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Venture capital firm Kleiner Perkins put together a great, chart-filled budget study a couple of years ago looking at America like it was USA Inc. Frankly, it’s an approach Mitt Romney should have copied. Anyway, here is one telling bit of analysis:
Since the Great Depression, USA Inc. has steadily added “business lines” and, with the best of intentions, created various entitlement programs. Some of these serve the nation’s poorest, whose struggles have been made worse by the financial crisis. Apart from Social Security and unemployment insurance, however, funding for these programs has been woefully inadequate – and getting worse.
— Entitlement expenses (adjusted for inflation) rose 70% over the last 15 years, and USA Inc. entitlement spending now equals $16,600 per household per year; annual spending exceeds dedicated funding by more than $1 trillion (and rising). Net debt levels are approaching warning levels, and one-time charges only compound the problem.
— Some consider defense spending a major cause of USA Inc.’s financial dilemma. Re-setting priorities and streamlining could yield savings – $788 billion by 2018, according to one recent study – perhaps without damaging security. But entitlement spending has a bigger impact on USA Inc. financials. Although defense nearly doubled in the last decade, to 5% of GDP, it is still below its 7% share of GDP from 1948 to 2000. It accounted for 20% of the budget in 2010, but 41% of all government spending between 1789 and 1930.
Indeed, there are plenty of myths about U.S. defense spending:
1. Defense spending doubled over the past decade. Can’t we return to previous levels? No. That would mean returning to an era when general readiness was at a nadir and equipment was aging. Excluding funds associated with war fighting in Iraq, Afghanistan, and the global war on terror, the defense budget from 2001 to 2008 increased by just 4 percent annually, adjusted for inflation.
2. But aren’t today’s defense budgets at historic highs? In constant, “real” dollars, yes. But a better way to gauge the “cost” of defense is by measuring it as a percentage of the US economy. In that respect, the economic burden of defense has been cut almost in half, from a 50-year Cold-War average of about 7 percent to 4.1 percent today (3.4 percent without war costs).
3. We spend more on defense than many other nations combined. Isn’t that excessive? Not if you look at what we ask our military to do and the value it generates. Our preeminence yields enormous strategic returns: (1) It protects the security and prosperity of the United States and its allies; (2) It amplifies America’s diplomatic and economic leadership; (3) It prevents the outbreak of great-power wars so common in previous centuries; and (4) It preserves the international order in the face of aggressive, illiberal threats. These benefits are a bargain at 4 cents on the dollar.
4. Sequestration hits defense and domestic programs equally. Fair’s fair, right? Sequestration does virtually nothing to address the source of the federal government’s fiscal problem, which is the unchecked growth in entitlement spending. In 2012, Medicare, Medicaid, and Social Security accounted for more than $1.5 trillion in federal spending, compared to $1.2 trillion for total discretionary spending, about half of which was defense. Think about it this way: defense and discretionary spending and entitlements and debt service are not equal slices of the budget pie; indeed, one of the smaller slices is taking a disproportionately high cut. That is not an equal share. Nor is it right to jeopardize the most fundamental function of government—protecting its people.
5. Does the size of the military matter, given how much more today’s ships and planes can do? No matter how advanced, today’s ships and planes still cannot be in two places at once, nor can they shrink the size of the skies or oceans. Numbers matter in war, and, for deterrence, in peace. The problem with the US military is not just that it is smaller than it used to be, but that, in a dangerous world, it is smaller than it needs to be.
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