The Reagan administration is beginning to lay some minefields in its own path toward a sensible and sustainable defense policy.
One such minefield bears a close resemblance to one that Jimmy Carter adroitly used to blow a foot off his own credibility: hokey inflation projections. The ideology behind Reagan's ridiculously low inflation forecasts for defense spending is different from Carter's, but the effect -- a year or two hence -- will be similarly crippling.
Jimmy Carter's pledge of 3 percent annual "real growth" in defense spending became the nominal target for each year's defense budget. But the twin desires to increase domestic spending and to hold down the overall federal budget deficit produced an irresistible incentive each year to squeeze defense more than that target would allow. The only way you could depress real defense growth below 3 percent and still, with a straight face, both claim to be meeting that target and pres the NATO allies to do the same was to fudge on the projected inflation rates for defense.
If, say, you were sitting in the White House and you expected inflation in defense to be 10 percent, you would need a 13 percent increase to have 3 percent "real growth." But that, you grumbled to yourself, was a lot of money. So you hit upon the idea of blithely telling the Pentagon to plan for only 7 percent inflation, so you could budget for a 10 percent total increase and call that "3 percent real growth." That was the long slow curve.
The fast break came later in the same year when, with a sigh, you told the military that inflation in their programs had indeed turned out to be greater than you had expected, but that, sadly, there was no money available to make up for your regrettable mistake -- they would just have to make do somehow. (These few percentage points meant billions of dollars. And because much of defense spending is effectively fixed rather early in the budget process -- manpower costs, for example -- the burden of this sort of back-door multi-billion dollar cut ended up hitting procurement and readiness very hard.) As the hapless uniformed military program managers were angrily summoned before congressional committees to explain the resulting cost overruns and to clarify why production lines were being cut back and initial operating dates of weapons delayed, you could even summon a little indignation: o"Those people in the Pentagon have got to learn to plan and manage their programs better."
The Pentagon may, however, find it even harder to keep its eye on the Laffer curve than it did on Jimmy Carter's inflation-rate screwballs. The Reagan administration is now forecasting that, by the next presidential election, inflation in defense will be nearly 2 percent below what the Carter administration was predicting and 4 percent below the Congressional Budget Office's projections. The reason appears to be neither a desire to underfund defense nor a desire to make exaggerated real growth claims. Rather it is an effort to show faith in the efficacy of the president's overall economic program and a lack of willingness to admit any exceptions to this rosy inflation-free future -- defense or any other.
Nonsense. Whatever happens to the economy as a whole, inflation in the defense sector is not going to come down that fast. Indeed, it is probably still heading up, at rates higher than even CBO projects, for a special set of reasons. The low levels of defense spending in the last several years have led many specialized subcontractors simply to quite the business of building components for, say, tanks and submarines. In the aerospace industry, orders by civilian airlines have also shrunk inventories for key structural and electronics components. Certain types of labor -- machine tool operators, for instance -- are in very short supply. These problems are several years away from solution, even amelioration, no matter what happens to the economy as a whole, and they will drive inflation in defense procurement for some time. Somebody had better level with Congress and the people about this soon.
The Reagan administration now has a golden opportunity in defense policy. For the first time since Vietnam, there is broad public and congressional support, among liberals as well as conservatives, for an adequate defense budget. Experienced defense supporters in Congress can finally turn the focus of their attention from obtaining adequate budgets to improving the effectiveness of defense spending. Sen. Sam Nunn (D-Ga.) has recently served such notice (the warning of "minefields" in defense inflation and outlay estimates in his metaphor). Some parts of the New Right are becoming intrigued by the possibilities offered by military reform. This opportunity to have many diverse rays of the political spectrum coverage on a non-partisan defense policy encompassing both innovation and adequate funding must not be lost.
One of the quickest ways to lose public confidence and destroy that opportunity is to continue to build into the budgeting system the automatic cost overruns and production cutbacks that have become so agonizing familar. And, whatever the rationale, the best way to create those melancholy phenomena is to serve up inflation estimates for defense that are even loonier than Jimmy Carter's.