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February 11, 2011

2

Like clockwork: Downturns in U.S. defense spending

by brainoids

One of the features of long term trends in federal spending which has always amazed me is the ~20-year “defense cyclical”.    Peak to peak, the national discretionary defense investment changes by nearly $200B in inflation-adjusted dollars (ten times the NASA budget, for comparison).  This isn’t all wartime mobilization; a significant part of the “signal” is major, planned recapitalization (investment) initiatives.   These initiatives often stimulate R&D throughout the aerospace sector, still a primary source of net exports in the U.S. economy.

What is fascinating is how predictably the national appetite for such initiatives evolves, and how much “damping” is applied to both ramp-up, and spending cuts, through the political process.   The chart at right shows the year-to-year percent changes in defense discretionary spending.   (Note, the data beyond FY10 are from last year’s President’s Budget Request, thus are not yet “actuals”).    Even in the most fervent defense reduction climates, annual cuts peaked at -8%/year.

The historical pattern is probably very relevant right now, with much attention focused on the national discretionary budget, and with future defense plans contending with active engagements worldwide, dramatically rising operations costs, and already-planned recapitalization programs.   According to CBO,  the current Future Years Defense Program calls for a budget runout this decade which is comparatively “flat” compared to the deep downturn cycles of the 1970s and 1990s.   While there is no guarantee that history will repeat itself, it seems highly unlikely in the current climate that the national will to sustain investment at that level will persist.   The FY11 President’s Budget Request was possibly only the opening salvo.

The defense cyclicals stand in contrast to trends in the non-defense discretionary budget.   Even in inflation-adjusted dollars, years with actual, effective cuts to the non-defense discretionary top line have been few and far between.   Even “flat” years still trend up slightly.   How the nation treats non-defense discretionary spending in the coming decade – relative to defense spending, and mandatory entitlements – will be very interesting to watch.   This is an area which historically has been easy to put first up for reductions, but has been difficult to actually cut when specific federal services start to get taken off the table.

While the cycles above are already pretty clear, they jump out even further with a little “smoothing”.   By averaging over 10 years, the defense cycles begin to look almost “scientific” in nature.   While the conspiracy theorists might start hyperventilating about secret cabals, I think it is far more interesting to view this as emergent behavior of a highly complex social system with many, many built in self-regulating and negative feedback loops.

I’ll do a quick update to these graphs, as well as my ManyEyes sand chart of federal spending, late next week after the President’s FY12 Budget Request announcement on February 14.

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