screeria -- nigeria. - discussion

on the defense budget. this is about 90 minutes. good morning. welcome. my name is chris griffin. i'm the executive director at the foreign policy initiative. it is my privilege to welcome you today to this event jointly hosted by the foreign policy initiative and the american action forum. titled "will congress provide for the common defense?" this is the second in a series of public briefings on how congress and the president can work together to provide our armed forces with the resources and authorities they require to keep our nation safe at a time of growing threats across the world.

this morning we'll hear from senator tom cotton and following his keynotes i will hand off to rachel hoff with the american action forum who will introduce and moderate a discussion by a panel of experts featuring the kinsey american enterprise institute, david adesnic of the foreign policy initiative, and aaf president douglas holtz eken. it's my pleasure to welcome senator tom cotton raised on his family's farm in arkansas. he attended harvard and harvard law school. and after a clerkship entered private practice. like all of us his life was of course disrupted by the attacks of september 11th 2001. in response he left the law and joined the army to serve as an infantry officer. he was deployed to iraq where he served with the 101st airborne division and also to a provincial reconstruction team in afghanistan. between his combat tours senator cotton served with the

old gartd at arlington national cemetery. after his military career senator cotton served briefly in the private sector and was then elected to the u.s. house of representatives in 2012. last year, he was elected to serve in the united states senate and now serves in the senate committees on banking, intelligence, and the armed services where he's also the chairman of the armed services committee's subcommittee on air land. in his maiden speech on the senate floor delivered last week, senator cotton warned that we have "systematically underfunded our military." i look forward to the insights that he will offer on this most important of iryou'res today and ask you to please join me in welcoming senator tom cotton. >> thank you. thank you all. good morning. thank you. and chris, thanks very much for the kind introduction. thanks to fpi and aaf for hosting me this morning for the very important work you do.

as the senate prepares to debate and vote on a budget resolution this week for next fiscal year, i have a very simple message this morning. the world is growing ever more dangerous. and defense spending is wholly inadequate to confront the danger. today, the united states is engaged again in something of a grand experiment of the kind we saw in the 1930s that allowed hitler to rise to power in nazi germany. as then military strength is seen in many quarters the cause of military adventurism. strength and confidence in the defense of our interests our alliances, and liberty is not seen to deter aggression but to provoke it. rather than confront our adversaries, our president apologizes for our supposed transgressions. the president minimizes the threats we confront in the face of territory seized, weapons of mass destruction used, and proliferated, and innocents murdered. the concrete expression of this experiment is you're collapsing defense budget.

for years we have systematically underfunded our military. marrying this philosophy of retreat with a misplaced understanding of our larger budgetary burdens. we have strained our fighting forces to the breaking point. even as we have eaten away at investments in our future forces. meanwhile, the long-term debt crisis hardly looks any better even as we ask troops to shoulder the burden of deficit reduction. rather than shouldering the arms necessary to keep the peace. the result of this experiment should come as no surprise, are little different than the results of the same experiment in the 1930s. >> ladies and gentlemen, you're welcome to be here. >> you will be arrested, your one and only warning. >> as much as these fellow citizens support negotiations with iran, so do i support negotiations with iran. but negotiations from a place of strength. where we -- where we are

dictating the terms of the negotiations. not -- not the circumstances -- just two days ago two days ago, let me remind you, ayatollah hoe mainny whipped up the crowd in tehran to say, "death to america." two days ago, ayatollah hoe penny in his annual speech whipped his crowd into a frenzy saying, death to america. what was his response? "yes, certainly, death to america." this is not the man or the regime to whom we should ever make nuclear concessions. and in fact -- [ applause ] and in fact -- in fact the president's series of one-sided nuclear concessions is of a piece with his philosophy of retreat. that apologizes for american conduct and actually undermines our efforts to stop iran from getting a nuclear weapon, rather

than secures it. now, not just with iran but all around the world an alarm should be sounding in our ears. our enemies sensing weakness and hence opportunity have become steadily more aggressive. our allies uncertain of our commitment and our capabilities have begun to conclude that they must look out for themselves. even if it's unhelpful to global stability and order. our military suffering from years of neglect has seen its relative strength decline to historic levels. let's start with the enemy who attacked us on september 11th. radical islamists. during his last campaign the president was fond of saying al qaeda is on the run. in a fashion, i suppose this was correct. al qaeda was and is running wild all around the world. it controls more territory now than before. this global network of islamic jihadists continues to plot attacks against america and the west.

they sow the seeds of conflict in failed states and maintain active affiliates in africa the arabian peninsula, the greater middle east and south asia. al qaeda and iraq was off the mat when the president disregarded his commanders' best military judgment and withdrew from iraq in 2011. given a chance to regroup, al qaeda and iraq morphed into the islamic state which now controls much of syria and iraq. the islamic states cuts the heads off of americans burns alive hostages from allied countries, executes christians and enslaves women and girls. the islamic state aspires and actively plots to attack us here at home whether by foreign plot or by recruiting a lone wolf in our midst. and the threat of islamic terrorism brings me to iran the world's worst state sponsor of terrorism. my objections to these nuclear negotiations are well known and i don't have to rehearse them here. i will note, though that the deal foreshadowed by the president allowing iran to have uranium enrichment capability and accepting any i guess

operation date on an agreement to quote prime minister paves iran's path to a bomb. if you think as i do the islamic state is dangerous a nuclear armed islamic republic is even more so. recall, after all, what iran already does without the bomb. iran is an outlaw regime that has been killing americans for 35 years from lebanon, to saudi arabia to iraq. unsurprisingly iran is only growing bolder and more aggressive as america retreats from the middle east. ayatollah khomenei did in fact two days ago call for death to america. just as in recent months he tweeted the reasons why israel should be eliminated. iranian-back the shiite millitias control much of iraq. a man with the blood of hundreds of american soldiers on his handed. iran continues to prop up bashar al assad's outlawed regime in

syria. recently seized sunna, a cap actively yemen just over the weekend we had to withdraw further troops from yemen. hezbollah remains iran's catspaw in lebanon. put simply, iran dominates or controlled five capitals in its drive for regional hedge mown. further, iran has rapidly increased the size and capability of its ballistic missile arsenal recently launching a new satellite. three weeks ago iran blew up a mock u.s. aircraft carrier in naval exercises and publicized it with great fanfare. iran does all these things without the bomb. just imagine what iran will do with the bomb. and imagine a united states further down the road of appeasement, largely defenseless against this tyranny. but you don't have to man gyp much. simply look to north korea. because of a naive and failed nuclear agreement, that outlaw state acquired nuclear weapons. now america's largely handcuffed, watching as this

rogue regime builds more bombs and missiles capable of striking the u.s. homeland and endangering our allies. regrettably, the results of this experiment of retreat can also be felt in other parts of the world. take, for example the resurgence of russia with whom president obama conciliated and made one-sided concessions from the outset of his presidency. or china's military buildup which is directed quite clearly against the united states as china pursues an anti-axis and aerial denial strategy to keep american forces outside of the so-called first island chain and therefore to expand china's sedge gemny in east asia. now while america's retreated not only of a our enemies been on the march our allies anxious for years about american resolve, now worrying increasingly about american capabilities. with the enemy on their borders, many have begun to conclude they have no choice but to take matters into their own hand often in ways unhelpful to our

interests and broader stability. we should never take our allies for granted but we shouldn't take for granted the vast influence our security guarantees give us with their behavior. this kind of influence has been essential for american security throughout the post-war period. it has begun to wane as our allies doubt our commitment and our capabilities. and make no mistake, our military capabilities have declined. today, defense spending is only 16% of all federal spending a historic low rivaled only by the post-cold war period. to give some context, during the cold war defense spending regularly accounted for 60% of all federal spending. but if we don't end the experiment with retreat this president will leave office with a mere 12% of all federal dollars spent on defense. the picture is no pretty where cast in light of the economy as a whole. in the early cold war, defense spending was approximately 9% of

gross domestic product. today, it sits at a paltry 3.5%. our defense budget isn't just about numbers and arithmetic. it's about our ability to accomplish the mission of defending you're country from all threats. the consequences of these cuts are real, concrete, and immediate. as former secretary of defense leon panetta explained, these cuts have put us on the path to the smallest army since world war ii, the smallest navy since world war ii, and the smallest air force ever. these impacts won't just be immediate, they will be felt long into the future. key programs once divested will be difficult to restart. manufacturing economy taebss will be lost. the skilled labor pool will shrink. the defense and manufacturing base with atrophy. today's beps systems and equipment will age and begin to break down. our troops won't be able to train and their weapons equipments won't be ready for the fight. in short we will have a hollow force incapable of defending our

national security. what is then to be done? our experiment with retreat must end. this congress must again recognize that our national security is the first priority of the government and the military budget must reflect the threats we face, rather than the budget defining those threats. this week the senate budget resolution will reflect a base defense budget of $523 billion and emergency supplemental spending of $89 billion. while better than the defense spending may be dated by the budget control act, this is still insufficient given our readiness crisis, the shrinking size of our military, and the immediate need to modernize aircraft, ships, vehicles, and so forth. the national defense panel, a bipartisan group of eminent national security experts convened by congress, unanimously recommended a $600 billion flar for the defense budget. not a ceiling. i agree that $611 billion is necessary and i agree it's also

not sufficient. what then should our budget be next year? well, i will readily acknowledge that we can't be sure how much is needed above $611 billion. the national defense panel explained why. because of the highly constrained and unstable budget environment under which the department has been working the quadrennial defense review is not adequate as a comprehensive, long-term planning document. thus, the panel recommends that congress should ask the department for such a plan which should be developed without undue emphasis on current budgetary constraints. i endorse this recommendation. in the meantime, though, even if we can't specify a precise dollar amount we can identify the critical needs on which to spend the additional money. first, you're military does face a readiness crisis, from budget cuts and a decade of war. we must act immediately to get our forces back in fighting shape. from live fire ranges to flight

time and so forth. second, and related our military is shrinking rapidly to historically small levels. this decline must be reversed. end strengths of the army and marine corps the number of platforms in the air force and the navy. third, we must also increase research, development, and procurement funds to ensure our military retains its historic technological advantage, particularly as our adversaries gain more access to advanced low-cost technologies. these critical priorities will no doubt be expensive. probably tens of billions of dollars more than the $611 billion baseline suggested by the national defense panel. because the massive cuts to our defense budget resulted in part from record deficits the question arises can we afford all this? the answer is yes. without question and without doubt, yes. the facts here as we have seen are not disputable.

the defense budget has been slashed by hundreds of billions of dollars over the last six years. the defense budget, as i said is only 16% of all federal spending historic low and heading much lower if we don't act. and using the broadest measure of affordability and national priorities, defense spending is a percentable of our economy. last year we only spent 3.5% of our national income on defense. approaching historic lows. and it makes to pass it by 2019. when ronald reagan took office, we spent 5% of our national income on defense. and president reagan and congressional democrats considered that to be a dangerously low amount. that is the point from which they started the defense buildup. if we spent 5% of our national income on defense today we would spend $885 billion on defense. furthermore, trying to ball license the budget through

defense cuts is both counterproductive and impossible. first, the threats we face eventually will catch up with us. as they did on 9/11. as they did in the late '70s. and we'll have no choice but to increase our defense budget. when we do, it will cost more to achieve the same end state of readiness and modernization than it would have without the intervening cuts. this was the lesson we learned in the 1980s after the severe cuts to defense in the 1970s and in the last decade. second, we need a healthy growing economy to generate the government revenue necessarily to fund our military and balance the budget. in our gleblized world our domestic prosperity depends heavily on the world economy, which of course requires global stability and order. and who provides that stability and order? the united states military. i would suggest a better question to ask is can we afford to continue our experiment with retreat? and i would suggest the answer

is, we cannot. imagine a world in which we continue our current trajectory. where america remains in retreat and our military loses even more of its edge. it's not a pretty picture. to stop this experiment and turn around american retreat we must once again show that america is willing and prepared to fight a war in the first place. only then, only when we demonstrate military strength and moral confidence in the defense of america's national security will we make war less likely in the first place. our enemies and our allies alike will and must know that aggressors will pay an unspeakable price for challenging the united states. bringing about this future by being prepared for war will no doubt take a lot of money. but i will leave you all with two questions. what could be a higher priority than a safe and prosperous america? leading a stable and orderly world. and what better use of our

precious taxpayer dollars? thank you all, god bless you. god bless the united states. >> thank you again senator cotton, for joining us this morning, for your insights. it's a pleasure to welcome rachel hoff from american action forum to moderate our panel. thank you, rachel. >> thank you very much, chris. and -- sorry. thank you very much chris, and to senator cotton for those very impassioned and insightful remarks. i'd like to welcome our panel. very pleased to be joined by this distinguished panel to follow up on the senator's remarks. and dive a little deeper into these questions of current military capacity and capabilities in order to meet rising national security threats, as well as the defense budget question within the

context of the broader fiscal year 2016 budget. we are joined by three experts who are eminently qualified to comment on these questions. douglas holtz aiken, president of the american action forum. previously served as director of the congressional budget office as well as senior economist to the president's council of economic advisers. next is david adeznik policy director at the foreign policy initiative. previously he was a visiting fellow at the american enterprise institute and served for two years as deputy director for joint data support in the u.s. department of defense. david also served as a research star member at the institute for defense analysis. and mckenzie ekeland who will start off is a resident fellow at the maryland center for american studies. she's worked on defense issues in the senate and house of representatives as well as in the pentagon, secretary of defense and joint staff. mckenzie's served as a staff member on the national defense

panel whose recommendations senator cotton endorsed today. mckenzie, if you could start off the discussion thank you so much. >> great, thank for having me. welcome, everyone. i see some familiar faces out there. i'm not really sure where to start, although i guess we can pick up where senator cotton left off and talk about where the senate's going to go this week in the house with their budget resolutions as opposed to what's required and what's needed. it's a long way from even the president's budget to i think the kinds of investments that senator cotton has outlined that are required that are very similar and in line with the national defense panel. which we can speak more about in q&a. i think the biggest question on the table or put another way, the elephant in the room is, okay. so $39 billion extra in overseas contingency operations spending or war spending to get the defense budgets in the neighborhood ballpark of where president obama has them. or a billion over, depending how

you calculate it. how's that for defense? well, i'm here to say that as somebody who helped the national defense panel think through some of these issues it's completely inadequate. it's not just bad budgeting and bad governing. it's bad defense policy. 39 dla billion dollars in war spending isn't the same defense budget as plussing up the base budget. i know that's hard, i get it you've got to rewrite the bca. but congress has done it twice already and we know they're going to do it again, follow-on. but they're not going to do it until they've exhausted every other available option and they've gone through this long, tore truss path to get there. there are two defense budgets. the base budget that invests in america's military and basically the size and structure and standing responsibilities the daily global responsibilities in reach of that military. the supplemental spending is

intended for emergencies. that's why it's called emergency sup problemal money. there are two defense budgets and they buy presumably two different things. in fact the defense budget the second budget, one for war spending or emergency spending has been constricted over time in part because of congress. congress has wanted to restrict the use of those funds which i think is a good thing as a taxpayer. it's often in years past, particularly when defense budgets were going up, it was the christmas tree. the emergency war spending account became everybody's favorite place to stock every stuffing -- every stocking stuffing you could imagine that had nothing to do with iraq or afghanistan or anything closely related to intelligence and military operations in either place. so to think that even, one $39 billion is only and that it's going to buy you the same kind of defense, is completely flawed and inadequate. and i know that it's something that policymakers really struggle with and they don't want to hear. but there are two defense budgets and they buy two different thins.

and then two, trying to get that discussion started on what's required for the long-term defense, what's required for changes in the budget control act, why a base budget increase is more important than a one-term shot in the armband aid fix in the oco. is i think the conversation we might want to get into a little more later. really quickly why two defense budgets, why do they buy two different outcomes? well, the emergency spending money is mostly for supplementals. it's for consumables. it's for perishable items, like milk in your refrigerator or bread on your counter. this is for short-term investments and even things like readiness. there are different types of readiness. short, medium, and long-term readiness. there's individual and small-unit readiness and there's large-scale, maneuver full-spectrum readiness. for example if you were just to take readiness and whittle it down this kind of spending in the emergency bill doesn't buy

you the same kind of investments and it certainly doesn't buy you long-term modernization and health of the force. so with that i'm going to turn that cheery note over to david and stop talking. >> thanks. i'm on? okay, great, thanks. yeah, i only probably have more depressing information to add. somehow it seems when fpi discusses the state of the world it's not your upper for the morning. but what i'd like to do is expand on some of what senator cotton said about long-term trends in defense spending and why is it important to company that? of course, we here at fpi and af, we talk about the national defense panel's recommendations for increasing defense spending. and you get a lot of the push-back when you talk about those things and it comes from a couple of directions. so interestingly, this advocacy for greater defense spending is often a plank in the center of the political spectrumif you look at the more than 85 experts who signed fpi's open letter to the leaders of congress, you saw

notable democrats alongside notable republicans making the case. and then we hear more from people on both sides. on one end i've discussed this even with veterans who consider themselves progressive and they say, no, how could you want to add more dollars to defense when there's not enough for education? isn't this country's real strength in our economy and education? we need educated people for tomorrow. then on the other side it tends to be but look at our debt, look at our deficit how can you advocate more spending when these are at historically high levels? it's really, if you look at the context that senator cotton began to talk about you understand why those are not actually the case. so, for example, if you look at a choice between defense and education spending, in the very constrained political environment where we have sequestration capps that equally apply to defense and nondefense spending, one dollar for one is one dollar less for the other. the fact is we have sequestration because there's never been either the political will or the right answer that helps people take on entitlements which are almost entirely domestic spending. so when you really look at it,

when you hear senator cotton say that anywhere from 12% to 17% of -- from this year to the next five years is consumed by defense spending, that means 80% plus is on nondefense spending. overwhelmingly on the increasing share that goes to entitlements. so it really doesn't need to be a one for one trade-off. it's really that we have one part that's somewhat out of control and another that has been decreasing sharply. that if you look at the overseas contingency operation budget which mckenzie just described quite well that peaked at almost $200 billion in re terms. now we're talking about whether it should be $50 billion as the president proposed and some other people proposed or slightly more. so 75% there, sort of reaping that dividend of not having troops on the ground in iraq and afghanistan. and then the base budget has fallen by 15% in real dollars as well. so these are cuts across the board. now, when it comes to driving the deficit it's really the same story a lot of the time with entitlements. those are the areas where you're getting more and more spending

year after year. they're not brought under control by the bca. so senator cotton mentioned we were at 5% of gdp in the reagan a area. back further, it was in the 9% or 10% range in the 1950s the early cold war norm. it gradually began to come down on a glide path. we probably got close with supplemental dollars for the wars in iraq and afghanistan to 5% again. but now we are headed down to a place where it's less than 4% and maybe even going down to less than 3% if the current projections hold. so that's really a remarkable decrease historically. and if you think there are three basic ways to look at the size of the defense budget, one is as a percentage of gdp of our national income. given the size of our economy can we afford this much? so when you see that at one point spending 10% now spending under 4%, that tells us overall growth of our economy has far outpaced the change in defense spending which actually sort of followed a up and down shape over the years and there haven't been dramatic gains whereas our economy has grown

tremendously. the sec way of looking at things is a percentage of every federal dollar, how many cents spent on defense. so again the sort of norm in the early days of the cold war was almost half the entire federal budget, something utterly unthinkable today. that would be like spending $1.7 trillion every year on defense. no one's proposing that. what the panel wants is a third of that. you'd have a little more in you added in oco. you've seen that constant downward trend because domestic spending entitlements, has moved and expanded to fill that gap tremendously. so i think it's really, when i taught to people, i try to add these historical context factors. because sometimes they understand it's really a different question we should be looking at. it's not how do we trade one for the other? it's how do we get the really out-of-control spending areas under control so we can control to spend what we need on certain areas of domestic spending we value, whether it's more scientific research or education, and of course on security spending as well. i think i'll leave it there and turn it over to dr. holtseke who

can tell us a lot about the broader economic context. >> thank you. i want to thank fpi for joining with aaf for this prevent and i appreciate the chance to be here. the larger budgetary dynamics have been in play for some time. it has been utterly foreseeable that the baby boom generation would age one year at a time every year. and that ultimately we would get to the point as we are now where we get 10,000 new beneficiaries every day flowing into social security flowing into medicare where we see rising spending on medicare medicaid, the affordable care act, social security, the other components of entitlements, so-called mandatory spending which are driving two things. number one they are driving an enormous amount of projected debt in the united states. if you roll the clock forward ten years on auto pilot as the cbo projections do, we find we're running a trillion-dollar deficit. of that, $800 billion is interest on previous borrowing. we as a nation are getting to

the point where we're taking on a new credit card to pay off the interest on the old credit card. an extraordinarily dangerous financial position for the u.s. the second thing it's doing is driving out of the budget the kinds of things the founders would have recognized as the role of government. it's driving out investments in infrastructure and research on the nondefense side. it's driving out spending on national security. and those budgetary dynamics have been predictable and they have been in play for quite some time and they're really starting to show up right now. now, faced with budgetary crisis, congress did what it often does which says how do we solve this last time? last time was the mid to late '90s. and the quote solution was, put caps on defense and nondefense spending. don't touch the entitlement programs. and pray that things break your way. well, the problem is that unlike 20 years ago, the baby boom is not 20 years from retirement it's here it's retiring now, and those spending demands on

the mandatory side are going up. we're not going to solve the problem. number two ultimately we solved it with pretending that we had a peace dividend with the fall of the soviet union that turned out to be ilroosry. we weren't as safe as we thought. we went on a procurement holiday for half a decade which we had to make up in the early 2000s. the budgetary gains were at significant defense losses. and then third, ultimately we balanced the budget by having a dotcom bubble. we've had enough bubbles, we don't need to try this again, we need a new tragedy. unfortunately they've codified the basic problem in the bca. it's attacking the wrong part of budget and it's put these caps in play, sequesters in play. the ultimate solution as david has pointed out is the trade. we need to spend more on defense and nondefense discretionary spending and take money out of mandatory spending to do it. that's the fundamental budgetary trade. needs to be undertaken every year. and in increasingly large

amounts. that solves the debt problem which former admiral mullen identified as our number one national security threat. that solves the ability to develop the investments and readiness and repry and strategic capabilities that we need on the defense side. so it is unusual for me as the budget guy to be the ray of optimism in an event. so let me try. it -- this is a different moment than a lot of the moments i've witnessed on this discussion. in the past, the only people who are ever in favor of entitlement reform are people like me. budget geek hotds drew lines and said, that's going to be bad. everyone else said, no we don't want to touch -- we wanted me care as we know it we want social security as we know it. and now this is changing. it is increasingly recognized that, number one, we've done all this but we don't have good programs. the social security program stays solvent, in quotes by promising to cut benefits 25% across the board in 20 years. disgraceful way to run a pension program. the medicare program runs a cash

flow deficit $300 billion every year and doesn't deliver high-quality care to our seniors. there's a recognition these programs have to be better in their own right. it's not just the financial issue. and there's now advocates for changes to the entitlement programs. they are in the defense community and the nondefense community. i spoke recently to the nondefense discretionary coalition. it exists. it is the single-worst-named coalition in washington. they need a better name. but these are now advocates for entitlement reform. because there's the recognition we need to get this done. and so that's at the bottom up pressure politically from the grassroots. from the top down, anyone who runs for president in 2016, near as i can tell everyone's running. anyone here running? anyway. lots of people running. their advisers are going to tell them, look you want to be governing in 2024. if so if we don't change something, you're the president overseeing the debt crisis and the defense readiness crisis. and it's highly unwise for a

president to surprise people with pig changes. so the '16 cycle is going to have to foreshadow the need to improve these programs and get the budget in order. that's top-down politics that have been missing recently. no leadership from the top. to make big changes. so i think there's a chance we can get this fixed. it's never simple or easy. it's always sort of complicated in the united states. but the recognition of these budgetary dynamics is here. and it's time to change the bca so we haven't codified the wrong policy and get the right policy in place. >> thanks very much. a bit of a ray of optimism at the end which is unusual. >> always go for an economist when you need some fun, right? >> it's true, it's true. hem let me start off with questions of my own and we'll turn to the audience for your questions here in a few minutes. let me start with david. you outlined several different ways to conceive of the defense budget. percentage of gdp, share of the federal budget.

another way the defense budget is often portrayed is within the context of global defense spending. critics of increased domestic u.s. defense spending would often point out that we spend more than any country in the world on defense. can you help provide context for u.s. defense spending by putting it within the context of global trends in defense spending? >> absolutely. glad to do so. so, you know that number you hear is correct. we do spend more than the next seven, eight nine countries combined. but there's important thing consider. usually people say, that must be evidence that we're spending too much. but you ask what is the role america has in the world? senator cotton hit this head on. we are the guarantor of stability when in the expansion of freedom to more people. if you look at the world before 1945 when there was no single dominant power you could have a major systemic war that left vast destruction in its wake every 30 40 70 years they kept occurring from napoleon, go

back further to the mid 17th century, world wars i and ii. it hasn't been a sure thing but since 1945 there's been one more dominant power with a second super power beside it causing a lot of trouble for the firsttry years or so. but with one dominant one in place that could help secure the order as well as have an expansion of freedom because there had been a dramatic increase in the number of democracies. if we continue to see ourselves playing this role it has implications for defense. so how much does china spend on defense? we don't exactly know. relatively credible estimates, there's a swedish think tank the pentagon does some. people think the neighborhood of $180 billion. so around one-third of u.s. defense spending. but china doesn't think about spending in order to achieve global capability. it's more about this is how we can push the u.s. and its allies back in east asia near our shores, we're going to design an asymmetric strategy. therefore we have the burden of going to meet that strategy.

we're going to be playing an away game. if it's march madness, the nfl, you want to play a home game. in war it's better to play an away game you don't like what's going to happen in your homeland when >> the war takes place there. the air force and navy cost money and they are what allow us to project power pretty much to any corner of the globe and have us deal with the crisis or a threat there. and of course, china's not the only region. whether it's iran and isis in the middle east we are investing in the ability to project power there so we can deal with their issues. we are in the threats they present. if you look at what vladimir putin is doing, of course he only spends a fraction of what we do. it's not like the soviet union, which may have outspent us. the fact is, we have to look at the obligations of nato. so it's really only the united states that has this global role. and so even if you add up the value of the next seven or eight or nine, however many other

powers, it's not going to give you the right answer. that's not a way to arrive at what we need. you have to take a strategic approach which says what are the threats we're facing to stability and freedom, what are the military force wet need to deal with those? one last note, it is worth observing that certain countries, china and russia especially, have increased their spending dramatically. in a decade it's been almost double, if not more. they were starting from a low base. the chinese have increased something like five or six-fold the russians four-fold. it's disturbing and they're increasing their capability and it may mean that we need to spend more. ultimately the bigger question is how much power do they generate with that spending? it's about spending efficienty. finally there's the question how much bang are we getting for our buck? one of the pessimistic notes sorry to break up the optimism train, wife been getting less bang for our buck in the defense department. some of it is the fact that we're a prosperous economy and you have to pay highly qualified personnel more to be part of an

all-volunteer force so personnel costs ride over time. we have persistent rise in the cost of operations and maintain nance. we've had well-known troubles in acquisition. so it's more of a complex strategic question. if someone wants to frame the debate and even senators, not senator cotton have done this said we're spending too much because we spend more than the next seven or eight powers combined. think about america's interests, not just about global dollar figures. >> you say this may be a different moment and we may have a chance to finally fix some of these problems. zooming in particularly on the fy16 budget resolution, it includes deficit-neutral reserve funds for defense. can you provide context in terms of these reserve funds? how have they been used historically historically? often they're included and not funded. is there any reason to believe that this year may be different? >> so it is such a joy to see people pay attention to the budget resolution. it never happens. so for those who don't follow this, and i recommend that that

be everyone in this room the budget resolution is not a law. it is passed as an agreement between the house and senate on how it will conduct budgetary operations for the year. it often includes, as it does this year, both an allocation for spending on defense. this adheres to the cap in the bca. and then other mechanisms should you wish to raise that allocation. and the mechanism in play this year is a deficit-neutral reserve fund. what that says in english is suppose they pass a defense appropriations bill that comes in above the allocation of $499 billion. then the budget chairman can stand up and say, i invoke the deficit-neutral reserve fund you can spend $525 billion as long as we get $26 billion in offsets somewhere so it's deficit-neutral. so it allows the congress to break its own budget and in the process it avoids having a point

of order against proceeding to the appropriations bill. so it's a procedural mechanism that gets taken out of the way, allows you to go forward with the defense bill. those have been around a long time. when we passed the prescription dug bill in 2003, there was a reserve fund for $400 billion budget chairman invoked it. all of this, it's important to remember, is very nice. but it doesn't change the law. the fundamental problem is we have a budget control act that says, no matter how much you appropriate, we are going to cut it back to 499 unless we change the budget control act. for that purpose the budget resolution sets the debate up but it doesn't solve the problem. we need to pass appropriations bills and pass changes to the budget control act that give greater funding. >> thanks. mckenzie picking up on this question provided no change -- if there is no change in law, no change to bca, but congress does appropriate funding for the pentagon through either oco

funding or deficit-neutral reserve fund what are the consequences for these kind of short-term fixes for our military and for pentagon, particularly in terms of planning? >> the first consequence is what's going to happen on the floor when there's a defense appropriations bill. not the budget debate this week or next week or however long it goes on. we've already seen in the recent past, boy, if anything is predictable it's these congresses. the last six years. and, well, i should actually -- it's already been outlined. they like to take ideas off the shelf from 20 years ago. so this group is a highly predictable one. what we've already seen in recent congresss are members banding together on the left and the right to strip oco money that wasn't requested by the pentagon. you've heard this line before. my good friends colin and john have written this story a thousand times. the pentagon didn't ask for it, and therefore, it becomes a justifiably -- discussion about, does that need more money? if not we're going to vote did take it out.

chris van hollen, congressman from maryland, rick mulvaney, are two that have banded together many types repeatedly to do this. there was an amendment it was a total account of $5 billion, they took $3.5 billion out, congress agreed to it. that's exactly what's going to happen this time. $39 billion in extra oco money is an allowable amount. it's the ceiling. that's not what's going to get appropriated for defense. and there will be fair and legitimate arguments to take a lot of that money away. congress itself said no to f-22s in the emergency spending bill several years ago. the pentagon is going -- the leadership in the services is going to want to put a lot of hardware and equipment and modernization programs into the oco and that's not going to be a voting majority, supportable proposition by most members of congress. and so first problem is what's going to happen on the floor? the pentagon's going to lose a lot of this money. once it starts losing a lot of money it thinks it might be able to get it's going to take us back to the last four years of all of this wield swing in

defense planning that there's no fiscal certainty for the department, and that alone is one of the most inefficient things you can do for pentagon program managers. what happens there's a whole source of internal bureaucratic decision-making that again is justifiable but incredibly expensive and wasteful for taxpayers. if they're watching this a debate and don't know what's going to happen, program managers hoard their cash. they understand that there's the likelihood they're going to have to cough up some of it at the end of the year, whether sea questions trition or a bill coming in at caps or continuing resolution that starts the fiscal year. whatever it is however it turns out, it's definitely not going to be the number we're talking about this week for defense. it will be a number lower. that's a fact. that's a guarantee. if you're a betting person, go to vegas, you can tell them mckenzie sent you. it will be a number lower than what's being debated this week. when that number is finally appropriated and the president signs it into law, whenever that is it could be 2016 when that happens, it will be a number lower than the total amount we're talking about this week. so that creates all these wild

inefficiencies in program managing. contracts are held in abeyance, awards are delayed or deferred or simply not granted altogether in anticipation of the chaos and uncertainty on capitol hill that's a second consequence. then the third is what the money can buy. even when the money is approved you can buy readiness but there's a debate how much more readiness certain components and certain services need at certain times, particularly right now. for the readiness crisis broadly speaking in the department there are pockets of incredibly high readiness at d.o.g. and that's good, great, i don't think anybody has a problem with that. you can only pour so much money into readiness over that overspending money and wasting it. some -- most of the readiness challenges right now are in large-scale maneuver, they're in longer-term readiness. some of it is a function of time, not dollars. so certain army brigade level training can't get through the national training center. we don't have another national training center, you're not going to build one, more money

isn't going to solve that problem. so this -- the third consequence is what you can buy with that money and what is needed is modernization. and some readiness. and what you can't spend a lot of this money on is modernization. >> let me sneak in one more question for doug before opening it up to the audience. you spoke about the context -- how defense spending might play a role in the 2016 presidential -- fixing these long-term problems might play a role in the 2016 presidential conversation. one of the pieces of doug's bio i neglected to mention is he served as economic and domestic policy director for john mccain's 2008 presidential campaign. so asking more of a political question to close out my questions here. how do you speculate not just fixing these long-term problems and the question of entitlement looking forward to 2024, but how might the conversation around sequestration and defense spending issues play out among

the 2016 candidates? on both sides of the aisle. >> so my reasoning on this comes from really two pieces. number one it's always better to figure out what people have to do than what they want to do. and we have to fix this. the nulks are overwhelming in terms of the accumulation of debt the financial instability of the federal budget, if you stay on auto pilot another eight to ten years. so politicians have correctly stayed away from these programs because everyone's seen the ads about granny getting thrown off the cliff and she's quite durable, she comes back every election. but, you know, that's got to change. and anyone who does the arithmetic knows that and knows it's a very bad idea to surprise people with big changes. so they're going to have to start laying the groundwork. i don't think you're going to see big detailed proposals in '16. as you move '16 to '18 to '20 you're going to see the

acknowledgement that medicare as we know it is not serving our seniors, we need to fix it and make it more sustainable, social security, all those thins. the second piece is if you look at the polling on the ground right now, people are scared about our security. period. i mean the american public understands this is a dangerous world and if you sort of ask all the questions about -- that the fiscal fiscal talk saver, about controlling spending, getting deficits down, they 100% agree with that. ing is them questions with securing national interests around the globe, they support all of that. if you pit them head-to-head, the defense hawks beat the fiscal hawks on the ground, in the polling. presidential candidates are going to know this. they're going to poll all of the time. they're going to acknowledge the fiscal problem and talk about the need for stronger defense budget and better national security. >> we've got about 30 minutes to

take some of your questions. three quick advisory points, please do. be sure to wait for the microphone to reach you. identify yourself before acting question and be sure that that is, in fact, a question. a couple write ups from you here. >> we'll start out just in the front row here. >> so i don't think there's anybody around here who would disagree that something has to be done. so far, nothing really has been. as you guys look over the next couple of months what are the appropriators going to do. >> they've been broadcasting it loud and clear.

the authorizers are a different story. that would be interesting. i believe both chairmen are leaning towards marking towards the president's budget squ of 535 billion$535 billion. now, the question is so what will they do with occo. it seems as if both chambers are going to go over new fund required, which is troubling for other reasons because this is pretty mump basically all debt finance anyway, when you're talking emergency spending money. half of it they were trying to make offset available.

so emergency supplemental, a couple of things regarding that. one, $51 billion that the president requested for occo was too low anyway. we know it's too low. just last time around, it was summertime saying hey, things have changed. ebola, isis, et cetera. the first part is how about we come back and say it's higher than the $51 billion we've asked. i think that money will all be easily the question is what is

pending leadership. that's something that's being discussed at the defense department right now. it's possible that leadership says we're not going to want that extra money. and then that's going to change everything up here. if congress is going to want to hand the department money, it's going to say we actually don't want because it's not the kind of money that we need. that will change the dynamic and that will keep the number a lot lower. i don't think we're going to get anywhere near $90 billion. >> i guess just to add a quick note, one of the attractive things in theory about adding occo money is on a budget resolution stage. you don't have to do a political traj trade for one for one. occo is, in effect u not restricted. in e feblgt u you can sort of

put money there and basically the cap will rise along with it and you act as if you have that money and you don't have to have any sort of stradoff. there are ways in which everyone could agree to go on. if they're sort of -- it's sort of if you say black is white and white is black the aproep raters and the administration and then white can be black and be used for anything. i think once you get away from just the people who need to put together a budget resolution that tallies in the right way, you'll have problems. mcken zealzie already explained quite well. if the pentagon says they don't need it, it's especially problematic. we don't really consider this occo. if omb doesn't agree that something is occ orr or over seas contingency operation, for

those who get all thrown around by all the acronyms, that may be a bargaining tactic. obviously, the administration doesn want oco to plus up the defense budget with democrats for discretionary spending. so while they can't get in the way of budget tear passing resolutions, we will come to points in the road procedurally where the democrats will have their say, just as minorities have had their say in other situations. >> i believe the president, he's going to do that. so that's why i know we're going to start this fiscal year with a continuing resolution.

that's no big deal in the senate because you -- all that you have is you exceed the allocations is a 16 vote point of order against the bill. and minimal amounts that you can always exceed the reck sill yagsz constructions. they've just littered it with the capableties to get mandatory on simple majorities. reconciliation is always useful if the president wants to sign. but that means that you have to get a deal. you have to get presidential leadership that says i want this. you want that. and i will sign the offset to make sure that we maintain or

deal with the american public on deficits. we haven't seen this white house successfully pull that off in any setting so far. but it's on the table if they want to get there. that's the right policy argument. presidential leadership would make it a better political argument. >> yesz. >> my concern is that the pentagon doesn't seem to be getting it on the future of warfare. imagine dozens and hundreds of drones instead of an f-22. >> what can they do to sort of compel the pentagon to take a really good look instead of another desk start.

>> in the future, numbers just matter, again. it's not just about the extraordinary capability that the u.s. can bring to bear. but, frankly, how many of what -- how much capacity. it can apply across the fleet and sfrss and unison capableties. >> there is appreciate that that's the kind of budget that's required. even if it's a lower cost item. starting back in 2013, this is not just the budget control act. the hardest hit spending has been not just in modernization

specifically in procurement, but all have been minor procurement program. we typically tend to think of the major high profile programs. 60% of those and that spending on all of the little things that their defense department wants to take. it's really a thousand cut story. as we see this play out the plurality of reduction that will happen when we dentd goat the 39's request for defense, are going to come out of the same account. it will happen in a similar way budgetarily. right now, it's important to have a discussion, but i don't think there's going to be much action you believe till there's more fiscal certainty for the department.

it's definitely in the conversation leading up to 2016. >> it's a great look at the political dynamics. i guess i would add that part of it is build around congress to exercise that kind of intellectual leadership on technological questions that deal with future threat. >> i think it's part san that the pentagon is much larger. it has ever service dealing with new dock frin. i don't think congress is that inclined to challenge fundamentally the kind of weapon 178 that defense department proposes. i think you know, congress clearly does say we don't like certain things. but it's often at the margin. we don't want this, we do want that. it's too early to cut the a-10. i'm not sure we see too many cases.

so there's certainly the possibility for events to dramatically change thinking. it might act through the defense department and through the military to step up to the plate. >> i'm not a defense expert, but my experience in agencies across the government is congress is much more likely to cement adherence to the past and change things to the future. all of those members have districts. it's more common than forcing in business. >> other questions? >> yes, sir? >> yes, i have a question about foreign propaganda. isil has videos for example, they have videos where they're executing some s e asad regime members. as well as executing russian

intelligence agents. i believe that's for the western media. it's not for those particular countries. so my question is, given russia's case in syria, for example, once they took over the poll they became a superpower because russia, with ukraine, is a superpower. they can expand their navy with that. i think the shooting down of malaysia air could be an art kal 5 offense. i think that's the only time article 5 has come into effect.

how do you maintain a balance and dispassionately plan your defense bunt when there's all of this propaganda that's designed to provoke rage and passion that you have to put aside. >> a lot of that propaganda is targeting the rest. the decision to brutally execute an american journalist is an effective provocation. on the other hand i think there's a strong case that we were ignoring the threat and they sort of did us the favor in some ways of alerting the american public.

in terms of balancing within regions, you know, sort of the administration proposed a few years ago is part of the current strategy. the pivot to asia. it wanted to believe that europe was a place that was sort of spreading security to other reel jobs regions that we could afford to do. i think part of the challenge is that we should bt trade off one region more. whether it's the national defense panel or other groups considering this you have to have a fourth structure large enough with the technology to deal with threats in all of them. yes, it does mean the defense budget is going higher. not higher by historic levels but i believe 27% of the budget was for defense.

>> i'm lez concerned about having our balance distorted by propaganda, except for the chinese. the chinese kind of have the opposite propaganda. >> i appreciate your point about sort of emotional reactions and kind of congressional actions and congressional reactions. this town has become too good at just managing crises as opposed to solving probables i don't think we should expect much different.

>> there will come a moment where we'll spend more. and i guess what i would say is not just this congress administration, there is such a thing as defense regardless of the threat. that's just the own problem, one. but it's also a challenge, too. a couple of things. one is that there's a -- an increasing conventional wisdom in town. of course, what it's got is continuing to get smaller, older and less capable so that's not, actually. and as that happened, we're dialing down the strategy. so we're actually dialing down our objectives globally. which is its own challenge. but i don't see any threat that's going to cause some sort of windfall defense spending for the next two years. it's not coming. this is really about a discussion for beyond 2016. so when it's time to rebuild, it starts with agreed upon in

washington. again, here, washington just doesn't have a good proven track record. particularly if it's in response to crisis. if 9/11 happened again, knowing what we know now, i don't want a d.n.i. i don't want an entire security intelligence apparatus. there's so many things wrong with the dollars we just put into security. that i'd argue we're not prepared, ef even if there was a crisis, i' e'd turn it back on. >> next question to here from jordan? >> thank you, naval special operations headquarters. our partners now watch our budget in debate. they actively watch our congressional engagement. and they see the dysfunction that we portray. on the flip side, we have our

leaders criticizing allies that they don't spend enough or don't spnd accurately. i guess my question would be what advice can you give partners not only to spebd more, which, granted, i think they do need to spend more. but how do they spend better? i think that's the biggest questioner question. it's not just pouring more dollars into it. but what should those dollars go towards. >> sure, that's a fair point. it's a good one. i don't think the message was sinking in until now when there's -- our friends and partners would turp around and we're not there. so, really it's only a function of reality. we could talk until we're blue in the face. our smaller military really, truly can't do anything that has promised in the past.

in some cases, probably overpromised. now, it's obviously a whole worrisome problem as an american for other reasons. but it is really, truly what it is. we have declining capacity and capability and technological security. so it's rally not a function of naked self interest. i think we have to have those adult conversations. it's just like the panel has said. we need those aadulthood conversations in washington and america without entitle lt. so let's just all have the adult kvrgss and i think that's one of them. >> i'm probably willing to think i'll get half. no? all right. >> oh, question right here.

>> good morning, everyone. i wanted to thank every member of this panel. >> no matter the interest we had in increasing this budget, the will was not there within our congress. is that correct? >> oh, right now. yopg the will is there in general, in washington. as we've seen recent threats emerge, like the annexation of crimea, none of those have been -- no one has made the case in reaction to the world of writing. >> in districts, can we make any difference? or are we just having the

confers so that we can educate people for the next administration? is there something you can do right now? >> obviously, now we have democrats control the white house, republicans have majority. certainly not a filibuster proof in the senate. i think if you listen to a lot of armed services committee hearings, in either the house or the senate you hear from both parties denounce sequestration and its limits again and again. if the armed social securities committee were the house and senate, they would be absolutely fired up to do something about it. but they would still hit a roadblock. when democratic members speak,

those on the armed services committee can probably tolerate some degree of trade-off. that the security threat is so acute, some additional defense spending, nondefense spending, they will have it. but, yet, the party as a whole isn't in a place to be comfortable with that trade aif. that with sequestration, with all of its problems, fair number of people on the republican side, it's the exceptionally rare case where we actually brought down federal spending by about a 00 dlid e dread$00 dlid e dread billion clars e a year. we don't want to give it up. so only half of the increase can go to defense. even if there's a willing block on either side, the conditions of needing more spending or less spending don't want the go along with it.

so ewe can imagine a greater tilt in either direction. they controlled the white house, 60 in the senate and the white house. they pursued something which would be more defense at the expense of other accounts. or they could push through entitlement reforms in order to generate money for other concerns. but, without one side having a dominant hand, the condition each side imposes on more defense spending prevents them from doing that much, ef even though they all say this is a terrible situation. >> thank you. >> i'm a little more optimistic than these two. i really am. it's true. i'm getting 75 cents on the dollar. post 2016.

>> you know,i think there is more will than these folks believe. the president came in above the caps. >> absolutely yes, there will be people who hate that. but that's the nature of deals. deals are not clean victories. they are coalitions of disgruntled getting half of what they want. i think, again, the key is going to be what are the offsets? it's going to have to be offset. it should be offset. and the president has to give republicans air cover on the offsets. if he hangs them out to dry, then this is all right. nothing gets done. but if the president does what the president should do to get the right policy then there's a chance to get a little deal in

16 and it will look like ryan murray was, some discretionary for mandatory offsets. he'll do it again for the fy '17 budget. it will be tiny amounts of money and enormous amounts of pain and they'll decide to just stop this nonsense and do something bigger. >> it's incredibly true. >> i wouldn't say incredibly true. >> that is what you want matly happened. they want to make it an issue.

if they're not hearing that this is a priority, their conversation is just human beings, right. they're going to deal with whatever is the next crisis at the front door. they're not going to fix the leaking roof. we're talking about the long term sort of problems. it's the squeaky wheel metaphor, right? if they deent think that this is a priority it really won't get the attention it deserves or at least the long term attention. and i keep reading the headlines that in shock and a little bit of awe that speaker boehner and nancy pelossi have come to a permanent fix. every time that the bill comes

due or something or other he could probably speak to what it is. i live in a defense world. they continue to pay for it so that this cut to medicare never actually becomes reality. it's over $200 billion. there seems to be a will and a way, shockingly, when it comes to a big three entitlement program. they've shown they can be bipart san. they've shown they'll have the money. so if they don't know it's a priority, then it won't be a priority. >> they had to go through 17 times in ten years before they decided to fix that. there's a slow learning curve on 1078.

>> a little bit of skepticism. i'm curious what you think about thornberry's reforms and their possibilities. >> i was so busy preparing for this panel. he did mr. thornberry made a major speech. he previewed what he was going to do in acquisition. talked about the fact that it would be bite sized look. it would not be a sweeping mccain type of bill that we saw two congresses ago. which i think finally is a good thing. usually, when you add more people about the regulation and dollars, it's just a recipe for more reform problems in the future.

how can you ask for a single more dollar when so much is being wasted. how can you ask for more? so there have been occasional scandals where you learn about some fraud and abuse. but, waste, by far and away, is the biggest problem that people are targeting. i think the message that's important is we can't inform our way out of this budget pry even crisis. it's especially the acquisition or procurement that has the greatest trouble. let's deal with it that way. so obviously, in some ways the jury is still out on the mccain levin reform.

they tend not to generate big-ticket savings in the near term. acquisition reform is an area where so much intellectual effort has been invested, people don't seem to have engineered the problem correctly. it's about the individual leaders. you may be familiar that senator mccain one of his standard questions, especially from the ai have, is how much was the four class carrier overbudget. and the annals is $2 billion, generally. how many people lost their job because of that? none.

so the general is e issue is first, even if we did as well as we could we wouldn't generate near what is necessary to make up the difference between sequestration level budget and national defense panel level budgets. >> that's the reform we've got to see mooif forward. >> i agree with that.