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Chapter 1: How Not to Waste $700 Billion
The Secretary of Defense is in charge of the largest and most complex organization in the entire world. He is responsible for preventing and waging war, for leading the largest workforce in the country, and for directing the nation's largest research and development enterprise. DOD also spends more money than any other entity in the American economy, on average a staggering $700 billion every single year. This is seven times the size of New York City's budget, twenty-five times the size of Apple's operating expenses, and a larger budget than that of all but eight countries. The $700 billion defense budget is equal to that of all the other federal government agencies combined. (Together, DOD and the other federal agencies make up about 30 percent of the total federal budget; the rest goes to Social Security, Medicare, and Medicaid, the social safety net, and interest on the federal debt.)
What kind of spending needs can possibly justify a budget of this size? What is all this money spent for? Is it spent well or wasted? How much is enough? How should we decide between spending to"protect"the country today versus investing in defense preeminence in the future? An essential job of the Secretary of Defense is to ensure that these questions are answered and that all this money is spent wisely and efficiently.
Among Secretaries of Defense, I had an almost unique vantage point on these matters: I had seen the Pentagon not only from "up on the bridge," where policy is made, but also from "down in the engine room," where all the gears turn and the money is spent. Beginning in 1980, I held a series of DDD jobs, including the number-three and number-two jobs, before becoming SecDef in 2015. The number two is deputy secretary, the chief operating officer of the Pentagon, who puts the budget together and runs the department. The number three is the undersecretary for acquisition, technology, and logistics, or the "acquisition czar," as the press likes to say. The undersecretary oversees the buying of the ships, airplanes, tanks, and satellites, as well as a dizzying array of other goods and services. His office is responsible for purchasing jet fuel and heads of lettuce, building combat outposts in war zones, mowing the lawns on parade fields, and researching concepts for top-secret weapons.
I understand why defense spending is a perennial and easy target for politicians, the news media, and interest groups from the political left, right, and center. For decades, the United States has spent far more on its military than any potential adversary. In recent years, its defense budget has exceeded that of the next seven largest military powers in the world combined. Taxpayers have a right to know why such enormous sums are necessary, particularly in a world where money for health care, education, research and development, civil infrastructure, social safety-net programs, and other vital purposes is often hard to come by. And the frequent requests for increased defense spending that citizens encounter during congressional hearings or budget debates only heighten the skepticism that many people feel.
What's more, whenever huge amounts of money are spent for any purpose, it's exceedingly difficult to ensure that every dollar is spent wisely. That's especially true when the activities being funded are as varied, complex, and specialized as those being managed by DOD. Throw in the intense political pressures surrounding every Pentagon spending program-starting with 535 members of Congress, each with an interest in promoting the maintenance of military bases and private contractors in his or her home district-and you have a scenario in which at least isolated instances of wasteful, excessive, and sometimes even corrupt spending are almost inevitable.
The result, over time, is a series of horror stories about profligate Pentagon spending that have lodged themselves in the national consciousness-$640 toilet seats, $435 hammers, and payoff scandals like the case of Randall "Duke" Cunningham. (A congressman from California and a member of the Defense Appropriations Subcommittee, Cunningham was accused of taking lavish gifts from contractors in exchange for help in landing lucrative Pentagon deals. In 2005, he pleaded guilty to numerous charges and spent seven years in federal prison.) Few citizens know the details behind these iconic cases, although they help sustain a vague yet almost universal impression that the Pentagon budget is hopelessly out of control and that a high percentage of the money spent is utterly wasted.
But how representative are these horror stories? And what can be done to prevent them from happening again?
Where Your $700 Billion Really Goes
It's important to put Pentagon spending in perspective, since numbers without context mean little. According to the Congressional Budget Office, the defense budget for 2016 represented about 3.1 percent of U.S. gross domestic product (GDP)-a sizable sum, no doubt. But it's actually a modest amount compared with many previous defense budgets.
During the Reagan defense buildup of the 1980s, defense spending exceeded 6 percent of GDP, about double today's figure. After the collapse of the Soviet Union, it fell dramatically. (You can win bets by challenging people to answer the trivia question "Which Secretary of Defense presided over the largest sustained drop in military spending?" The surprising answer: the well-known hawk Dick Cheney, who served as SecDef under the first President Bush. Dick just happened to be in office when the Berlin Wall fell and support for Cold War military spending plummeted.) Defense spending rose again in the wake of the 9/11 terror attacks. The most recent high point came in 2011, when the combined effects of the war in Afghanistan and a lingering recession boosted the share of GDP dedicated to defense spending to 4.5 percent.
Turn back the clock a bit further, and all these sums are dwarfed by historical spending on defense. At the height of the Cold War, the United States regularly spent close to 9 percent of GDP on defense. And the highest figure in history, unsurprisingly, came during the all-out effort of World War II, when the military gobbled up fully 41 percent of GDP.
These historical data offer some important lessons. First, it's false to assume-as many Americans do-that the military budget is an irrational juggernaut driven mainly by raw political factors, such as the power of Pentagon bureaucrats and greedy defense contractors. I sometimes hear cynics remark, "Everyone knows a government budget never shrinks-only grows!" The seesaw history of defense spending shows that this is a myth. Defense spending rises and falls in response to changing circumstances, as of course it should.
Second, while shifting political currents have an effect on military spending, it's a fallacy to assume that higher Pentagon budgets are driven by hawks (historically mostly Republicans), while cuts in those budgets are pushed by doves (mostly Democrats)-though, to be sure, those tendencies have generally characterized the two parties in recent decades. A complex array of factors beyond ideology is actually involved. I've already pointed out that the biggest drop in defense spending occurred under Republican leadership, during the era of the post-Soviet "peace dividend." Here's another counterintuitive fact you can use to win bar bets: Every federal budget proposed by the Obama administration but one called for higher levels of Pentagon spending than Republicans in Congress ultimately approved. Those Republican members were not so much defense doves as deficit hawks. Only later did the political charge emerge that the liberal Obama "decimated" our military by slashing budgets in the face of protests from conservatives. The real cause of military budget cuts was concern over the deficit, and the major cause of budget turbulence detrimental to DOD was bipartisan gridlock. Both of these gripped Washington after the economic downturn of 2008.
Perhaps the most important lesson to be drawn from this quick historical survey of defense budgets has to do with the unequaled spike in military spending during the 1940s. That spike was driven not by politics but by the appalling lack of preparedness the United States faced as a result of its demobilization and withdrawal from the world following World War I. In the 1920s and 1930s, Americans decided they didn't want to support a significant military establishment, and they got away with it-for a time. But the bill came due when the Axis powers launched their effort to rule the world, crushing most of our allies and soon threatening our own freedom. The United States was forced to respond by converting civilian industry to military production, rationing goods at home, and turning millions of citizens into newly minted troops. Years of warfare and millions of casualties were also part of the price we paid.
With the Axis defeated, most Americans vowed to never repeat the mistake we'd made between the world wars. Rather than demobilizing and withdrawing behind our borders, we accepted a new role as the world's leading peacekeepers. The decades since 1945 have not been without conflict. But it's no accident that, in all that time, no would-be world conqueror has dared to launch a global war in pursuit of his ambitions.
Bob Gates, a good friend of mine and one of my finest predecessors as Secretary of Defense, has occasionally garnered applause during speeches with the line "Our defense experts have never successfully predicted where our next war would be fought." In support of this point, Bob cites such unforeseen conflicts as the U.S. invasion of Grenada in 1983. His point is that much of our defense spending, while it helps to build a generally strong future force, can't be justified by any specific future scenario. It's a valid point, but one that can easily be misunderstood. It's true that, for decades, the United States invested hundreds of billions of dollars on weapons systems and troop deployments designed to forestall wars that never took place-such as a nuclear exchange with the USSR, a battle to liberate Western Europe from the communists, a defense of Taiwan against an invasion by mainland China, and a defense of South Korea against a North Korean assault. But does that reflect a failure of prediction and therefore a waste of resources? Just the opposite is true. The fact that we foresaw the possibility of such conflicts and invested in the resources to prevent them represents a success of historic proportions.
Wars that never happen don't get written about by historians or analyzed by pundits. But these nonevents mean the survival of freedom for huge swaths of humanity and millions of lives saved. Money spent to produce those results was scarcely wasted. In fact, that's exactly the reason we spent most of our defense dollars during the postwar years.
The American role in deterring potential enemies around the world means that the U.S. defense establishment has a completely different mission than the military of any other nation does. Because we need to be prepared to intervene rapidly in locations around the globe, we must maintain forces that are far larger, better equipped, and more widely dispersed than those of other countries with no such responsibilities. This helps to explain why, for example, we find it necessary to maintain eleven aircraft carrier strike groups while no other nation has more than one.
Yes, maintaining armed forces of this size and quality is expensive. Three to 4 percent of GDP is a big investment in our nation's security. But if we tried to cut that figure drastically, as some have suggested, we might find ourselves, in time, in a battle for survival against a major global adversary like China or Russia-a battle whose demands would make today's defense budget appear pitifully small.
It's also important to understand the specific items that make up our $700 billion defense budget.
First, let's note that some defense-related spending is not included in the DOD budget. The biggest such chunk is more than $100 billion spent on benefits and services for the nearly ten million veterans and family members who are eligible, which is reflected in the budget of the Department of Veterans Affairs. Other non-DOD budget items include atomic energy defense activities managed by the Department of Energy and the national security activities of such agencies as the Coast Guard and the Federal Bureau of Investigation.
A big slice of the DOD budget itself goes to paying America's all-volunteer military force. In fiscal year 2016, just under $140 billion was spent on direct personnel costs, with billions more spent on related costs such as family housing. These figures alone help to explain much of the discrepancy between the U.S. military budget and the budgets of other countries, whether allies or potential adversaries of ours. We pay the troops well, and in return we recruit many of the highest-caliber people in the nation. By contrast, most other countries rely on draftees whom they pay relatively poorly. As a result, their talent pool is far less deep than ours is-a huge advantage to the United States in times of conflict.
However, a large chunk of the Pentagon budget-more than half the total-is spent on buying goods and services from outside suppliers. The Defense Department itself does not build a single rifle, tank, or airplane. Instead, those and thousands of other necessities, from boots, blankets, and computers to the meals ready to eat (MREs) devoured by troops stationed around the world, are purchased through contracts parceled out to the vast network of corporations that make up the fabled "military-industrial complex." There are about ten million such separate contracts awarded every year. More than ten thousand "contracting officers," trained and authorized by law to spend the taxpayer's money, sign these contracts. The number of Americans employed by defense contractors exceeds the nearly three million uniformed military and civilian personnel of the Defense Department. This makes DOD the largest employer in the economy by far. Managing these contracts is therefore the key to spending the taxpayers' defense dollars wisely.
Unfortunately, when this much money is at stake, safeguarding every dollar is a Herculean task. As a result, financial scandals have bedeviled defense spending throughout our history, from profiteering during the Revolution and the Civil War to the provision of tainted meat in World War I rations and the infamous $640 toilet seat during the Reagan administration, when I had my first Pentagon job. Each scandal brings disrepute to the whole enterprise, and for good reason.
It's easy to decry "bureaucracy" and "red tape"-or to darkly condemn the Pentagon and the entire military-industrial complex as a vast "swamp" in need of draining. It's quite another to take on the tough, detail-oriented job of actually making the inevitable complexity of government spending work.
But is the problem of wasteful defense spending insoluble? Having been immersed in the details of Pentagon spending programs for decades, and having grappled with the challenge personally during my tenure as the Pentagon's acquisition czar, I will answer, "Absolutely not."
