Of all the decisions facing the new president, none will be more important than those he makes in connection with the defense budget. Not only do budgetary decisions create defense policy, but they also send signals abroad about American resolve and impact heavily on economic conditions here at home. a

There is no doubt our armed forces are in poor shape. Our present conventional force structure, with its personnel deficiencies, is too small, too immobile and lacks both readiness and sustainability. Moreover, in both the strategic and theater nuclear arena, the balance has deteriorated to such an extent that we can no longer use, or threaten to use, these forces to cover our conventional deficiencies.

The primary reason for this current sad state of affairs has been the fact that for almost two decades we have not spent enough money on national security. During the war in Southeast Asia, the size of the total defense budget was kept artifically low by such practices as diverting investment funds and supplies from Europe into the war effort. In the postwar period, when the nation demanded a peace dividend, the Department of Defense was forced to absorb astronomically higher personnel and operating costs within a budget that was declining in real terms.

Although this decline was halted in FY76, the increases over the past four fiscal years have been more apparent than real. Funds available for investment in the FY80 defense budget were still more than 30 percent less in real terms than they were in the last pre-Vietnam budget. To compound the problems of our defense establishment, the Soviet Union has embarked on a military buildup unprecedented in peacetime, and the international situation has become chaotic.

Thus, it is not surprising that within the past year a strong consensus has developed within the American political system that defense spending must be increased substantially. Opinion polls now show that nearly 70 percent of the people favor such an increase. Moreover, the recent election clearly demonstrated that those who were on record as consistently favoring larger defense expenditures did significantly better at the polls.

The question now before the new administration is by how much and how quickly the budget should be increased and to what areas the increment should be applied. What is needed now is a defense budget that not only will help us deal with our deficiencies in a prudent manner, but is also so economically feasible and politically supportable that it can be sustained over the long haul. Two decades of neglect cannot be undone in five years.

The worst thing that can happen is for the nation to go on a defense spending binge that will create economic havoc at home and confusion abroad and that cannot be dealt with wisely by the Pentagon. For example, a 12-percent-a-year real increase in the defense budget over the next five years will result in a $400 billion defense budget by FY86. Such an increase could clearly undo the consensus that has developed, and harm national defense. c

For FY81 the Department of Defense will spend about $154 billion. This represents about 5.5 percent of the GNP and 24 percent of the appropriated federal budget. Although the defense portion of the GNP and the federal budget is still smaller than it was from 1950 through 1975, it will be higher than it was in FY80. In the fiscal year just completed, defense took only 5.3 percent of the GNP and somewhat less than 23 percent of the federal budget. What I would like to see is defense build its share to about 6 percent of the GNP and then assume that it remain at that level until our depleted military capability is restored.

Based upon current government optimistic inflation projections, defense expenditures can reach the 6 percent plateau in an orderly fashion by FY84. This would mean that three years from now defense would receive about $240 billion or 25 percent of the total budget. To accomplish this, defense spending authority would have to rise from its present level of $168 billion to $265 billion over the FY81-84 period. The real increase under this program, compared with FY80, would be about 6 percent per year in authority and 5 percent per year in outlays. Keeping defense at 6 percent of the GNP through FY86 would result in defense outlays of about $267 billion five years from now. This would mean that by FY86 defense authority would have to grow to about $300 billion, and about 26 percent of the federal budget would have to be allocated to defense.

Such a program would add an average of about $10 billion per year over and above inflation to the defense budget each year for the next five years. Military personnel needs must command the first budget priority. Then for the first few years, the vast majority of the increment should be spent on improving the readiness and sustainability of the current force. Once that is accomplished, priority can be switched to future investment.

This type of program not only would increase our military capability and send a clear and reassuring signal to our allies and adversaries but, more important, can be sustained and supported both economically and politically. It is the type of approach used by the last two-term president, Dwight Eisenhower.