DoD Inflation Fraud Costs Taxpayers Billions More

Budgets & Funding, Corruption, Military
Winslow Wheeler

UPDATED to Add The Hill 06/06/11.

A new Straus Military Reform Project paper that I have just finished explains how the Pentagon has tailored measures of inflation for itself that generate added billions of dollars — each year — and additional (hidden) “real growth” for its budget.  As just one example of the consequences, during the span of President Obama’s $400 billion “savings” in the security budget over 12 years, I calculate that $167 billion of that amount is for inflation that the most widely accepted measure of inflation says will not exist.

It’s an arcane subject, and some will remember a scandal and studies about this in the 1980s, but despite the complexities of the Pentagon’s budget labyrinth, hundreds of billions are at issue.  I urge you to read the summary below, as well as the paper itself.

The paper’s summary is below; the full text is online.

Summary

The Pentagon uses a specially tailored measure of inflation that masks past budget growth and induces Congress to appropriate excess funding for inflation that the most commonly accepted inflation index says will not occur.


The Pentagon budget analysts’ bible, the so-called Green Book, records several DOD-tailored measures of inflation, along with the widely accepted GDP inflation index.  While flawed, the GDP measure is used throughout government and the private sector and – for the purposes of this paper – is analytically conservative.  A comparative analysis of the data in the Green Book reveals that:

  • From 2000 to 2012 the Pentagon received an additional $164 billion in “real” growth that the GDP deflator does not justify.
  • Historically, the Pentagon has reaped substantially more “real” budget increases than most public DOD budget analysts would recognize.  For example, the official Pentagon budget numbers assert that for fiscal year 2012 DOD will spend $124 billion more than we spent on average during the Cold War.  The GDP index reveals that we will actually spend from $224 billion to $342 billion more in 2012 than during the average Cold War year.  After such huge amounts of additional annual spending, we now have a military force structure that is smaller and older than during any point during the Cold War – even smaller and older than after the build-down after the Cold War.
  • The Pentagon’s self-serving inflation index does not just distort budget history, it induces Congress to appropriate money to the Pentagon for inflation that will not occur, according to the widely accepted GDP index.  In the years 2013 to 2016, DOD seeks a minimum of $23 billion more than the GDP measure can justify.
  • The over-estimation of inflation grows much larger when considering long term deficit reduction.  Over the next 12 years, President Obama proposes to “save” $400 billion in “security” spending, including DOD.  An extrapolation of data available from DOD and OMB shows that $167 billion of the “savings,” or 62 percent of DOD’s share of the $400 billion, is for phantom inflation.
  • Before any discussion starts on the amounts to be saved in Pentagon spending for deficit reduction, the $167 billion in over-estimated inflation should be removed from the current 12 year projection of the defense budget. That $167 billion reduction will, in fact, permit the defense budget to grow at the rate DOD professes to request, and it will not reduce any funding for inflation predicted by the GDP index.
  • All Pentagon budget data, including the Green Book, should be audited by an independent, objective party, and the misleading inflation-related numbers should be corrected.

Phi Beta Iota: Congress used similar “tricks,” one reason why the Congressional Budget Office (CBO) and Congressional Research Service (CRS) are equally worthless as sources of reliable truth.  The US Government lacks holistic integrity and mature intelligence.