Madness of Versailles: The 4% Solution
August 20, 2000
Discussion Thread: # 364
 Frank J. Gaffney Jr., "The 'Four Percent Solution' for military readiness," San Diego Union Tribune, August 13, 2000
 Hunter Keeter, "Marine Commandant Calls For Defense Spending Increase, "Defense Daily, August 16, 2000, Pg. 6.
 Tom Stuckey (Associated Press), "Fleet Strength At Risk, Retiring Admiral Says," Washington Times, July 23, 2000, Pg. C13.
 Gordon R. Sullivan, "Increased global engagement makes greater investment in military vital," Tacoma News Tribune, August 18, 1998.
INTRODUCTION & AIM
The sudden end of the Cold War in 1990 provided the United States with an unprecedented window of opportunity to defuse the Defense Budget Time Bomb before the increasing social expenditures of the aging baby boomers began the inevitable squeeze on federal budgets in the second decade of the 21st Century. But, rather than using this opportunity constructively, decision makers chose to continue "business as usual" by front loading and politically engineering the defense budget with a new generation of ever more complex and costly cold-war-inspired weapons. In so doing, they created a chain of events that set the stage for a false choice between steadily rising budgets over the long term or a meltdown in modernization and readiness.
What is different from the unfolding meltdown in 1990s from that of the 1970s is that we understood the dynamics BEFORE THE FACT in the 1990s. Decision makers were warned in the early and mid 1990s, but they, nevertheless, chose to IGNORE these warnings, when there was still time to prevent a meltdown.
Now, the false choice is upon us, in the form of a rising drumbeat of calls for higher defense budgets over the long term, as evidenced by the four attached references to this comment: Frank Gaffney (a widely published defense analyst who specializes in military affairs), General James Jones (Commandant of the Marine Corps), and Admiral Jay Johnson (just retired Chief of Naval Operations), who recently repeated General Gordon Sullivan's (retired Army Chief of Staff) 1998 call in 1998 for a defense budget that increases to at least 4% of GDP from its current level of just under 3%.
Bear in mind, the three most recent of these calls for 4% of GDP [i.e., Ref. 1-3] came after the military services identified $180 billion in un-funded requirements over the next 6 years in their first draft of the new long range budget plan submitted to the Secretary of Defense last June [See Comment #364].
A careful reading of the arguments supporting these four calls reveals at least two factors all have in common: (1) They all NEGLECT to tell the reader what dollar figure is implied by the 4% to 4.5% of GDP they say is required. (2) Each NEGLECTS to compare our current level of spending to that of our potential adversaries.
To see why, let's examine the implications of these two omissions:
I. WHY OMIT THE DOLLAR COST OF A 4% GDP DEFENSE BUDGET?
Generals Sullivan [Ref 4] and Jones [Ref 2] and Admiral Johnson [Ref. 3] provide no language that even suggests they made a good faith effort to even calculate what 4% of GDP would amount to in dollar terms for future defense budgets. Frank Gaffney's detailed references to the GDP predictions and ratios made by the Office of Management and Budget (OMB), on the other hand, appear to be far more cynical. He demonstrates he knew exactly where to find the information needed to make the calculation. So Gaffney's omission goes beyond simple carelessness and indicates he chose deliberately not to provide the reader with this information.
It is not too hard to see why Gaffney was mum on the budget numbers, however. OMB does indeed make periodic predictions of the nation's economic performance as well as government expenditures. Included in these predictions is a long-term prediction of the Gross Domestic Product or GDP. The most recent set of predictions was made in June (i.e., before the calls by Gaffney, Gen Jones, and Adm. Johnson for 4% to 4.5%). It is readily available on the internet at the hot link below. By simply multiplying OMB's GDP estimate by 4% and 4.5%, one can calculate the Gaffney-Jones-Johnson-Sullivan defense budget. Table 1 below portrays OMB's GDP predictions for 2002 through 2007 and makes these defense budget calculations for 4% and 4.5% of GDP.
OMB's Estimates of GDP from page 13 (Table 6 from http://w3.access.gpo.gov/usbudget/fy2001/pdf/msr.pdf )
Gaffney-Jones-Johnson-Sullivan Budget Proposal
$ - Billions (includes inflation)
Table 1 tells us the budgets would be high but does not place the numbers in an historical context. Figure 1 rectifies this problem by placing the 4% and 4.5% defense budget scenarios in the context of past hopes and dreams as well as the reality of past defense budgets, including the wild predictions made by the Reagan Administration in the mid-1980s. [Fig 1 is also attached separately as Adobe PDF file for those of you with older email systems that do not display in-line graphics.]
Figure 1 can be read as follows. The bars show actual defense budgets in current dollars (i.e., including the effects of inflation), and the black lines show the history of predicted defense budgets (also in current dollars). These predictions (i.e., hopes and dreams) are contained in the Defense Department's Future Years Defense Plans (or FYDPs ). The reasons for depicting the actual budgets and predicted defense budgets in current dollars as opposed to inflation adjusted dollars were explained in Comment #364, which readers should also recall, provided insight into the dynamics of the mismatch between our hopes and dreams on the one hand and reality on the other.
The Defense Department produces a new FYDP each year, and has done so since 1961, when it produced the FY 1962-1966 FYDP. The first draft of the FY 2002-2007 FYDP, which the next President will submit to Congress next January, was produced by the military services last June and is known as the Program Objective Memorandum or POM. In Figure 1, the FY 2002-2007 POM is depicted by the "blue" line with the "balls." The $180 billion in unfunded requirements ($30 billion per year over 6 years) reported by the Washington Post last June was based on the POM and is depicted by the "red" line just above the "blue" line.
The Gaffney-Jones-Johnson-Sullivan Budget Proposals are depicted by the two uppermost "Red" lines labeled 4% and 4.5% of GDP. The comparison makes it abundantly clear why the authors of the 4% solution chose not to provide a dollar value to their proposal - the 4% solution is absurd. [This conclusion holds equally well with the effects of inflation removed-click here; see Comment #386 for explanation.]
Table 1 and Figure 1 show that the 4% defense solution, if implemented in this decade, would be tantamount to a declaration of total war on Social Security and Medicare in the following decade. Such a war could be justified only if our nation's survival was at stake, which brings us to the second omission in the Gaffney-Jones-Johnson-Sullivan Budget Proposals.
Moreover, in view of the fact that our nation's longest and most vigorous economic expansion has taken place while the defense budget has been shrinking as a diversion of resources on a percentage of GDP basis, one must ask whether such a sudden and sharp increase in defense spending might re-ignite a diversion of resources and thereby produce a dislocation that adversely affects future productivity growth and leads to an extended period of economic stagnation.
Let us turn to the question of whether a threat to our national survival justifies this kind of sacrifice.
The second common denominator in the Gaffney-Jones-Johnson-Sullivan Budget Proposals is that each takes great care not to mention the level of spending by our potential adversaries. This is a stark departure from the Cold War practice that always premised US requirements for higher defense spending on the long term threat of increased Soviet spending.
The reason for such a stunning turn around in the marketing strategy becomes quite clear if one adds up the spending by our potential adversaries and compares it to (1) the current level of spending by the United States and its Allies, and (2) introduces the hypothetical effects of an increase to 4% or 4.5% of GDP. These comparisons are depicted in Figure 2 (click here for .pdf version) below.
In 1999, the most recent year for which data is available, the US was already spending spent almost three times as much as the combined expenditures of Russia, China, Iran, Syria, Iraq, Libya, North Korea, Serbia, Cuba, and the Sudan - the agglomeration of states most often considered as potential adversaries for planning purposes. Add in the spending by our allies, and the current spending advantage rises to five and a half to one. The two thin bars on the right show how the comparison would change if defense spending rose to 4% of GDP by 2002 or 2007, assuming the budgets of our allies and adversaries remained constant. Of course, this is a purely hypothetical comparison, because no one can say how fast future budgets of our allies and adversaries will grow or decline - but one thing is clear, the United States already has an overwhelming advantage, even if it is only spending 2.9% of GDP - so why increase it to the extent suggested by the 4% solution in Figure 1?
The American military is in a death spiral - to borrow a term coined by Jacques Gansler, the Undersecretary of Defense for Acquisition -- and advocates of the 4% solution want a bailout.
But the Pentagon's readiness and modernization problems are not due to budget cuts. The are the result of habitual modes of conduct evolved during the Cold War and a desire by the Military - Industrial - Congressional Complex (MICC) to protect its comfortable life style in a world that is changing rapidly.
In fact, the 4% solution will reward the very behavior that created the Defense Death Spiral in the first place and make matters worse over the long term. Today's problems are predictable self-inflicted wounds deliberately created by people who chose to continue playing the defense power games instead of making the hard decisions. They were handed a once in-a-lifetime opportunity to put the defense house in order during the 1990s; they blew it, and the chickens are now coming home to roost in the form of (1) a high-cost modernization program that makes it too expensive to modernize the force on a timely basis, even if current production plans are perfectly executed, (2) a rapidly deteriorating readiness posture brought by the rising cost of low readiness, which is in part a consequence of the flawed modernization program, and (3) a corrupt accounting system that renders it impossible to assemble the detailed information needed to fix the modernization and readiness problems and makes a mockery of the accountability principle that underpins the checks and balances of the Constitution [see Comment #169].
Their only answer is ask for a bailout, so they can continue cold-war "business as usual," but that will create a war between the old people and the Pentagon that did not have to happen.
Defense Power Games (1998, in HTML)
Defense Spending Time Bomb (1996)
What Went Wrong With the Quadrennial Defense Review (1997)
Defense Death Spiral (1998)
Memorandum to the Director of Program Analysis and Evaluation on "Anatomy of Decline" 5 May 1994 (Ref 3 to Comment #166)
[Disclaimer: In accordance with 17 U.S.C. 107, this material is distributed without profit or payment to those who have expressed a prior interest in receiving this information for non-profit research and educational purposes only.]
The 'Four Percent Solution' for military readiness
The percentage of our gross domestic product that we currently invest for the national security pillar upon which our superpower status maintains itself is about 3 percent -- roughly three cents on the dollar. (Over the last 60 years, the average has been 8 percent.) Three cents on the dollar for global responsibilities and global leadership. My opinion is that if we do not sustain this turnaround that we will not sustain our role as a superpower, we will not be able to recapitalize and modernize at the rate that we require, and we will not sustain the all-recruited force, which we refer to as the all-volunteer force, that the nation deserves.
A nation with a projected $1.9 trillion budget surplus can afford consistently to allocate a minimum of 4 percent of its gross domestic product to ensure its security. Such a commitment of resources would assure the readiness of both today's armed forces and tomorrow's for many years to come, while allowing important new defense initiatives -- like Bush's pledge to protect the American people against ballistic missile attacks at the earliest possible time -- to be fulfilled. We must not forget that the alternative has, in the past, often proven to be far more costly: unnecessary, avoidable wars whose price in blood and treasures dwarfs the savings achieved via pound-foolish "peace dividends."
Marine Commandant Calls For Defense Spending Increase
By Hunter Keeter
"It would mean going from about 2.9 percent through a gradual ramp-up to about 4 and 4.5 percent of the U.S. Gross Domestic Product," Jones on Monday told Defense Daily in an interview. "That, I think, would solve a lot of problems, not just for the Marine Corps but for the Air Force, the Army and the Navy. It is an investment strategy in this time of unbelievable surpluses and I believe that it is imminently doable."
"If you under-invest in one area you have a cause and effect in the others," he said. "Any CEO of a global corporation should tell you that they cannot imagine an environment - where the American military presence is not absolutely a stabilizing influence that contributes to our economic prosperity. Global responsibility demands globally capable behavior."
In areas like Africa and South America, where the United States has historically under-invested in military presence, the DoD's "shape, prepare and respond" strategy has been unable to adequately champion U.S. interests or to stop conflict from interfering in the interests of U.S. allies.
"I believe that Africa and South America are good examples of what happens where the U.S. isn't invested in the total way that we are in Europe, the Pacific and the Persian Gulf," he said. "Where we do it right, we have stability. Where we do it wrong, you have either chaos or the road into chaos." ...
Fleet Strength At Risk, Retiring Admiral Says
By Tom Stuckey, Associated Press
The number of ships in the fleet is down to 315 and the number of aircraft to 4,100, he said.
"We need to build eight to 10 ships a year and 200 aircraft just to maintain the fleet," Adm. Johnson said, but under current funding projections that will not happen.
Sen. John McCain, Arizona Republican, Defense Secretary William S. Cohen and Secretary of the Navy Richard Danzig spoke at the retirement and change of command ceremony. All three said one of Adm. Johnson's major accomplishments was his success in improving conditions for officers and enlisted personnel, especially his backing for a major pay increase for the military approved by Congress.
Mr. McCain said Adm. Johnson also "was the first to step forward and seek food stamps for the neediest sailors."
Adm. Johnson said if the armed forces do not provide more money and a better quality of life for young persons, "we risk losing them to a vigorous economy."
Increased global engagement makes greater investment in military vital
By Gordon R. Sullivan
With the 14th consecutive year of a decline in defense spending, we will sooner or later forfeit military superiority. If we don't want this to happen, American defense investment is going to have to increase, and soon.
Failure to increase defense budgets may hasten the hollowing of our forces. If our talented and competent young people leave for better-paying positions in the private sector in significant numbers, the quality of our force could decline.
Just 3 percent of the GDP will not allow the nation to shape, prepare or respond to today's national security strategy. We should set the marker at 4 percent.
The good news today is that American military power is still vastly superior to all likely competitors, in most categories, and barring any sudden technological breakthroughs, U.S. supremacy for a decade to come is assured.
Today's national leaders know about the lesson of Munich only from their college seminars. Unless we - the military and policy communities can reawaken a strong national commitment to the maintenance of American military power, our foreign and security policies may shortly come to be ambitious rhetoric without muscle.