The Biden Administration put out its new defense budget last week. The theme in Washington for analysis is the same as every year: Make the numbers add up to what you want.
In addition to being about six weeks late, the Pentagon’s and OMB’s briefing materials for DOD are significantly inaccurate; the analysis in many news articles and commentaries is inept, and the counter-proposals from the Republicans go beyond the stratosphere.
As usual, Congress could not be bothered to enact the previous fiscal year’s appropriations bills on time. This cycle they spit out a $1.7 trillion, 1,068 page “Consolidated Omnibus Act” for fiscal year 2022 on March 15 — five and a half months after the fiscal year started the previous October.
When the new budget did come out last week, there was the usual mad scramble by defense journalists and think tank analysts to sort through the numbers and get something posted on the internet as quickly as possible.
Making it more chaotic than usual were some inaccurate numbers released by the Office of Management and Budget (OMB) in the annual table it posts to display usually reliable past, present, and future numbers. OMB hadn’t bothered to update the data to show the final Congressional action and instead displayed what Biden requested for 2022, all different and much lower numbers. Thus, any calculation from that table to show how the new budget differed from the old was wildly inaccurate. Some noticed the problem, some didn’t. OMB didn’t explain.
The Pentagon’s release of the numbers helped a little, but they were incomplete. DoD Comptroller Michael McCord’s printed and oral presentations did show appropriate numbers for both 2022 and 2023, enabling better informed comparisons. However, he left out significant amounts of money the Pentagon gets every year, and his math stinks.
There are two forms of appropriations to the Pentagon. First and by far the largest are the annual “discretionary” appropriations Congress coughs up, such as in that “Consolidated Omnibus.” McCord showed what the Pentagon got in 2022 —$756.6 billion — and what it was requesting for 2023 — $773.0 billion. But the Pentagon also gets “mandatory” spending, which is best understood as permanent appropriations set by previous law.
For 2023, the Pentagon is also asking for $11 billion in this “mandatory” category — mostly for military retirement. This extra $11 billion should be added to McCord’s presentation, along with a commensurate amount for 2022 — which is currently unknown. Including the mandatory spending to get what budget analysts call “total spending” is standard analytical practice.
A perpetual obsession in the press and among politicians is the amount of change in the defense budget from year to year. It comes in two forms: “nominal” growth, which is the simple math change from one year to the next, and “real” growth, which is the former adjusted by inflation. Thus, if the budget data showed a five percent nominal change, and inflation were two percent, the so-called “real” growth would be three percent.
Comptroller McCord manipulated all of that data. First, he claimed DoD was getting a 4 percent nominal growth increase. But that’s not what his own numbers show: comparing 2022 ($756.6 billion) and 2023 ($773.0 billion) yields a $16.4 billion or 2.2 percent difference. Trying to impress some with the larger 4 percent, he simply ignored $14.3 billion in the 2022 column. Very few have caught the inappropriate nature of this ruse.
That $14.3 billion amount was for emergency appropriations for Afghanistan and Ukraine, and some man-made and natural disasters in 2022. The claim is that those costs are one-time only and should not be counted. But that money is just like the “one-time only” appropriations we had for the wars in Afghanistan, Iraq and elsewhere for the last 21 years. Including these routine supplemental add-ons is standard budget analysis, except in McCord’s case, apparently.
His ruse worked. Article after article stated 4 percent nominal growth; one even got a little crazy with 6 percent.
As every American consumer knows, inflation has been spiking. The Labor Department calculates the current Consumer Price Index at a 7.9 percent increase, and the Bureau of Economic Analysis sets the more DoD-appropriate GDP price index at 7.1 percent. However, the Biden/McCord inflation calculation magically downgrades those numbers to 2.3 percent and 2.0 percent, respectively. Using his elevated nominal growth number and his undercounted inflation number, McCord asserts 1.5 percent real growth.
The actual nominal growth in his budget and the latest available CPI or GDP price indexes indicate a real decline of about 5 percent.
On the other hand, Comptroller McCord correctly points out that fiscal year 2023 does not start for six months. The inflation rates will change, hopefully — but not certainly — downward. It’s his adoption of the politically-driven assumption they will dive from almost 8 percent to 2 percent — and his working use of the wiggery data to make convenient calculations — that most analysts should find risible. In a House Armed Services Committee hearing on April 5, in response to mounting questions, McCord had to explain himself on this, pleading that the only data he could use was from several months ago.
McCord also argues that a final inflation adjustment should wait until this summer to use later data. He almost has it right. Making an empirically based adjustment is clearly the right course, but attempting one this summer for the future fiscal year that runs through September 2023 is not the way to do it. A more sound inflation calculation will not be available until fiscal year 2023 actually occurs. A mid-course correction — with a supplemental appropriation, if needed — would make a far more intellectually honest adjustment.
The Republicans are going bananas. They want to make the inflation calculation now with the highest number available, using the non-DoD analogous CPI measure, which measures civilian spending only. They want to add on top of that an additional 5 percent “real” growth. Thus, they are calling for up 12 to 13 percent more. That would calculate to almost $100 billion. They are not being shy.
The game is on. Given the current political environment with the war in Ukraine and prevailing defense budget politics, the Republicans are going to win, dragging along the great majority of Democrats who are scared silly, especially in an election year, of being accused of unwilling to flood DoD with ever-increasing money. The only real question is how far will they go?
There is an additional dimension to this exploitation of the highest possible numbers. In the possible event that inflation in 2023 turns out to be something less than the current apogee, there will have been too much money in a contemporaneous calculation — a dividend of extra money. The extra money will not be returned to the Treasury; it will be kept in DoD’s budget and applied to additional programs. That has been the practice for years, even decades.
Where will Congress put the money? The places they always do: earmarks, or what is more aptly called “pork.” The Republican plan would create an excess forecast from McCord’s underestimate, allowing for a new pork slush fund for 2023.
This is one of the many reasons why more US defense spending does not mean more military strength. Add in unaudited spending for needlessly complex weapons with everlasting cost growth, with still more to fix failures after overdue testing, and then yet more to use in the field for higher operating costs for diminished operating tempos. Appreciating this and other cost enhancement contrivances gives an entry level understanding of ever increasing defense budgets buying fewer, less maintained weapons for a shrinking force structure.
It all starts with the chaos, incompetence, bias, and greed in assembling the Pentagon’s budget numbers — just like this year.
