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President's Perspective 

The Future Has Arrived, Sooner Than Expected 


By Lawrence P. Farrell Jr. 

Until fairly recently, most discussions about the financial challenges of the United States, including its military and defense priorities, were fraught with predictions of fiscal “train wrecks” and budget calamities. But the underlying belief and hope was that there was still ample time to make the tough decisions. There was an implied understanding that we would take care of it “when we get there.”  

The federal budget is kind of like that, as it is essentially a year-to-year cash exercise that only addresses today’s fiscal necessities. The philosophy seems to be, “We’ll address future problems when they arrive.”

Well, much sooner than expected, the future has arrived. The missteps and impact of the current financial meltdown are forcing us to confront a staggering crisis. The troubles in the nation’s economy bear huge consequences for our way of life and, significantly in this column, for defense and national security. Enormous budget deficits will pile up — $1 trillion alone in 2009 — and the national debt will create crushing pressures on future revenues, taxes and spending. The depth of the current slowdown can be seen in manufacturing numbers — our traditional engine of real growth. According to the Institute for Supply Management, December marked the fifth consecutive month of manufacturing decline. In fact the manufacturing index was 32.4 percent that month, the lowest since 1980. An index above 50 percent indicates expansion. And the new orders index fell to 22.7 percent, the lowest since January 1948. Manufacturing is in real trouble.

A recent report by the Peter G. Peterson Foundation paints a frightening outlook. It notes that the United States only balanced its budget six times in the last 50 years. Further, with the retirement of the baby boomers, the nation’s finances will soon run aground on the shoals of unfunded liabilities. If revenues continue at 18.3 percent of GDP, by 2027 they will not even cover net interest on the debt, Social Security, Medicare and Medicaid. The government will be forced to borrow for everything else — education, defense, homeland security and other essential programs. And by 2017, Social Security will no longer have a surplus. Then it will begin to dip into the trust fund. These IOUs will need to be redeemed by more taxes or more borrowings. Well before that, all other accounts will begin to feel the squeeze.

Where does defense fit in this stew? In November 2008, U.S. Joint Forces Command put together a presentation which recognizes the multiple competing demands on the federal budget: defense, infrastructure, energy, the Wall Street bailout and homeland security. 

The presentation takes a hard look at several budget scenarios that speculated on the consequences of defense spending dropping anywhere from 15 percent to 45 percent. The baseline used was the force structure goals that were set in 2008: 313 Navy ships, six Marine Corps expeditionary brigades, 43 Army maneuver brigades and 10 Air Force expeditionary units. According to the JFCOM charts, if the budget declined by 45 percent, these numbers would drop to 150 ships, four MEBs, 35 Army brigades and four expeditionary Air Force units. The active force would contract by 625,000 troops. 

Finally, the presentation examined the need to balance conventional missions with the increasing demands for stability and nontraditional operations. The military services and the Congressional Budget Office have acknowledged that current levels of spending, although historically high, are insufficient to support today’s level of forces and missions. CBO estimated the shortfall to be $100 billion per year.

The conclusion is that all of these pressures, combined with the arrival of a new administration, set the conditions for a “clean slate” approach to determining priorities by the incoming Defense Department leadership. Not mentioned is that the coming drawdown in Iraq will relieve some of the financial strains of supplemental appropriations and likely will begin the “food fight” over defense dollars. This administration may well set the structure of military forces for the next several decades.

The future is clearly here. The nation’s financial house has to be put in order. The same holds true for our energy challenges. We no longer have the luxury of a 20-30 year window to address the nation’s energy needs. Defense priorities also must be examined. With the exception of Army and Marine Corps equipment reset programs, all others may well be on the table.

The nation has been living too long for today. Now it is apparent that procrastination is not an option. The message for defense industry and government is that we must sooner rather than later begin to work collaboratively toward smart solutions.
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