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O’Hanlon: Real Defense Spending Must Always Increase

Michael O’Hanlon had a somewhat curious op-ed earlier this week arguing against the idea that we can hold the defense budget constant in inflation-adjusted terms. You might expect such an argument to involve some strategic assessment of the threats facing the nation, but as Benjamin Friedman observes he just punts on what these capabilities are for. Instead, he asserts that for “the Defense Department to merely tread water, a good rule of thumb is that its inflation-adjusted budget must grow about 2 percent a year (roughly $10 billion annually, each and every year.”

I think there’s a grain of truth to this with regard to personnel. Real wages increase over time, so unless the military wants to lose out in labor market competition with other agencies, it needs its real wages to increase as well.

That said, this is a perfectly general phenomenon. The CIA and the State Department and the guys who regulate banks all face the same issue. So there’s still a need to make an argument for spending increases that takes some real account of tradeoffs. There are costs to spending more money.

Then there’s the whole rest of the defense budget. Many organizations have been able to offset rising labor costs by taking advantage of technological improvements. For example, almost every organization employs fewer secretaries and typists than it once did. Instead, we have more (and cheaper!) email, voice mail, online calendars, cell phones, etc. to help keep track of what’s going on. The Department of Defense has not been very good at taking advantage of technological improvements to reduce equipment costs. Instead, the tendency has been to design new generations of ships and planes that are vastly more expensive than their predecessors. But this is not a general phenomenon. Labor costs grow for the military because they grow for everyone. But the real price of lots of other things falls. Not just computers, but also things like cars:

I think there’s a good case to be made not that defense budgets need to rise because equipment gets more expensive, but that equipment gets more expensive because defense budgets rise. A more budget-constrained military would pose different incentives to contractors, and I bet they’d be able to find ways to start building more cost-effective systems.

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Or to take a related example, if you read Peter Singer’s Wired for War it’s clear that there are large cost savings to be achieved by relying more on remotely operated “drones” and less on planes with human pilots. But the services have been resistant to this change out of a mix of machismo and traditionalism. The experience of actually engaging in warfare has, as Singer details, began to spur changes. And there’s good reason to believe that more change would happen if it were necessary.