For several months, Secretary of Defense Leon Panetta has been using extreme rhetoric to characterize cuts in the Pentagon budget beyond the $450 billion reduction over ten years he has already accepted. With the failure of the so-called Super Committee in Congress to come up with a plan to address the federal deficit, Panetta has warned—over and over again—that an automatically triggered “Doomsday Mechanism” to impose another $450 billion in reductions over nine years would be a “catastrophe” that could be so crippling as to “hollow out the force,” and “enemies would be emboldened to attack the U.S.”

As a matter of Pentagon budget history, Panetta’s rhetoric and logic are—to put it politely—puzzling. Here’s why...

Figure 1 below shows DOD spending since World War II and projects it out to 2021. It uses the Congressional Budget Office’s (CBO) estimates for the size of the Pentagon budget for the years 2013 to 2021 under the “Doomsday Mechanism” (also known as sequestration) triggered by the Budget Control Act negotiated between President Obama and Congress last summer. (CBO’s numbers pertain to the larger “National Defense” budget function; they are adjusted here to pertain only to the Pentagon.)

Three things are important to note in Figure 1 about the “Doomsday Mechanism”:

1. Spending for the wars in Iraq, Afghanistan and elsewhere (shown in blue) is not affected by sequester; the amounts needed to prosecute the wars will remain impervious to the debt reduction changes, but they are not shown on the graph beyond the year 2012 because the amounts are not known. However, they would appear on the graph as a significant increase (whatever the president and Congress decide) over the red “Doomsday Mechanism” line.

2. Congress is now using the “un-capped” war spending account to give additional “base” budget (non-war) Pentagon spending a free ride; for example, the Senate Appropriations Committee recommended adding $10 billion in such base budget spending to the un-capped war account in the 2012 budget. We can expect more of this gimmickry in the future: The red line depicting the “Doomsday Mechanism” in Figure 1 is artificially low, even before actual war spending is added.

3. Even without this gimmickry, base Pentagon spending would remain close to its post–World War II high: At first somewhat below; then slightly above.

4. After initial reductions in the year 2013, the mechanism would permit the DOD budget to grow almost to the extent that CBO predicts inflation. By 2021 base DOD spending would grow by 20 percent in nominal terms.

The dollars in Figure 1 are what DOD calls “current” dollars; they not adjusted for inflation. To see the same budget data in “constant” dollars, which the Pentagon asserts to have an equal value over time, see Figure 2.

Using “constant” dollars normalized to the year 2012 does change the story, but not by much.

1. Without the inclusion of war spending, the DOD base budget under the “Doomsday Mechanism” is no longer at or near its post–World War II high, but it is also not near any of the historic lows. In fact, it is roughly $38 billion above annual spending during the Cold War (shown in green) when the US faced over 200 Warsaw Pact divisions in Europe, a hostile and dogmatically communist China and an international competition that included two wars (Korea and Vietnam).

2. After 2013, the “Doomsday Mechanism” would hold base DOD spending slightly below inflation, as predicted by CBO. However, future forecasts of inflation are notoriously unpredictable; the projection of below-inflation spending should be considered approximate, and it does not take into account the gimmick noted above that will raise actual base budget spending.

3. The spending under the “Doomsday Mechanism” for 2013-2021 is a more generous allocation of money than during any of the previous drawdowns after the Korean and Vietnam wars and the end of the Cold War, when—in each case—the DOD budget declined at steeper rates over time and ended up at a level well below the “Doomsday Mechanism.”

4. The “Doomsday Mechanism” (at $472 billion in 2013) would return Pentagon spending to its approximate level of spending in 2006 or 2007 in terms of 2012 dollars.

In 2006, when he was secretary of defense requesting the 2007 budget, Donald Rumsfeld was anything but upset with the level of spending he had at his disposal. He said:

The president’s [2007] budget request for the Department of Defense...reflects what we...believe should be the country’s national security priorities—namely to help defend the United States of America and the American people and their interests, to give flexibility to commanders, to prepare for both conventional and unconventional or irregular warfare....

Donald Rumsfeld was a tough talking, even blustering, secretary of defense; he was hardly noted for understatement or advocating feeble levels of funding for DOD. (See Andrew Cockburn’s excellent Rumsfeld: His Rise, Fall and Catastrophic Legacy). If Rumsfeld was happy with about $470 billion (in inflation adjusted dollars) for the Pentagon’s base budget, why is Panetta squawking?

Moreover, what of Panetta’s statement that US “enemies would be emboldened to attack”? The validity of that assertion can be tested by comparing the “Doomsday” level of spending to that of other nations, some of them competitors. See Figure 3.

At the $472 billion level, the US defense budget would be more than four times that of China. It would be two and a half times the defense spending of all potential opponents combined. From whom would this American defense budget invite attack? From North Korea, which has a military budget one one-hundredth of ours? From Iran with a defense budget less than two one-hundredths? To characterize an American defense budget that is so many multiples of individual potential enemies (even all of them combined) as an invitation to attack is absurd.

The problem with the “Doomsday Mechanism” is not the level of money it provides to the Pentagon over the 2013 to 2021 period. While less than what the Pentagon has recently been getting, it is a budget quite flush with money in historic terms—especially considering the absence of the existential threat we faced in the Cold War.

There are, however, some issues that do merit concern—but not hysteria.

The first real problem is a tactical one: in the first year of sequester, the reduction is noteworthy, approximately $50 billion or just under 10 percent. In addition, the cut would come in the form of proportionately equal across the board cuts in each Pentagon budget account and programs within those accounts; this is what a sequester is. (Under the Budget Control Act President Obama may select to exempt military pay accounts, which would make the proportional cuts in the remaining accounts larger.) While easy to calculate, such automatically imposed, across-the-boards cuts would be literally mindless.

However, as with the rhetoric about spending levels, a little research finds that the sequester mechanism is not the nightmare Panetta would have you believe. According to astute budget procedure researchers, pre-existing law (2 USC 907C) allows the President meaningful flexibility within major accounts to select the reductions—as long as the overall totals do not exceed the required amounts. Panetta’s angst over the mechanistic part of the “Doomsday” scenario appears to be as unsubstantiated as over the spending level.

The second tactical problem is the steepness of the reduction required for 2013. DOD managers will be forced to make many tough decisions: an approach to budgeting that up to now has been quite foreign to them. The temptation will be to reduce the short term pain and political difficulties in that decision-making, which over the longer term would be exactly the wrong kind of decisions. For example, there will likely be a strong pressure to cut civilian and military payrolls from the bottom, not the top. Already notoriously top heavy, the US military could end up even more so (Exhibit A, here.) It will be the top end of the bureaucratic ladder that has the political ability to resist the cuts, far more than, for example, enlisted personnel. Just where the initial cuts are made will tell us much about the mentality and ethics of DOD’s leadership.

If there is any reasonable relief from the “Doomsday Mechanism,” it would usefully come in the form of permitting a longer period of time—perhaps as long as two years—to come down to the $472 billion level. This, of course, would also mean additional reductions in the years immediately thereafter to allow the total savings to come to the required $440 billion over nine years.

These issues are not, however, the biggest challenge Panetta and DOD management face. They confront a major strategic problem, one that will test their mental and moral capacities far more than the above.

The Pentagon’s predicament is not just that it needs to adjust its spending level and galaxy of programs to new, lower amounts. It needs, indeed it literally is unable to survive without, fundamental reform.

Since 2001, the Pentagon budget has grown by $1.3 trillion to fund the wars in Iraq and Afghanistan; the base (non-war) DOD budget has grown by an additional $1.1 trillion. How much has the size, modernity, and readiness of our forces grown as a result of the extra basic Pentagon budget funding? See Figure 4.

The number of Army brigade combat teams has remained essentially flat since 2001. The Navy’s “battle force” has shrunk by ten percent. The number of active and reserve Air Force combat aircraft squadrons has shrunk by 51 percent.

These are not smaller newer forces; they are smaller older forces. In each service the average age of major equipment inventories is significantly greater than it was in 2001.

These forces are also now less combat ready and/or trained, not more. In 2006, the House Armed Services Committee released information that showed major Army combat formations in the US have lower readiness ratings than before 2001. The information has not been publicly updated, but we should worry that it is worse, not better. For the past few years, the press has reported pervasive maintenance and readiness problems in the Navy’s ships. In the Air Force, fighter pilots now get less training time in the air than they did in the low-readiness era of the 1970s, even less than they received in the 1990s.

Some Washington politicians and think tank types assert that we have such a big edge over our potential enemies that we now can afford to reduce our forces. The fact of the matter is that the enemies we have faced have been either grossly incompetent and unable to fight, like Saddam Hussein’s hopelessly inept and unmotivated conventional armed forces, or woefully under equipped and tiny, even if all to willing to fight and die, like the insurgents in Iraq and Afghanistan. They have no armored vehicles, no air force or air defense and no navy. As one retired Army colonel puts it, since 2001 we have only been clubbing baby seals as opponents. The repeated claims we hear that US armed forces are the best in the world, even the best in history, are driven by politics, not facts.

That the anti-US factions in Iraq have now successfully rid their country of us and that the Taliban in Afghanistan is making the fight there so difficult for us derive from political and other factors in an insurgency. These outcomes occur despite the heroism and skill of US forces in both countries at the fighting unit level.

While we do not face any existential threat now, at some point in the future US armed forces may be required to confront a substantial, well armed, highly trained, even inspired enemy. Should that day come, we clearly do not want our forces to be the victims of civilian and military decision-makers that permit our forces to decay, even when the budget has been growing. Imagine what such deficient managers will inflict on our forces with declining budgets.

The coming cuts make the reform of three key factors a highly urgent matter: leadership, decision-making, and hardware programs immediately need fundamental renovation, if not revolution.

Starting with the easiest, but hardly uncomplicated, hardware issues first, the anti-reform approach—business as usual—will mean stretching out procurement programs, such as aircraft purchases, and reducing the total buy. Advertised as saving money, they will actually make already unaffordable programs even more expensive in the long run (by raising unit cost), and they also almost always mean giving our combat forces second rate equipment, such as the F-35 (an inferior fighter, a mediocre short range bomb truck, and a substandard attack aircraft for troops engaged in combat). Failed, unaffordable programs such as the F-35 need to be terminated, not put on life support. There are many such disappointments still in the Pentagon’s too-long list of Major Defense Acquisition Programs. To help identify them for DOD’s current management, further procurement of any hardware program that has not completed and passed all operational testing should be suspended, pending the availability of empirical evidence of just what the new weapons are and are not capable of—and what they actually cost.

To reform the decision-making process, managers also need to know, rather be confronted with, realistic cost estimates. Today, they routinely take in what the program advocates want them to have in order to facilitate a decision to go ahead with a program. The information environment of the Pentagon needs to be radically reformed with the omnipresence of audits and evaluations, only by independent parties, especially of major programs and policies now facing go, no-go decisions.

Instead of a pervasive audit mentality in the Pentagon, we have a string of broken promises for achieving financial accountability, or rather conveniently defined financial management objectives. A classic example is Secretary Panetta’s decision to accelerate the goal to audit the Pentagon’s “statement of budgetary resources” by 2014, not 2017. Even if the goal were to be achieved, it would satisfy only some of the requirements of the Chief Financial Officers Act from back in 1990, and it would satisfy even fewer of the accountability requirements of the US Constitution. Also, it would produce little to nothing to help decision-makers understand the downstream implications of their program decisions.

If Pentagon management were truly interested to face the coming era of budget reductions seriously and constructively, it would move ahead with ruthless determination on the audit front, rather than toss up reassuring bromides devised by bureaucrats seeking to preserve traditional behavior. Despite the appearance of movement, Panetta has been as disappointing on this matter as anywhere. His decision to accelerate a narrow audit goal, already delayed from 1990—if not 1787—is at least as disheartening as his lurid but unsubstantiated budget rhetoric.

Typical of secretary Panetta’s decision-making up to now is his instruction to DOD budgeters to not prepare a 2013 budget that meets the spending levels now imposed by existing law (i.e. the “Doomsday Mechanism”): Reductions that are, in truth, unremarkable in historic terms. Time is fast running out.

Most in Washington today speculate that with a year to legislate before the required sequester occurs in January 2013, Congress will find the motivation and votes to undo the act, especially after the elections of November 2012. This Congress has provided no basis for any such expectation. Its Members have proven capable only of maneuvering for selfish advantage; that the next election will be two years away, rather than one, is clearly irrelevant to them and any expectation of statesman-like behavior. The lame duck session of Congress now scheduled for the aftermath of the 2012 elections is most likely only to be yet another debacle.

It would clearly be prudent for the Defense Department to prepare now and submit this February, when the new 2013 budget is due, a plan for meeting DOD spending at the “Doomsday” level set by current law. To expect rescue from Congress is foolishness. The Defense Department needs to have its own plan.

Panetta’s refusal to cope with a future now set by law to occur suggests the most critical reform issue. Fixing hardware acquisition and decision-making are necessary, but they are also insufficient for a reformed Pentagon. Remodeling the civilian and military leadership is the essential ingredient to the survival, even prosperity, of our forces in the future at lower spending levels. Managers who can be maneuvered, even forced, into making the right decisions may be a step in the right direction, but they are not a reasonable basis for hope. Managers who refuse to make any adjustment in the face of likely events, and who use politically charged rhetoric to distort the perception of realities, are obviously an impediment to coping with the future. Secretary Panetta is such a manager.

Is this the man we want and need to be secretary of defense in the era that is coming?