Flush With Cash, Running on Empty (II)*
[A slightly edited version of this posting appeared on the Moyers & company website on 8 November 2015]
The Pentagon just won another small skirmish in its long war with Social Security and Medicare. That is the unstated message of the budget deal just announced gleefully by congressional leaders and the President. To understand why, let’s take a quick trip down memory lane.
Last January, President Obama submitted Fiscal Year (FY) 2016 budget to Congress, and he proposed to break the spending limits on both defense and domestic programs. These limits are set by the long-term sequester provisions of the Budget Control Act of 2011 (BCA), which, for better or worse, is the law of the land, and Obama was asking Congress to change the law. Mr. Obama wanted to finance his ramped up spending proposals by increasing taxes. Of course, he knew that the Republican controlled Congress lusted for defense increases but hated domestic spending, particularly entitlements. Moreover, he knew increasing taxes was like waving the red cape in front of the Republican budget bulls. So, he knew his budget would be dead on arrival. Obama’s budget, nevertheless, had one virtue: it was up front about the intractable nature of the budget problem. In effect, whether deliberately or not, Obama laid a trap that the Republicans merrily walked into during the ensuing spring and summer.
Obama's gambit set into motion a tortured kabuki dance in the Republican controlled Congress. The Republicans, as Obama well knew, wanted to keep up the appearances of adhering to the BCA. But at the same time, they wanted desperately to shovel money into the Pentagon’s coffers. The net result was that Obama’s proposal triggered a series of increasingly irrational Congressional negotiations, bizarre back-room deals and weird budget resolutions. These machinations came to a head with the passage of a National Defense Authorization Act (NDAA) that proposed to (1) keep the Pentagon’s base budget at the BCA level of about $499 billion, but (2) pack the accounts in the Pentagon’s Overseas Contingencies Operations fund (OCO) with a programs and pork that should have been in its base budget. The reason for the dodgy OCO 'slush fund' rested in the politically irresistible fact that the OCO is a separate war-fighting fund** for the Pentagon that is exempt from the spending limits set by the BCA’s sequester provisions. The net result of the smoke and mirrors by the Budget and Armed Services Committees of Congress was a total defense budget that was almost identical to Obama’s original submission, but one that was not accompanied by his domestic funding increases or his tax increases. And this monstrosity was all wrapped up in a ridiculous pretense of adhering to the BCA limits.
Last week, President Obama seemed to close the trap by vetoing the 2016 NDAA. But this too was smoke and mirrors.
The veto put in motion yet another kabuki dance, this time behind closed doors between the White House and the leaders of Congress. The goal was to reach an overall budget deal that would avoid a government shutdown, which the majority Republicans were terrified of being blamed for on the eve of an election year. At the same time, they wanted to dodge the BCA’s sequester bullet while they shoveled more money into the Pentagon.
That deal has now been joined, and the Republic has been saved, albeit at an unknown price. Nevertheless, some of the sordid details of that price are now beginning to seep through the chinks in the Hall of Mirrors that is Versailles on the Potomac.
According to this report in Defense News, the elements of the budget deal include:
The deal raises the BCA spending caps (again) by $80 billion over next two years; including $50 billion in FY2016 and $30 billion in FY2017. It also increases the Federal Government’s debt limit. These spending increases would be split equally between defense and domestic programs, and they would be financed by two squirrelly provisions, to wit:
The first financing gimmick cuts back Medicare and Social Security disability benefits. But if past is prologue, the cut to Medicare is likely to be reversed again next year, which is an election year — because everyone in Congress wants the endorsement of the American Medical Association (AMA). The cut to Medicare providers was first made permanent law by the Balanced Budget Act of 1997, and since then Congress has reversed the scheduled provider cut 17 times.
The second financing gimmick is to sell crude oil from the US Strategic Petroleum Reserve. Ironically, this rather bizarre provision is peculiarly fitting to the culture of Versailles on the Potomac. Few remember that the reserve was justified to the American people in 1975 as an insurance “cushion" to reduce the adverse effects of future rises in oil prices or supply disruptions engineered by OPEC, which is controlled by our supposed “ally” Saudi Arabia. So why sell the reserve's oil when prices are near record lows (adjusted for inflation) compared to those of the last fifteen to twenty years, particularly since the Saudis are flooding the market to take out the US frackers? Who benefits is a fascinating question with all sorts of twists and turns and is not yet answered. But it is worth recalling the 1997 Balanced Budget Act had a provision to sell the Naval Petroleum Reserve at Elk Hills (sold in 1998) – at that time, the largest privatization of government assets in history, precisely when oil prices were at their lowest level (adjusted for inflation) since the 1960s. They sold it to Occidental Petroleum which made a killing.
There is one thing the deal makes clear, however.The Pentagon's share of the spending increases would be $33 billion in FY16, made up of a $25B increase in the Pentagon’s base budget and an $8B increase in the OCO. As for how the Pentagon’s $15 billion increase in FY17 will be allocated, the report in Defense News is silent.
So, there is good reason why champagne corks are popping in halls of the Military - Industrial - Congressional Complex (MICC) and its lobbying affiliates on K Street. Indeed, to celebrate the triumph, the AF immediately announced it awarded Northrop-Grumman a huge concurrent engineering contract (Milestone B) to design and build the first 21 of 100 new long range strike bombers, which heretofore had been shrouded in heavy secrecy. No one knows what this bomber will even look like, let alone what the program will cost, but two years ago, there were reports of a “pre-cost-growth” total program cost estimate (R&D and production) reaching $81 billion. At least one of the MICC’s euphoric wholly-owned subsidiaries in the Fourth Estate has already written that 100 bomber is not enough, given the threats we face and the number of aging bombers that need to be replaced.
This new bomber program is by far the largest weapon acquisition program yet started in the 21st Century. Yet there has been no oversight, except by its advocates in the smoke-filled, super-secret secure compartmented information facilities (SCIFs) spread around Versailles. Moreover, the bomber's heavy concurrency means that the production-related money will quickly start flowing to hundreds of congressional districts, well before it is designed. So, before you can say sequester next year, the Bomber, like the troubled F-35 Joint Strike Fighter, will be unstoppable. And, like the F-35, it will acquire a life of its own to live on, no matter how badly it fails to meet its cost goals, its capability specifications, or its production quotas — for the simple but powerful reason that a majority in Congress are being bought off today in a way that will ensure they vote for it tomorrow.
But there is more. The new Bomber is just the beginning of the new defense boom that Mr. Obama and Congress are launching beneath the smoke and mirrors of their budget practices. The Pentagon already has a bow wave of increased spending for new weapons in its R&D pipeline. In that sense, it is no accident that, a year ago, as he was departing the Pentagon, the Pentagon’s ineffectual comptroller Robert Hale characterized the new bomber as the “canary in the coal mine.” He was wringing his hands over the rapidly growing requirements for larger defense budgets in the future — requirements he helped to create. Bow waves are a perennial feature in Pentagon planning. I first heard the term in 1973. The current bow wave, like its predecessors, will lead inexorably to more budget crises and more dodgy budget deals made by the best government money can buy.
So, once again, Mr. Obama had a shot at leading from the moral high ground, and once again, he blew it. He had the Republicans on the ropes, with all their warts on full display, but then he squandered an opportunity to effect even a pretense of challenging a thoroughly corrupt system.
[Addendum: By 4 November, the newsletter Flight Global explained why the champagne corks were popping within the MICC and its lobbyists, saying ...
"The anticipated two-year budget deal has investors feeling optimistic, since the alternatives were a full-year continuing resolution that maintains fiscal year 2015 government spending levels or full sequestration. In response, Moody changed its outlook for the global aerospace and defence industry from stable to positive, with worldwide defence spending now tipped to grow by 2% to 3%." ]
Obama’s most recent performance is yet more proof that he is no change agent. A better characterization would be that he is merely another apparatchik, whose role is to protect the interests of the factions making up the shadow government that is now running the show — what former congressional staffer Mike Lofgren calls the US Deep State.****
* This essay is the second in a series of occasional essays on the nature of defense spending. The first can be found here.
** The OCO is a George W. Bush gimmick, created in 2001 after 9-11 to capitalize on the national hysteria to pay for the Global War on Terror by taking its costs off the books. All our previous wars — e.g., WWI, WWII, Korea, Viet Nam, Kosovo — were funded out of the “base” defense budget and there was no need set up a special war fighting account.
*** The term “bow wave” refers to a buildup of budget requirements in the future that is created by investment decisions made today. It is a chronic feature of defense planning and is created deliberately by the bureaucratic gaming strategies explained in Part III of my 1990 pamphlet Defense Power Games. The bow wave of rising investment requirements sets up the conditions for a continual budget crisis that creates increasing pressure to raise defense spending over the long term. These pressures have nothing to do with any external threats facing the United States.
**** Lofgren a former Republican congressional staffer on the House and Senate Budget Committees has written an important new book, The Deep State: The Fall of the Constitution and the Rise of a Shadow Government. It will hit the stands next January.