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TH E DEFENSE BUDGET A rthur Smithies, Nathaniel Ropes professor of political economy, H arvard University I began to d raft this statement in July 1957 on the day when drastic cutbacks in aircraft production were announced by the Depart ment of Defense. Subsequently it transpired th a t missile develop ment had also been slowed down—when the Government knew of successful Russian ICBM tests. These cuts followed cuts in the ground forces of 100,000 men and further cuts are in prospect. A t a time when disarmament discussions were bogging down in London, disarma ment was going on apace in Washington—only a few months after the world had received a demonstration of Russian ruthlessness in Hungary. The inference seems clear th at something is wrong with defense budgeting. Either expenditures were much too high before, or they have now been subject to unwarranted reduction in the interests of domestic politics. I t is a sad irony of our national life that the defense budget, on which our national existence depends, receives less consistent treat ment than any other part of the Federal budget. The current periods are not unique. In the late forties we ignored the growth of Russian strength and disarmed unilaterally. That pre pared the way for Korea. The Korean war brought us briefly to our senses. We not only armed to fight that war but to sustain a long period of cold war. The cold war is not over, but our efforts are fal tering. We may be preparing the way for another Korea. B ut next time it may be a nuclear Korea that will make the last one look tame. (It has already turned out to be a Syria, as a first installment.) These events illustrate the feast and famine cycle in defense budget ing. A sense of emergency, obligingly provided by our adversaries, awakens us to our dangers and we rearm. But with no diminution of the danger, we grow used to it and disarm in order to reduce taxes— supported by solemn statements that 8 percent of the national product is more than we can afford to spend on national survival. Unlike other programs—agriculture for instance—national defense does not have the benefit of organized and continual political support from within the country. The private manufacturers of arms, who were villains of the thirties, are woefully weak in their political in fluence compared with veterans, conservationists, and farmers. Defense budgeting not only produces cycles of military strength and weakness, but the desire for economy has produced a concentra tion on strategic weapons. U nder the illusion that nuclear defense is cheap defense—it provides a bigger bang for a buck—we have steadily disarmed conventionally and have relied on the threat of massive re taliation. We have thereby reduced our ability to wage limited war. But as Russia approaches us in nuclear power, the fear of retaliation 551 552 ECONOMIC GROWTH AND STABILITY paralyzes our willingness to use the massive weapon except when we face an ultimate threat. For foreign policy to have adequate m ilitary support, the limited capabilities that have been lost in the name of economy must be revived. Now the latest economy move appears to be to substitute missiles for manned aircraft (even though missile development is being slowed down). A t a time when the Government is negotiating for an in spection scheme that will provide warning against surprise attack, the Department of Defense is making decisions that will render those negotiations meaningless. There is no warning against surprise attack in the ballistic missile age. The first step in disarmament should be to secure agreement not to produce ballistic missiles. In stead we are moving in the opposite direction in the interests of economy. W eakness of t h e B udgetary P r o cess I shall not continue this jeremiad. I have said enough to show that, judging by results, something is wrong with our method of budgeting for defense. The root of the trouble is that political democracies have not yet learned to make the sustained defense efforts that are now needed. While this may be in part an inevitable price we must pay for democracy, these are various features of the budgetary process that contribute to the l.ack of support for an adequate defense effort. In the first place, the defense budget is not a document that is readily understood. Even the most assiduous student of it would find it impossible to tell how far the budget provides for a force that will deter a strategic attack on the United States, how far it permits us to carry out our commitments as the leading member of NATO or SEATO or to support other aspects of foreign policy throughout the world. Yet the size of the budget vitally affects these matters. A cut or an increase of say 10 percent can make a great difference to the Nation’s m ilitary effectiveness. Yet neither the Congress, the Presi dent, nor I suspect the Secretary of Defense and the Service Secre taries has the information needed to relate the financial figures in the budget to any meaningful concept of m ilitary effectiveness. We have had recent examples where in one breath the Secretary of Defense asserts that not one dollar can be cut from the budget and in the next orders drastic cuts in m ilitary procurement. I suspect th at he has no solid factual support for either position. The present procedures grow out of the requirements of an earlier and simpler period of m ilitary history. I f the Army consists mainly of armed soldiers, the budget can be considered in terms of the number of soldiers and supplies, arms and ammunition per soldier. That still remains the central idea in present budgetary procedure, however inappropriate it may be in the day of the hydrogen bomb and the ballistic missile. I have the belief, not shared by everyone, that better budgetary decisions would result if the Congress, the President, and at least the educated public understood their m ilitary implications than if they simply have the word of the m ilitary expert that a given budget is “necessary.” The m ilitary expert is believed, perhaps overbelieved in times of crisis, but without a crisis he becomes an ordinary mortal. The result is that budgetary decisions frequently rely heavily on mere ECONOMIC GROWTH AND STABILITY 553 intuition. It is a tribute to experienced Members o f Congress and many unheralded permanent officials in the Congress and the execu tive that budgetary decisions are as good as they are. The second weakness o f the budgetary system lies on the cost side— on the assessment o f the impact o f the budget on the national economy. W hile the size o f the budget that the country is w illing to accept de pends largely on political attitudes toward taxation, those attitudes can be influenced by authoritative opinion. Just as military opinion can influence political attitudes concerning the size o f the military forces that should be maintained, so economic opinion can influence political attitudes with respect to the force levels the country can afford. Unfortunately, however, the economic opinion that appears to have most influence is that o f the amateur rather than that o f the profes sional. I must regretfully report that bankers and businessmen usu ally carry more weight in public discussion o f economic matters than do economists. This is partly the fault o f the economist who has not paid enough attention to the problems o f communication. He is deal ing with a subject o f immediate interest to everyone, and to exert authority he must submit not only his conclusions but his arguments to a popular jury. Failing that, the homespun parables o f the banker will win the day. Furthermore our national ideology accords to the businessman a reputation for competence in areas far beyond the fields o f his experience, which, even in the largest corporations, can be very limited. A s a nation we do not share Adam Smith’s view that “ mer chants and manufacturers neither are nor ever can be the rulers o f mankind.” Finally, the bankers and industrialists are on the right side o f the argument from the point o f view o f the taxpayer. They always underestimate the economic capacity o f the country to defend itself and urge relief from the “ staggering burden o f taxation”— wjien the economist is pointing to the fact that national income after taxes is rising rapidly and surely the country can afford to defend itself. A third weakness o f the budgetary system is that is is supposed to eliminate waste and inefficiency and obviously has not done so. B udg et cutters point with reason to the fact that if interservice rivalries were eliminated and if each service conducted its affairs with reason able standards o f managerial efficiency, the same amount o f defense could be obtained for less money. But if the budget is cut on these grounds, there is no guaranty that the desired results will follow. Rather, it seems more likely that many o f the inefficiencies will re main and the cuts will mean a reduction in military effectiveness. This type o f argument was used to support budget cuts in the late forties and is being used today. Even though it is demonstrably true that budget cutting is not the way to efficiency, the persistence o f inefficiency w ill obviously weaken the political case for any budget that is submitted by the services to the President or to Congress. The fourth weakness o f the system also stems from its archaic char acter. The budget has always been prepared, considered, and en acted on an annual basis; but with the defense budget in particular decisions must be made today whose effects wil be felt fo r years in the future. A new weapon.takes years to develop and years to produce. A development decision today contemplates expenditures in the years to come. A nd expenditures on long-lead items today result from de 554 ECONOMIC GROWTH AND STABILITY cisions made in the past—perhaps by earlier Presidents and almost certainly by earlier Congresses. Consequently, the frequent com plaints that the budget is uncontrollable, and the attempts to restore annuality to a budget which is inherently unannual. The annual state of the budget is a time-honored subject for political congratula tion or condemnation, but preoccupation with it can seriously de flect attention from effective and efficient programing for defense. P o s s ib il it ie s op I m prov em en t While defense budgeting is necessarily complex and difficult, sub stantial improvements can be made in the process as it exists at present. The first requirement, in my opinion, is a program budget th a t will show in a meaningful way what m ilitary forces are to be sup ported by the budget. While the best form for a program budget is a m atter of extended discussion, it is easy to see how great improve ments over the present system could easily be achieved. The advent of megaton weapons has focused attention on what has come to be called the strategic and the tactical aspects of de fense. Strategic forces are those required to deter or to win all-out war. Tactical forces are those neded to deter or win limited war. I suggest that the distinction between strategic and tactical could usefully be employed in presenting the budget. In fact if the dis tinction is essential in devising national strategy, there is a strong presumption that it should be used in considering the budget. U n der the heading “Strategic” would be included the Strategic A ir Command whether located a t home or abroad, the Continental A ir Defense Command (which includes the air defense units of the Army, the Navy, and A ir Force) and civilian defense. Tactical, on the other hand, would include virtually the whole of the Army, the Marine Corps, and tactical air and air transport. In view of the difficulties of separating its functions, the Navy (except the Marine Corps) would probably have to be included in a category of its own, serving both tactical and strategic purposes. Research and development is an item that should also be shown separately. Research, especially, cannot and should not be classified with respect to its tactical and strategic implications. The remainder of the defense budget would cover the adm inistra tive overhead of the Department of Defense. A budget constructed on these lines would center attention on critical issues. I t would not only permit a more intelligent examination of the total size of the budget than is possible now, but would raise the vital question of distribution between strategic and tactical forces. W ithin the cate gory of strategic, the budget would facilitate consideration of the relative emphasis to be given to defense and offense. A consolidated budget for research and development on the other hand would raise the question whether enough or too much attention was being given to the long-run future in relation to current defense needs. Such a budget need not affect the appropriations structure or the organization of the Department of Defense. Appropriations would continue to be made to the individual services for administrative purposes. Still less would such a budget imply a step toward unification of the services. I t would merely recognize in the financial field what has ECONOMIC GROWTH AND STABILITY 555 already been recognized in the field of m ilitary operations, that the various services contribute to common ends. I cannot argue th at the inclusion of the Navy as a separate category is logical. B ut since the same units can perform both strategic and tactical operations, an arti ficial division into the two categories would probably be a source of needless and even vehement argument. Critics of this kind of proposal fear that departures from tradition would weaken political support for defense; that the Congress is more likely to look with favor on the Army if it does not examine too closely what it does, than if it is impressed with the Army’s tactical mission. In addition to a general faith in decisions made on the basis of knowl edge rather than ignorance, the record suggests to me that any change in the direction of clarity would result in improvement. The second improvement that I have to suggest is th at professional economic analysis be brought to bear in a systematic way on the ques tion of what the country can afford. The establishment of the President’s Council of Economic Advisers and the Joint Committee on the Economic Report have been important steps in the right direction, but they are not enough. While the Joint Committee has performed invaluable services in educating the Con gress as a whole and the public on economic matters, I doubt whether it has had a direct impact on budgetary decisions. In the executive branch the Council has not exercised as much influence as the Treasury or the Budget Bureau. In fact, in recent years the Council has cen tered its attention on short-run business fluctuations rather than on the more basic issues involved in the economic impact of the budget. In both the Congress and the executive branch this situation can be remedied. The Congress, I believe, should consider the establishment of a Joint Committee on Fiscal Policy. Such a committee would be relatively small in numbers and would consist of leading members of the four financial committees and of the Joint Committee on the Eco nomic Report. Its function would be to review the President’s budget from a broad point of view and to lay down guidelines for policy, with respect to appropriations, expenditures, taxation, and borrowing based on its assessment of program requirements on the one hand and the economic capacity of the country on the other. Such a committee would not attempt to foreclose discussion in the regular committees by the imposition of ceilings (as was attempted in connection with the legislative budget) but it would provide for a unified consideration of budgetary policy that has been lacking in the Congress since the Appropriations Committee was separated from the Ways and Means Committee in the late 19th century. On the Executive side, I believe that the President should receive organized rather than sporadic fiscal advice. He should not rely on the economic advice of the Cabinet member he sees most frequently or finds most congenial. F urther the President in submitting the budget should submit an economic analysis of it. In fact, his Economic Report should consist largely of an analysis of the budget and its effects on both short-run stability and longer run growth. To achieve these ends coordination within the Executive Office is needed; and I think some formality would be an advantage. The fact that the National Security Council is a formal body has resulted in a closer coordination of diplomatic and defense policy than would have .556 ECONOMIC GROWTH AND STABILITY occurred had the President merely relied on coordination through the W hite House staff. Similarly a Fiscal and Monetary Council that included the Treasury, the Budget Bureau, the Council of Economic Advisers, the Federal Reserve Board and the Federal Loan Admin istration jeould be responsible for advising the President on an admin istration fiscal policy. While Cabinet members, in their public pro nouncements, would not and probably should not always conform to the administration’s official policy, they could be required, by inquisi tive congressional committees or newspaper reporters to explain their disagreements with it. The third area where improvement is needed is in the promotion of efficiency. As I have said above, the record of experience does not indicate that congressional or Budget Bureau investigating of budget proposals has produced efficiency, particularly of the major kind th at .could be achieved by reduction of needless interservice competition. (I say “needless” advisedly: some competition among the services—in weapon development, for instance—is probably desirable.) The solu tion does not lie in the Appropriations Committee hiring large staffs of accountants or other inquisitors. Congressional investigation of th a t kind frequently produces the wrong results. The safest way to escape the investigation is to remain in traditional grooves. Efficiency in conditions of rapid technological change requires bold experimenta tion, in the course of which mistakes will inevitably be. made. E x perimeters should be encouraged rather than intimidated. I continue to believe that efficiency must be achieved through im proved management in the Department of Defense. In some areas, such as property accounting, personnel management and procurement, business principles are likely to be helpful. But at the levels of policy formation, defense differs radically from business; and the application o f business principles can lead not to efficiency but to catastrophe. Business criteria cannot be applied to the conduct of military opera tions, where expenditure of materiel becomes a secondary considera tion. I do not suggest that Congress and the Budget Bureau should give up interest in efficiency. Rather they should devote their efforts to review after the actual fact rather than, as at present, before the hypothetical fact. In that way they could disencumber the budgetary process from a great deal of pettifogging detail and could direct their attention, more efficiently than they now do, to the significant questions of management. The fourth possibility of improvement relates to long-lead items. A t the present time this subject is beclouded by the recommendations of the Hoover Commission. That Commission has recommended that congressional control be established by reverting to the contract-authorization procedure which was given up some years ago by the A p propriations Committee. The alternatives are, on the one hand, to continue with the present procedure whereby an initial appropriation is intended to be used over a number of years to cover the entire cost of a procurement item or a construction project. Under the proposed system, a contract au thorization is recommended by the Appropriations Committee to cover the entire cost. Annual appropriations are then made to meet payments as they become due. The major advantage of the proposed method is that if a project lapses or if the procurement originally contemplated is given up, there ECONOMIC GROWTH AND STABILITY 557 are no disembodied appropriations searching fo r a resting place. U n der the present system appropriations, unless rescinded, can be used fo r purposes that were not contemplated at the time they were made. The m ajor disadvantage o f the proposed method is that it may create uncertainty in the minds o f contractors as to whether their projects will be financed. I f they feel they run greater risks o f termination o f their contracts, the terms on which the Government can contract will de teriorate. The controversy over these two methods has deflected attention from the important issue— the need to project the budget into the future and to review long-lead procurement as it proceeds. Unless the Congress does these things, no appropriation device will achieve meaningful congressional control. I f they are done, either method should work equally well. M y positive suggestion therefore is that the present controversy be abandoned and that attention be directed to the problems o f projection and continuing review. These modest suggestions are intended to increase the rationality o f decisions concerning the defense budget. Contrary to some po litical “ realists” I believe that the quality o f political decisions can be improved by rational thought. Defense decisions are far from rational— as is illustrated by our present policy o f unilateral disarm ament. A s a nation wTe chronically fail to realize that modest invest ments in deterring wars can avoid vast expenditures o f human life and natural resources in fighting them. Im proved budgeting alone will not correct the situation. But it will help.
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