 Good morning, we're we're ready to begin the second panel on military sequestration I'm Richard Kaufman. I'm chairing the panel I'm also a member of the one of the sponsoring organizations the economists for peace and security Our our approach to the so-called fiscal cliff is quite different Than the panel you've just heard and much of the if not almost all of the Discussion other than the military part of sequestration The fiscal cliff is Considered by many with fear and loathing military sequestration However Is seen as a possible golden opportunity? To get the military house in order or Begin that process It's argued by the Pentagon leaders that the military sequester would be crippling and would endanger national security and of course the Aerospace industries argue with that There will be tens of thousands if not hundreds of thousands of jobs lost if the sequester Were enforced There's another way to look at the military sequester Which is what our panel is Organized to do and Especially if you conclude as do some of us as do I that the Defense Department is excessively large riddled with inefficiency and Subject to the corrupting influence of the defense industry President Obama believes that it is time to end our wars and To do nation building at home the sequester feared by many Could be however a way of opening the door to nation-building of ourselves By shifting resources from defense to domestic needs as We saw in the disasters of Katrina and Sandy Our infrastructure needs alone are enormous Whether As a result of horrendous storms or not To cite just a few The cost of repairing and replacing our water systems dams levies bridges roads and Highways are estimated at a hundred billion dollars just to get them in order and not to Build new highway systems our aging water systems which annually discharge Billions of gallons of untreated wastewater into us surface waters would cost 390 billion dollars to replace over a 20-year period Construction of seawalls which has now become a Common source of discussion in the New York Harbor would cost about 20 billion dollars Many more aspects The military sequester will be discussed by Panel and we will begin with Carl Caneta co-director of the project on Defense alternatives Thank You Richard Richard said that Some of us are looking at the current situation as a golden opportunity I think it might be a way that We can parse the country politically is that the question of where exactly does that opportunity sit? We might be looking at the military end of things and others are are looking at so-called entitlements I want to begin by Setting a framework for thinking about a military policy in this period What I think it's most important for the country to recognize is that the principle strategic challenge that we face today Is economic in nature not military? That's what distinguishes this period from the years of the Second World War and the Cold War Our principal task from a strategic perspective is to preserve and enhance the fundamentals of national strengths For the long term and that principally means the economy and we need to do that in the context of a world economy that is rapidly evolving increasingly competitive and distinctly unstable That I think is the framework idea of the national strategy that we need Or the national the perspective on national strategy that we need to understand what to do with our military I want to walk through some slides with you that will help frame everyone else's a discussion on the panel and highlight what I think are some Essential insights about our current situation with regard to defense spending The first thing that it's important to recognize is that between 1999 and 2010 the Defense Department was what I call a debt and deficit leader It rose in its size Faster than most other parts of the budget it was Ahead of the general rise and discretionary spending and it rose faster than the average Rise in the overall federal budget now There are some subsections of that budget that rose faster But if we are looking and asking ourselves well Who were the debt and deficit leaders during this period when we moved from a balanced budget to a terribly unbalanced one DoD is among the culprits. That's evident on this chart. What you see on this chart is really a a 60 year or it's more than that it's It is a 72 year history of defense spending the period I'm talking about is the first part of it starts right about here and This is the the high point of spending And it's during that period that we accumulated a great deal of the debt that that we're dealing with today Now I'm going to return to this in a minute But what I would like you to do today is to move to the other slide There somewhere this might be it right here It's a it's just a freestanding gif Okay, we don't need it. We don't need it the point. That's okay The point I want to make is that regardless of what you hear it's indisputable that since 2010 There's been very little reduction in defense spending about 5% in real terms So while the rest of us have been struggling hard with this question of debt and deficit reduction There's been very little of it In the defense department it is true that there has been a significant reduction in war spending And that will continue but you would expect as much likewise you might expect a social security spending and Medicare spending Medicaid spending that all of these things would go down and go down dramatically if people stopped dying and getting sick and getting old But they're not that's not happening But with the with the reduction in the war and the withdrawals from the war naturally That part of the budget has gone down what has not gone down much at all 5% in real terms Is what we could call the base Pentagon budget now if we look at it from the 1999 perspective it rose about 42 percent since then so there has been a dramatic rise But very little reduction Big question a sequestration poses with regard to defense and you hear it again and again is Can we reduce defense spending by a trillion dollars over the next 10 years? I think the answer to that is yes, certainly we can it implies rolling the budget back to 2006 it's a 13 percent reduction in real terms What that really requires us to do and to do it easily is to rethink? How we produce military power and how we use it in the world what roles we want military power to fulfill If there's an institutional problem with Sequestration, it's that it happens so quickly What we can do if we are looking to make a deal is we can think about reducing defense spending 13 percent Over three or four years which will begin the process of Releasing a trillion dollars into into the bargain that we are trying. We are trying to set a trillion dollars over ten years is not that much a 13% reduction over three or four years as well within the historical standard between 1989 1995 the defense budget reduced by 23 percent So we're talking about accomplishing significantly less than that Tomorrow the project on the fence alternative. So unfortunately, I don't have it today tomorrow. We'll be releasing a report that takes a step by step Toward that reduction. How might it actually be accomplished a couple of a couple of hints Are that I think it's important to reduce the size of the military further than the president has suggested down to about 1.15 million I think it's really important that we rethink and reform how we buy equipment and what types of equipment we buy How do we set standards because right now we are setting standards? We are establishing requirements not by looking out in the world and asking ourselves What is the challenge that we face in the world in the military realm? but instead the principal leaders really are the defense industries and I think it was David Walker the former head of the government accountability office who said Defense Requirements are being set not in terms of the collective national defense requirement But rather in terms of the individual service interest So what we really need to do as part of a reform process is is rethink how we buy military power and also We also have to reform who exactly is is leading that process Is it a process that is industry led or is it a process that's led from the center with national security? goals in mind Now I'm going to just walk through the slides and I guess I just flew around with this thing Huh, there we go another good background piece of information is to compare our levels of military spending with Military spending worldwide what you see on the left of that slide in the purple is the United States our allies and Our NATO allies and other allies that we have you'll notice the end the the golden or yellow box their bar Is the aggregate of all of our potential challenger states? including China and Russia It is a four-to-one advantage that we presently enjoy if we roll back to the Cold War period What you would see instead is the purple bar and the adversary bar. We're about equal So what we've done is we've established over the past 20 years we've established a four-to-one advantage in spending over our principal and Potential military competitors when we hear that we can't reduce spending by 13% What we're actually saying is that having a four-to-one advantage is not sufficient to allow a 13% rollback This is the slide you saw initially And again it illustrates how national defense budget authority has changed over the past 60 years At the very end of that slide You'll see this purple line That the difference between these two illustrates what sequestration would do to the military It is true that there's something of a cliff there There's a cliff anyway, and that's in part because this chart does not take into account future war spending We don't know what it is but when people talk about there being a catastrophe a catastrophic effect a disastrous impact of Sequestration on defense what they're actually saying is that we can't tolerate that degree of change We can't tolerate that degree of change in our defense expenditure Which will bring us back to a level that is approximately the same as the level in 2006 I think that actually more is being said there's more to be heard when our national leaders say a relatively modest reduction a reduction that's about half of what we were able to accomplish At the end of the Cold War will put the nation in risk when they say that Given the fact that we have this earlier reality of a four-to-one advantage What they what we should be hearing is this that they are using the wrong strategy or that we have the wrong leaders if this is not enough So that we cannot afford a 15% a 13% reduction Then we either have the wrong strategy the wrong leaders of both I'll leave it at that and pass it on to bill Thank you. Our next speaker is bill hard tongue Bill is the director of the arms and security initiative of the new America foundation Yeah, I'm gonna sit here actually my current affiliation is the Center for international policy I was at New America for a while. So that's It's understandable that somebody might say that if you Google me that might turn up I Have done a book on the military industrial complex History of the Lockheed Martin Corporation. So I've got strong opinions about the role the military industrial complex and our politics and economics but one of the things that I learned a takeaway from writing the book was that As much money as much power As much influence as it may have the military industrial complex doesn't always get what it wants we saw we've seen that and things like the termination of the F-22 combat aircraft Which was at least a modest victory for sanity And I think we'll see it going forward given the fiscal constraints on the budget whether they're Needed or there with their politically driven The real issues we have I think are To we need to reshape our military to meet the challenges that we currently face Instead of chasing after Cold War threats or looking at refighting the Iraq or Afghan wars for example And in doing so I think we can certainly spend less than we're spending now And we also need to rebuild our economy And it may be differences of opinion about the best way to do that But my own opinion is part of that has to do with public investment And to the extent that we can shift money towards public investment. I think we'll be Moving forward with the economy much more quickly than we are now Now you might have heard otherwise If you were to listen to the aerospace industries Association and its allies in the Congress Who have spent a good part of the last year or more? Telling us that were we to make the modest cuts and Pentagon spending that Carl is talking about The sky is going to fall not only in security terms, but in economic terms And they have hooked that in part to a series of studies that they have Funded the claim that we could lose up to a million jobs if the sequester went through Pentagon cuts at that level went through Now the first clue that I think you know people might have looked at is the people who benefit from that policy of funding that study Now that should at least give you pause it doesn't mean you shouldn't read the study, but you should read it with a grain of salt And essentially, you know, I see two major flaws in their approach First of all, they assume that cutting the Pentagon budget is the only thing that is going to happen Under sequester nothing else is going to happen. Nothing else is going to change And that therefore if you exempt Pentagon spending from cuts, I will be well with the economy But in fact, the sequester also deals with domestic programs And if you were to exempt the Pentagon from the sequester and cut domestic programs further You would have an even deeper job crisis than you would have under sequester proper And the reason for that is because military spending as a particularly poor job creator A tax cut would create 25 percent more jobs Infrastructure investment about one and a half times as many jobs Education perhaps two times as many jobs. So if you're gonna cut The job creating programs to keep the Pentagon You're gonna lose more jobs than than you preserve. And I think that's the main missing link in this sort of one-sided series of industry studies I Think the other thing that has come up is More political in nature and was sort of driving some of the discussion Which was this notion that the sequester and the resulting Pentagon cuts were the fault of President Obama And this was used during the campaign to go around the country and go to defense dependent areas that also happened to be swing states and Use a scare campaign about job impacts of Pentagon cuts, but in fact People as central to the campaign as Paul Ryan, for example voted for the sequester So to the extent that anybody is responsible for the impending Sequester should happen Both parties played a role in that so the idea of pinning this possible policy change and President Obama was flawed in the first place but in addition There were the same kind of exaggerations And the state and regional claims about the impacts as there were In terms of it claims about the overall effects on the national economy and I think you know, we can go into this more but I think one reason is that Pentagon spending is more concentrated than the industry would have you believe They're always talking about well if you don't build this plane It's gonna have impacts in 44 states and therefore we can't possibly get rid of it Either politically or economically in fact a lot of those states that they're talking about do very little You know if some guys selling paper clips to the Pentagon they would count that state as one of the 44 states Really, there's a there's a some concentrated areas There's places like, you know Fort Worth a Dallas area. There's places like Southern California and Seattle area and we're Boeing is and also in Missouri where they built some of their military aircraft but it's a minority of the states in the country and the notion that this Spreads all over the place is not born up by the few actual surveys that have been done The Pentagon was forced to do some years ago Study on subcontracting and they found that these main areas where the prime contracts were also received many of the subcontracts So I think there is more of a concentration of Pentagon spending then would be suggested And then in the areas like Virginia where? Senator McCain Senator Kelly a out of New Hampshire, Senator Lindsey Graham of South Carolina You know took the scare tour and talked about shit building talked about military bases talked about defense consulting firms in northern Virginia That argument didn't fly in the elections even though they tried to pin these potential effects on President Obama He carried Virginia. I think the reason for that is that the potential effects were not as deep as advertised People didn't go into the voting booth saying. Oh my goodness. We're gonna fall into the ocean If this change in our budget goes forward Part of it is because it's a lot smaller than Suggested part of it is because the contractors are still doing quite well certainly better than we are For example a company like Valkyrie Martin has tens of billions of dollars in backlog That they can work through There's billions of dollars already in the pipeline in the government that they will receive Any cuts that occur will phase in over time. They're not going to happen on January 2nd So for these reasons and the fact that the cuts are quite modest by historical standards These companies aren't going away. They may have to curb their profits a bit They may have to rethink why they pay their executives 20 million dollars a year. Although I'm not holding my breath But they're not going to disappear as You know economic entities by any means and the industry has survived past build-ons quite more significant Defensive kind of communities have often recovered from those stronger than they went into them So I think the regional claims of the arms lobby are also vastly overstated You know, I guess The other issues that come up Are, you know, what about the broader economic impacts of Pentagon spending doesn't it give us great spin-offs Things like nuclear power like the foundations of the Internet and so forth Well, that may have been the case years ago And even then if you spent that amount of money in the domestic sector, you might well have gotten similar spin-offs I mean if you spend 80 billion dollars a year on R&D, hopefully something will come out of it Or somebody's doing something seriously seriously wrong But currently it's really the domestic economy and domestic industry That is on the forefront of innovation. The Pentagon buys into the civilian innovation. It doesn't generate it So in that case as well I think we could afford to cut back and we'd be doing fine And of course cutting back in this context means maybe instead of 80 billion dollars a year in R&D money The Pentagon gets 75 billion. So they're not going to be You know passing the tin cup around for how to get money for R&D Are we getting there? Oh good. I was just trying to figure out what else to say so I Was more concise than I intended to be Which at granted is very rare for me or any other speaker So I guess my bottom line is Economic strength is the foundation of our military security without it We can't sustain any kind of viable defense industry And thankfully as we'll probably discuss We're in a position where the kinds of investments we're making are in the Pentagon sector are misplaced It's not really meaning the threats we address need to address and therefore we can reshape and Reduce the Pentagon budget Without suffering in fact probably Improving our security situation So it's kind of a perfect storm of the need for fiscal discipline and the need to take a second look at What the Pentagon spends its money on so I'll stop there Thank you. Thank you bill our next speaker is Winslow Wheeler Winslow is the director of the military reform project and at the Center for Defense Information Both housed at the project on government oversight Good morning. Thanks for having me here. I'm going to talk about what I think are three fundamentals That we face for the future in the Pentagon budget The first fundamental is that the Department of Defense is completely unprepared for its own future First of all the Department of Defense thinks It the future is not going to happen the extreme Right side of that chart that shows a sequester Compare that level of spending at the at its nader to the historic norms After Korea after Vietnam after the Reagan spend up That's where the historic norm is after We're finished these the misadventure in Afghanistan It's not going to likely happen as steeply as sequester But that's the historic norm the Defense Department's core belief is That the blue line the sequester line isn't going to happen It's going to be rescued from that And it's going to be something somewhere is below the Obama budget, which is the the flat red line But not as bad as sequester couldn't possibly happen be so it would be a doomsday well, they need to check their own history and Given popular attitudes about our misadventures internationally and given our budget situation There's no other place but which that budget is hap is headed and Carl's excessively generous 2006 budget level of spending well, you know is is a reasonable proposal for this point in time But that's a way point and what's happening Going to happen to Pentagon spending levels Point number two Even if I'm wrong about how deep The new build-down is going to go We're certainly not going to see budget increases above Current levels. We're going to see significant reductions The Navy for example is Planning on huge increases Shit building for example for 2012 was 12 billion dollars There knew the Navy's new 30-year plan calls for an annual average of 20 to 22 billion dollars per year depending on which CBO estimate you want to use the Navy is going nowhere is but south on shit building budgets and Because of the Navy's proclivity for high value Excuse me high-cost ships The ship count is going to take a nosedive During the presidential campaign John layman accused President Obama having a plan to reduce the Navy to 250 ships Well, Obama has no such plan. He's totally oblivious to these forces But they'll be lucky to end this process at 250 ships the CBO estimate of what's Possible to happen is somewhere between 270 ships on the north end and 170 ships on the south end and that assumes That the current CBO cost estimates for the cost of these ships Is about right and we know from past experience that CBO always has higher estimates From the Navy, but in reality hits even CBO is a little bit low So the lower band of those CBO ship count numbers is extremely Possible Given what's going to be happening to the Navy shipbuilding budget as the Navy shipbuilding budget experiences stresses Like things like the F-35 If they're crazy enough to buy it Which will be much more expensive to acquire and operate than existing aircraft And there's going to be a duel within the Navy budget between the F-35 and shipbuilding They're both going to end up losing As this this shrinkage occurs in the Navy fleet it will of course also be aging Ships will be built at a rate Lesser than the rate at which they're the older ships are aging the replacement rates can't match Previous decades and so it's not a smaller newer fleet. It's a smaller older fleet and If you think that smaller fleet is going to be a higher capability fleet Let's engage in that discussion because it ain't going to be Third point DoD's leadership is Completely mentally Unprepared to face any of this stuff I Couldn't help but Do a you know a gobsmack and thank God it didn't spew all my coffee on my computer screen this morning When I got up in Hager's town and saw that somebody is floating Senator John Kerry's name as a candidate for Secretary of Defense I couldn't help but read that Above the fold article in the Washington Post as well. We law he didn't get the job for Secretary of State And somebody is trying to you know show him throw him some kind of fob People like John Kerry are completely incapable of Helping the Pentagon deal with this problem even that problem let alone the problem that I think is going to occur The other candidates For the leadership of the Pentagon to Lead it through this era Michelle floor noise very smart Political wonk She has no background in any of these issues The other candidate is Ashton Carter He is perceived as a good manager if you look at his job on the F-35 I Simply cannot agree He's not taking on any of the fundamental problems that the F-35 represents He's let it float on into the future and it's going to it's going to face a face in this even in the sequester scenario It's going to face a fate that's going to do nothing but increase the cost for an airplane That is a gigantic disappointment in terms of performance And that is all his the result of his management I don't see him as a competent candidate to lead the Pentagon through this future. It's about to face Thank you very much Thank You Winslow Our final speaker is Heather Herbert She's a prolific author former speechwriter in the Carter administration for the president and It's been very active in foreign affairs and national defense issues Thank You Richard, and I want to start by Apologizing for being late but saying since I'm talking about Congress and the future. It was merely a dramatization of the points I'm going to make in my in my remarks and to to contrast the Com with the comments that my three predecessors have made I Want to make three comments about about political realities and what that is going to mean for how the dynamics they have Pointed to and the the facts that you see up on the screen will play out And so there are two of these arrows that point in one direction and a third arrow that points in a different direction The first arrow being that as this graph shows you and as you know from your own work in other economic areas The funds available for endless Pentagon spending the funds available for a strategy that simply says well If we buy it it will make us more secure that era is over and as as the chart shows and as Winslow you implied The Pentagon really had a good eight or nine year run where nobody said no on anything and that Many of us have some of us may have worked in a culture like that very few of us probably have and that really changes an institutional culture in very problematic ways and People around Washington who were out of the Pentagon for a number of years and then had the occasion to go back remarked upon how difficult it had become to say no and just how much this This upslope that you see there from 999 to 2010 had really changed the culture Internally and I think much of what Winslow just said reflects that underlying reality Now second there has in fact been a significant shift in Foreign policy appetite in national security appetite both on the part of the two parties And I'm the part of the American public and what do I mean when I say that? There is no appetite for another land war in Asia And there is no appetite for continuing the land war in Asia that we've still got in Afghanistan And we just saw in the concluded presidential campaign that the Candidate who was tempted and who had a wing of his party clearly pushing him to take the view that we should be in Afghanistan longer That we should do more in Syria that we should do something militarily in Iran was continually pushed away from that by the more Political politically minded wing of his party that was reading internal polling which said there's not much difference Particularly on Afghanistan between Republicans and Democrats So you don't have you don't have the demand side if you will for the kind of military spending That we've seen over the last decade you no longer have a Public outcry for military spending on this scale as a response to terrorism either The second point Related to that which is a bit of a two-edged sword is that the public believes and elites also believe That there are cheaper technological solutions to our national security problems And of course the most obvious Exponent of this is drones and other remote control warfare that instead of invading a country You can just the public perceives and many elites also perceive station drones along its border now There's a whole fascinating strategic conversation about whether that's in fact correct and whether that policy is going to work out Well over time There is also as anyone who's ever worked in the field knows the fact that technology is rather expensive So and then that that also justifies as Bill Hartung mentioned your need for an endless and endlessly growing R&D budget If your security is completely dependent on keeping your high-tech Offense ahead of the lower tech and cheaper defense that your adversaries will be able to mount against you So Technology is often put forward and believed by the public to be a budget panacea. In fact, it's not the third point that should be made about appetite is that and I would go further here than Bill Hartung did and Say we saw in this election At the presidential level and at the congressional level and across party lines an effort to make candidates pay for expressing willingness to cut Pentagon spending and really that had zero effects. There was a massive infusion of of corporate contributions and Political effort which had pretty close to a zero return on investment And if anyone can think of a counter example, we can we can talk about it in the Q&A But Bill mentioned the presidential campaign. You also had a concerted effort in Virginia To take out a Senate candidate on the grounds that he would be harmful to the state's defense industry. That didn't work You had a concerted effort to target Elizabeth Warren on this also didn't work Across party lines. There was an interesting case in Western Michigan where you have a Libertarian Republican who actually had a veteran running against him as a Democrat and he had no trouble getting reelected either Ron and Rand Paul have not suffered electorally in their communities and states for their Heterodox stances on defense spending so as I say really though the political ground the will The will to spend has shifted has shifted pretty dramatically now There is one lagging indicator as we say and that is what I'll call a political co-dependency between on the one hand our both parties really and the corporate Military contractor interest but even more than the actual Realities of the role defense spending plays in our economy for reasons that Bill Hartung mentioned there is the perception of the role that defense spending and defense and the military play in our economy and the perception that Cuts to or growth in the Pentagon spending is is shorthand Not just for how you much you care about jobs But how much you care about troops and how much you care about American security and here We'll start with the public because although as I said the public is very clear across party lines Doesn't want to have any more land wars Not really interested in big new big new military adventures of any kind feels confident that there are technological solutions that can address terrorism problems at the same time The public is also willing and interested to hear about waste and fraud related Pentagon cuts But firmly believes that if you just go in and cut the Pentagon what you're going to do is hurt civil hurt hurt troops and hurt their families and hurt veterans and It has to be said that the public's not entirely wrong in thinking this because what are the single biggest drivers? troops benefits retirement Healthcare so public is on to something here, but it is also interesting how in the public mind The entire military establishment and the troops have become somewhat synonymous public will also say that they don't believe we need to spend more on Pentagon which is a big change from four or five years ago and it reflects as I say this change in view about how we keep our security but Not really comfortable with spending any less that there is in the public mind and also in the elite mind this idea that there's a one-to-one Correlation between what we spend and what we get And you know this question of do you feel do you feel safer today than you felt in 2007? Is a really interesting one in that regard, but it is it is a reality underlying all of the political discourse in this area Now second within the art within the military Winslow started to touch on this the pressure that's already being felt there are winners and losers and That is like a fabulous battle going on under a blanket that most of us don't see but that will have effects on us The army is the big loser here The army is the big loser when you aren't do it when you aren't having land wars for obvious reasons The army is the big loser if you shift your interest from an area of the world the Middle East Where much of what you're doing you're doing with by land if you shift your emphasis from an adversary where it's at least Hypothetically possible to imagine invading and occupying countries involved to a theater the Pacific Which is first and foremost about an ocean and to a potential adversary China Which nobody thinks you're gonna invade and occupy with land forces, so then the question rises. What are we doing with this enormous army? second loser is those Equipment manufacturers and specialists who produce things that are useful for land combat and for high-intensity warfare So we saw this play out recently with the Abrams tank now What was the Abrams tank originally designed to do? This is back to the point about long lead times the Abrams tank was designed for the Cold War You know, there's no place in the world that we're fighting set-piece battles like we're envisioned in Germany So, you know the Abrams tank the military said look we have more of these than we're gonna need in the future And that makes complete sense from a strategic point of view from from a military industrial base point of view It's much more problematic from a military industrial labor base point of view It's much more problematic and there are numerous other systems that we're gonna see and coming up in the future where This will play out a third point to make is the the fight between diversified and undiversified contractors, so you know They're smart. They saw this coming. They're starting to be massive consolidations and buyouts and layoffs in the contracting field to three years ago and Some contractors more to the point have been busily expanding into the civilian side into development assistance into domestic into homeland security Other contractors have not and when you look at which contractors have been most aggressively pushing the panic button over sequester versus which CEOs have come out and made public pronouncements like you know This is an opportunity to be smart and the smart do fine in downturns That's the underlying dynamic that we're looking at and if you are a politician who happens to come from a state Whose primary military contractors were not very smart You have a problem whereas if you are a politician who happens to come from a state whose primary contractors are diversified That are now doing disease surveillance for example You can say well look I can't help you on your Pentagon items, but I can help you with the CDC So that is going to be sort of a complicating piece of the political landscape similarly Folks with big army bases gonna have a problem folks with naval bases gonna do great folks on the West Coast Where it makes much more sense to base your assets that are looking toward the Pacific gonna do well folks on the East Coast a little more Problematic that lines up interestingly with some things that have happened around population shifts A couple of other things we should just mention nuclear weapons where which we come back to this technological argument And for those of you who remember our fights about nuclear weapons We've had in previous decades this plays out again on the one hand Nuclear weapons are of no use against terrorists They are of no use against any Stateless force because it's very hard to deter someone who doesn't have a return address They are of we have more we have so many more than China So in that sense they are they're useless and expensive and we could get rid of them But you also see and you saw this as recently as Andrew Kropinovich's piece in foreign affairs that came out this week Well relatively speaking nuclear weapons are cheap and in Pentagon world. This is actually true So why don't we use nuclear weapons to assure deterrence and then we don't have to station conventional forces in Korea say? Or we can reduce the number of conventional forces. We station in Korea So you then see again this interesting trade-off of what is cheap? And when in when you are discussing budgetary questions in the absence of strategy And in the absence of of a really hard strategic relook at some of these things We are going to get into this discussion of there's cheap in the short term And then there's cheap in the long term which will play out in some of the ways that my panel colleagues have mentioned I'll just make one last slightly provocative point to start a fight among the panel members and just for fun I'll disagree with Winslow. So having said all of this. What do we want for Pentagon leadership? what should we want to To make sure that we are actually managing Managing the reality behind these numbers in a politically smart and a security smart way And it's frankly not clear to me that it is a bad idea to have someone who isn't deeply steeped in Pentagon management practices And that actually having someone who does come from outside or who hasn't spent his or her whole career Working his or her way up doing Pentagon management But has you know, perhaps the single most important ability and whoever the next Secretary of Defense is the ability to say Why do we do it that way and that the person who's been willing to challenge that way repeatedly would be would be my lead candidate for Secretary of Defense Winslow, would you like to respond to Sure Perfectly reasonable challenge for Pentagon leadership Let's call it Secretary of Defense First of all, you don't need a Secretary of State You don't need a competitor to Susan Rice to Idley Think over notions of what we should do here or there You don't want a second second Secretary of State Second You want somebody with demonstrated with emphasis on the word demonstrated competence in a build-down Somebody perhaps from business Who has done it rather than has talked about it There are candidates out there, I don't know what their names are but there's people who've done it That kind of person needs to be found third Pentagon experience is nice If you've demonstrated mastery of bureaucracy there Ashton Carter has not You It's it's an um There's two dueling Qualifications here, can you find somebody from the private sector? who's done build downs and knows the kind of Intellectual and moral toughness you have to engage in to kick over that many rice bowls or Can you find somebody inside the Pentagon bureaucracy who's shown some real um mental and again moral ability to Face down the joint chiefs when they come pounding the table for you know CVN 79 CVN 80 And that kind of foolishness There's there's people out there I know their names I'm not going to condemn them forever more by Winslow Wheeler mentioning their name Um But let's get serious about this if you want some policy want blivvitt this city is full of them John Kerry will be fine Carl would like to just put it in two senses. Well, you know, I think that The principal problem we face is not who leads doD. I think that there is a special challenge there And the special challenge is evident if you think about how much of our government is in fact DoD This is the largest by far sector of our government and it's a special sector in this sense that it's it's it's a feudalistic Kingdom it's broken up into into into various parts that contend with each other those parts Navy Air Force Army Marine Corps In D they themselves break down into various parts then you have this close intersection with Industry that adds another element Managing that and actually getting on top of that gaining control of it and Directing it in a direction that reflects national policy and not the interests of the various parts. That's a difficult difficult job I don't know that senator Kerry is particularly well suited for it I really don't have an opinion on that But I think it's important that we appreciate how difficult that job is a Bigger challenge I think is to produce national leadership outside of doD That will actually take charge of our national security discourse our national security strategy and think not First through the lens of the Defense Department and through the lens of the individual services Which now play an enormous part in deciding our strategy. I don't think they should I think that that that strategy should be set in the National Security Council and by the Secretary of State and by And by the White House we need more strength on that end of things to channel the country in the direction that Minimally can recognize that the principal Strategic competition we face today is not military and character. It's economic You're not going to get that leadership that insight that truth as doD So I think that there is a real challenge there, but the principal challenge for doD is somebody who can direct this this this this Collection of of feudal kingdoms that each want to go on their own direction But the bigger challenge is to have stronger leadership outside of doD That will point the country in a different direction a better look Take a look at the spending of other countries in the world GDP wise Every country seems to recognize and to get the truth that we are now in an era that is defined by an economic Strategic competition that that's where our principal problems lie The amount of GDP that other countries devote which I think is indicative of their level of Effort and the priority they give to the military is much lower than ours We come in around four point seven percent of GDP the average for other countries is two percent Among the countries who understand what the nature of the challenge is today China leader among them they devote less of their GDP to that and probably are happy to see us Get ourselves wound up in this new air sea battle concept Which has us now turning away from land wars in Asia and thinking about well If we can't have a land war in Asia, let's have a sea and air war in Asia Let's invest heavily on in in that direction now China is of course pouring a lot of money Into its military but relative to what else they're doing with their GDP They understand that the principal challenge today is economic and that's going to determine Who the world leader is in 2050? We don't get it yet, and you're not going to get that leadership from doD regardless of who you put in that chair Okay, we would welcome Questions or comments from the audience and have some interaction with you. Yes Hi, my name is Jean Athe a question for Mr. Canetta My understanding was that actually Obama has not reduced the the core Pentagon budget and But I think that your chart Implies that he has and I'm assuming that when you said a 5% reduction you're including all of the savings from Hopefully us getting out of Afghanistan, but even when Obama presented his budget. He said This is going to be this is actually an increase in the core Pentagon budget for the next 10 years So am I misunderstanding something or is that correct a little bit? The reduction I talked about 5% is a reduction in real terms If you actually look at the the spending in current dollars and don't make any correction for inflation from 2009-2010 It's been pretty much flat in terms of current dollars when you when you take account of inflation the base budget The non-war budget has only declined by 5%, but the the war budgets have declined dramatically So actually at one point we had budgets that were in the range of in today's dollars 717 billion dollars a year for national defense including war and now what we're looking at is something that's much That is perhaps a hundred billion dollars lower than that So there has been that reduction It's all been due principally to war to the reduction in war spending What we're not paying attention to is the base budget spending the non-war spending which did grow 40 But it grew enormously during the period And what I put up there is a chart that that actually shows the the total change in spending since 1997 the blue line represents the total the red line represents represents the the base budget So you'll see that both have grown pretty dramatically the war played a huge part So there there has been and there will be a reduction in defense spending if you include the war But then you have to go back and think about 1998 1999 and say that defense spending including war spending grew by a hundred percent What we have seen over the past 12 years is a rise in spending that combines The Reagan surge with the Vietnam surge with the earlier surge Introduced by Kennedy at the beginning of the 60s We've not seen anything like this in our history short of the Second World War And it's that that they are refusing to back off from Yes made the point that the biggest problem with sequestration is less so the absolute number than the rate at which it would be implied But if you look at it visually or mathematically you compare that with the post-Korean war cut It looked even bigger on a percentage basis in the Korean War What were the consequences of that it when that happened sure you mean the we go back to the other side, right? At the very beginning is what we're talking about that was a very The consequences were very bad the consequences of the drop that happened and you don't really see The period of the war itself, but we went down so far so fast from a very high level And releasing people from the military who had been in the military for many years fighting the Second World War that our Capacity to deal with Korea Was was undermined and so then you see the huge jump upwards, but nobody is really talking about anything like that I Would take a look at that the the purple line and the red line at the end I would say that we can the DOD should be able to digest Sequestration relatively easily shouldn't happen all at once it happened over three or four years That will still leave the budget well above the orange line is the average for the Cold War period So we will still have a budget that that's that is above that Cold War level I think you could probably go down lower though I would I would wait a few years to see what develops in the world because you know We can't see we can't see that far into the future. So yes, nothing like what happened after the Second World War I think it's really in the cards at all and not even by sequestration If I could just add a little bit Cars correct. Oh, but I'll let the other heartburn about sequestration is that it would Automatically cut every project program activity across the board other than exempted personnel accounts That's what the law says. That's not what they would probably do if they actually had to do it In OMB and DOD they're perfectly aware of what all the gimmicks are to get around that sort of fine grain across the board cutting exercise the other point I think is more important though that that whatever happens in this budget deal and the only people who People who know what's where these budget negotiations are headed aren't talking and the people who are talking don't know what's going on so I you know, I Read the newspapers these days with a lot of a lot of salt But somehow Pentagon budgets going to be affected. It's going to be over The longer term and it's coming down. It's not going to be the mechanism Triggered by sequestration even if January 2nd happens and technically it starts There's going to be at some point a budget deal that subsumes all that but it's all coming down and They'll be lucky if it levels off at the sequestration level on that graph Well, what if I could? Pursue that a moment. I Think what you're saying is that by a budget deal you mean Pentagon leaders will come to Congress and Suggest some way of well, they'll do what they're told If we have a president The president will negotiate a budget deal. It will include a Spending line for 050 for national defense The Secretary of Defense will be consulted about that But the pieces that go into this puzzle and taxes and entitlements and non defense discretionary are such that Pentagon doesn't drive this negotiation president does and He will instruct the Secretary of Defense as to what the deal is and The Secretary of Defense will instruct the joint chiefs and if they want to resign more power to But they will they will come and present a budget after the budget deal is done where they basically do what they are told Yes I have a three question First is President Obama said that is there no wall then can have we can have a national building and Chairman Coleman you mentioned that too. I What I'd like to know that how could you save the money you don't have so my question Where's the money come from for the national building and second is this there's always mention about the ways and inefficiency in different spending Anybody know how much that in terms of the different spending and Should we talk about that and to deal with it and the third question is general from the Heather speaking The war is changing. I think we should have a thinking and Have a new defense strategy once you have a strategy then you would you You will know what kind of leadership you can have and also what kind of armed forces you have and also the defense technology you have so Should we have discussion about this Defense strategy. Thank you Yeah, I had a couple of thoughts You say how do we invest in domestic affairs money? We don't have but depending on the nature of the deal if you raise revenues Basically you're saying Money you're not spending on the Pentagon may be available for other purposes of public investment It really depends on the larger parameters of the budget deal As for waste in the Pentagon I mentioned whether my colleagues could put a percentage on I think it's It's deep and it's pervasive. I think it depends how you define it. I mean if you're buying a weapon, you don't need Is that wasteful? I would say yes There's certainly smaller kinds of waste in terms of procurement policy and overruns and so forth But that has got to be a key target I think we could do a whole panel on an alternative strategy, but it's it's clear that spending on nuclear weapons preparing for large-scale counterinsurgency the kind of maybe overly optimistic sense of what we can do With drones and naval power. I think all those need to be reconsidered But you know, that's we could have a whole conference on that So one very specific way of thinking about waste that I really like is that during this period of growth that Carl's slide shows there was also astronomical growth in expenses on contracting and the project on government oversight and taxpayers for common sense have estimated that you could impose a haircut I believe it's a 10% haircut on Pentagon contracting which would make up 300 billion of the 500 billion from sequester and If you imagine that There's not 10% of waste in contracting then the panel has a bridge. It would like to sell you so so one way of thinking about how much waste in efficiency unnecessary spending is there is Enough to deal with sequester enough to make the sequester contribution And on the strategy question, you know, it has been true throughout American history I think it's Bernard Baruch who said strategy wears a dollar sign So in point of fact, we're not ever we wouldn't want actually having a strategy Conversation completely apart from a conversation about money and national investment is what brought us the The steep line on the on that curve So in fact what we want to have is a strategic conversation in which Money and where it comes from and where it goes and its relationship to national power is part of the conversation And I completely agree with you and what Bill said that that's that's desperately needed I'm one other point I just want to make in response to that because I think it's it's something that happened Power followed this money. And so, you know, Winslow and Carl both made points about the Defense Department being different from the State Department And as a proud alumna of the State Department during the Clinton years, I say this with some grief But yes, the Defense Department is different from the State Department. It's more powerful And in point of fact your regional combatant commander these days engages in at least as much diplomacy as his His diplomatic counterpart and has a lot more resources at his disposal. So Unfortunately, and I don't think this is a good thing but one of the challenges we face when trying to reform the Pentagon is Trying to move some of its power back to civilian institutions and that's Separate but not wholly unrelated to this this numbers discussion Just real quickly on the waste thing The second fundamental life for neglected to mention of my remarks Was the basic problem of Pentagon not knowing where the money is going Not knowing what it does when it gets there and not knowing was coming out the other end To understand however you want to define waste and And I'm fine with the broad definition, but however you want to find it You don't know how much there is until you've succeeded an audit That is going to be some time after the 2017 Deadline the Pentagon has set up set up for itself in 2014 They say we're going to have a statement of budgetary resources, which tells us where the money went in 2017 they say they're going to have an audit of the assets, which is stuff But no where's in the plan is what happened with the money when it got to the recipient And that's the key part of course and that's the part that they somehow forgot to put in their plan. And so knowing how much Technically definable waste fraud abuse has occurred is no where is on the Pentagon Pentagon arise Yeah On the waste question. I've got to agree with Winslow, you know Don Rumsfeld He said there's got to be 5% waste does got to be Though he didn't identify it nor did he get rid of it and back in the 1990s when the curve was coming down There's a great deal of interest in in defense reform And I believe it was the the National Commission on 21st century strategy, which was the red team To the to the official strategy thinkers inside the Pentagon they identified something like 15% What we actually accomplished that is identifiable had to do with had to do with base reductions And that turned out to be 3% most of that evaporated as soon as we talked about re Reorganizing our our global posture. So now you take a look at the the military construction account It's gone through the roof But I think the key thing here is that there's no incentive in the Pentagon to Economize and until you produce that incentive you're not going to be able to identify waste. It is as though There was an open account that you could just go in and get money and spend it There's no political downside to spending money on defense Or at least there hasn't been until today because I think there's more there's a greater recognition that it's DOD versus everything else That that if you if you want to find that trillion dollars, it's there So there's there's more sensitivity to it today, but prior to today. There was no incentive I think on the on the strategy on the strategy question Yes, we need a strategy that we need to not think of strategy as just being defense strategy There's defense strategy. There's national security strategy Which should bring into State Department and other elements of of government Treasury Commerce They all have a role to play and then there's national strategy the most important thing to do is to understand What we're doing is a nation when we face challenges abroad and challenges at home of various sorts And that will inform the other the other the other levels of strategy But let's we have time for one more quick question and quick answer go ahead On the point of national strategy Is there anybody you'd point to as the key thinker or key organization and specifically on a separate issue? What about non-defense spending in the defense budget? There's many worthy worthy programs that got there because it was politically possible. What should be done with them? So can I I'll start with that last piece? that there was an effort early in the first Obama term to move some some programs out of the Pentagon and back to state and It was Gates and Clinton negotiated it It was all set up and wired and it went to Congress and Congress said oh state you're getting this money from the Pentagon That's money. You don't need and they x'd an equivalent part out of somewhere else in the State Department budget and Gates said Well, we're never doing that again because I need those programs to get done. I was happy for you Hillary to do them But if Congress isn't gonna let you it's gonna then we're not doing again and that Effectively, you know, there had been a good faith effort to think about doing that and it just stopped Which heightens? I think a bigger issue that all of this raises is that? Your your national leadership has to be willing to think about institutional reform at a time that it's also thinking about National security challenges and it's trying to think about you know Getting the economic car back out of the ditch and up to speed on the highway and any administration of any political stripe If you're a cabinet secretary, you have four years to get something done Are you really gonna make it a priority to root out waste to try to change? Contracting practices when you know as bill bills book documents so well, you know The guys are up against have been doing this for their whole careers and know how to beat you at it Or are you gonna focus on? You know trying to get a nuclear deal with Iran or trying to improve the Afghan army or something else like that as your legacy so That's a long way of saying why There were good intentions around that it came to not and I'm Fairly pessimistic about it at this point given the intense and everything we've said about Pentagon the budgetary pressures on state Are much more intense and nobody complains about how many jobs little cost or by the way How many ambassadors it kills when you cut embassy security? Okay, well are we done Well, go ahead if you have one there's one Overlap that shouldn't be happening which is that the Pentagon is running its own military assistance program State Department should be overseeing that stuff because there's no human rights Qualifications are not to the standards that state would have there's no transparency It runs outside of the grain of our foreign policy. It's almost sort of a runaway train It's I think those military assistance programs need to be either have much much much more scrutiny Or ideally be as overseen by the State Department's part of a broader foreign policy Well, I think we've had a good discussion of why the military sequester might be welcome in some quarters and for Good reasons and I want to thank the audience for paying such close attention and the panelists for their presentations and discussions Let's give them all