spending reductions are having the “largest drag” on the economy.  This comes despite a recent report released by George Mason University which shows that defense cuts free up additional capital for the private sector.
 

State of Play
 
House Democrats are renewing their push to undo sequestration with the unveiling of a new report highlighting the economic impact of the so-called “mindless” cuts.  The report, commissioned by Democratic members of the House Appropriations Committee, argues that the defense cuts included in sequestration are having a disproportionately larger impact on the U.S. economy than the domestic spending reductions.  The report notes that “the decline in defense spending has been cited by many economists as the largest drag on broader economic growth,” even though several economic analyses, including those conducted by Harvard economist Robert Barro, former Reagan administration economist Benjamin Zycher, and economists at the University of Massachusetts, have shown that defense spending is the least stimulative form of government expenditure.  In fact, Barro’s analysis, released just last week by the Mercatus Center at George Mason University, estimates that “over five years each $1 in federal defense-spending cuts will increase private spending by roughly $1.30.” 
 
The Pentagon has for months warned that it will have to furlough portions of its 800,000-strong civilian workforce in order to blunt the impact of sequestration cuts to operations and maintenance accounts.  However, senior military officials have since vacillated over how many furlough days would be required and when they would begin.  The Navy even announced that its civilian workforce would be spared because the service had identified alternate ways to bolster O&M funds. 
 
However, in an attempt to display solidarity amongst the services, Secretary Hagel announced this week that all civilian employees at the Department of Defense will be furloughed for eleven days beginning in July.  Exceptions will be provided for shipyard workers, nuclear staff, and civilians deploying to warzones.  The Pentagon hopes to save $1.8 billion in Fiscal Year 2013 by furloughing civilian employees.    A bipartisan group of House lawmakers quickly dashed off a letter to Hagel calling the furloughs “misguided,” “bad policy,” and an “attempt to impose pain for political gain.” 
 
According to the recently released Pentagon ‘Green Book,’ the department is proposing a 3 percent annual increase in acquisition funding over the next five years.  The acquisition budget is expected to rise from $99.3 billion in Fiscal Year 2014 to $114.2 billion in Fiscal Year 2018.  Also released recently was the Navy’s long-term shipbuilding plan, which in many ways closely resembles last year’s plan.  The Navy is again recommending the retirement of seven aging cruisers and two landing dock ships as well as two fast attack vessels.  The cruisers’ mothballing was explicitly rejected by Congress last year.
 
The Navy’s new plan highlights the enormous stress that its shipbuilding budget will undergo between 2024-2033 when the Navy will begin purchasing replacements for its Ohio-class submarine.  During that time period, the shipbuilding budget will climb from roughly $15 billion a year up to $19 billion a year – notwithstanding the fact that the Navy routinely underestimates the long-term costs of its shipbuilding plans.  One of the Navy’s most vociferous proponents on Capitol Hill, Representative Randy Forbes (R-VA), lambasted the new document as “an exercise in wishful thinking,” arguing that “the funding shortfalls in the shipbuilding account will leave the fleet with capability gaps in key areas over the coming years.” 
 
At a briefing sponsored by the National Security Network on the issue of acquisition reform, the head of the GAO’s defense acquisition program, Michael Sullivan, warned congressional staff and defense analysts that while attention is often paid to big ticket weapons systems that are already over-cost, more focus needs to be given to nascent acquisition programs that have a high risk of falling behind schedule and experiencing cost growth.  Sullivan pointed specifically to the next-generation Amphibious Combat Vehicle, the Ground Combat Vehicle, the new Presidential Helicopter, the Joint Light Tactical Vehicle, the Long Range Strike-Bomber, and the Combat Rescue Helicopter as systems over which congressional staff should keep vigilant watch. 
 
Indeed, just last week a senior Army acquisition official announced that the Joint Light Tactical Vehicle will be delayed by at least four months.  And this may only be the tip of the iceberg for Army acquisition programs: a separate senior official, Lt. Gen. James Barclay, deputy chief of staff of the Army, remarked that “all acquisition priorities and many equipment modernization programs may face unanticipated schedule or cost impacts in the out-years.”  The Army also is internally debating its acquisition strategy for a replacement to the OH-58 Kiowa helicopter after a recent disappointing industry demonstration. 
 
For the past year, the White House has been championing its new ‘Asia Pivot’ strategy, which relies heavily on the concept of ‘Air-Sea Battle.’  This concept envisions the United States prioritizing Air Force and Navy assets over the coming decades, because of those services’ ability to counter China’s growing arsenal of anti-access and area-denial weapons.  Due to the winding down of the war in Afghanistan, the American public’s general disinterest in engaging in large-scale counterinsurgency operations, and the new Air-Sea Battle concept, it is widely assumed that the Army and Marine Corps will disproportionately shoulder  future force size reductions.
 
In a new white paper the heads of the Army, Marine Corps, and Special Operations push back against this growing notion.  The paper insists that the United States is likely to fight another large-scale land war sometime in the next twenty years and that America's success in such a conflict depends on robust ground forces.  The paper warns that “some in the defense community interpret this [Asia Pivot] to mean that future conflicts can be prevented or won primarily with standoff technologies and weapons. If warfare were merely a contest of technologies that might be sufficient. However, armed conflict is a clash of interests between or among organized groups, each attempting to impose their will on the opposition.”
 
 
 
News and Commentary
 
DoD Buzz: C-27J Reemerges Despite AF’s Boneyard Plans – Michael Hoffman
“The Air Force is set to discard 21 C-27Js before the end of fiscal year 2013, yet service officials still issued a request to industry on May 10 for proposals to purchase even more of the same exact aircraft that will likely sit in the boneyard… Congress ordered the Air Force within the 2013 National Defense Authorization Act to form a working group and add 32 strategic airlifters. Lawmakers did not specify that those airlifters be C-27Js and Air Force Secretary Michael Donley said it’s unlikely the service will keep the Spartan fleet alive. However, the request issued on May 10 appears to be an attempt by service officials to show Congress that the service considered buying more C-27Js.”
 
Michael Shank, Elizabeth Kucinich
“That Washington is holding defense cuts responsible for slow economic growth is a specious argument at best. War spending is unproductive and inflationary. Modern defense costs are capital intensive, not labor intensive, making the industry inefficient as a job creator.  The defense industry has a presence in congressional districts across this country, so cuts affect every member. But every district in the U.S. has pressing infrastructure, education, health and environmental needs, and the return on the taxpayer’s dollar is much higher when invested on these areas.”  (5/15/13)
 
New York Times: Pilotless Planes, Pacific Tensions – Richard Parker
“This week the Navy will launch an entirely autonomous combat drone — without a pilot on a joystick anywhere — off the deck of an aircraft carrier, the George H. W. Bush. The drone will then try to land aboard the same ship, a feat only a relatively few human pilots in the world can accomplish. This exercise is the beginning of a new chapter in military history: autonomous drone warfare. But it is also an ominous turn in a potentially dangerous military rivalry now building between the United States and China.”  (5/12/13)
 
Real Clear Defense: Hagel Must Rein in DOD Civilian Workforce – Mackenzie Eaglen
“The Obama administration has responded to military budget cuts thus far by prioritizing one defense workforce over another. The active duty military has been shrinking while the large Pentagon civilian workforce has only grown. Since coming into office, the President has set into motion a plan to cut the active duty military by roughly 12 percent, mostly as a result of reductions to the US Army and Marine Corps. The Department of Defense civilian workforce, meanwhile, has grown about 13 percent since Obama's first budget.”  (5/10/13)
 
“Almost four years after the MV-22 Osprey arrived in Afghanistan, trailing a reputation as dangerous and hard to maintain, the U.S. Marines Corps finally has had an opportunity to test the controversial hybrid aircraft in real war conditions. The reviews are startlingly positive… The Marines have been able to use it more widely, flying it for everything from freight to hundreds of assaults, where it’s carried loads of Marines into or out of landing zones, often under intense fire. It’s twice as fast as the helicopter it replaces, the CH-46, it has substantially greater range, and can carry more cargo and more than twice as many troops.”  (5/9/13)
 
The Hill: Hagel is not reneging on military benefits – Lawrence Korb
“As a life member of the Military Officers Association, I am chagrined at the efforts of its leaders to prevent the Congress from restoring benefits for active duty and retired military personnel to their rightful level.  In presenting incorrect and misleading information to Congress and the general public, these individuals are stooping to the level of many special interest groups and are not putting the interests of the country first.”  (4/25/13)
 
 
Reports
 
 
 
 
Congressional Budget Office: Updated Budget Projections: Fiscal Years 2013 to 2023 (5/14/13)
 
 
 
 
Center for Strategic and Budgetary Assessments: Beyond the Ramparts: The Future of U.S. Special Operations Forces  (5/10/13)
 
 
Congressional Research Service: The Federal Budget: Issues for FY2014 and Beyond (5/9/13)
 
Mercatus Center: Defense Spending and the Economy (5/7/13)
 
 
Center for a New American Security: If All Else Fails: The Challenges of Containing a Nuclear-Armed Iran (May 2013)
 
Center for Strategic and Budgetary Assessments: Nuclear-Conventional Firebreaks and the Nuclear Taboo (4/18/13)
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