Winslow Wheeler: Graphics Lie — and Tell the Truth — Actual Pentagon Budget Part II

03 Economy, 10 Security, DoD, Ethics, Government, Ineptitude, Military
Winslow Wheeler
Winslow Wheeler

“If Congress goes along [by approving President Obama’s 2014 DOD budget request], Pentagon spending levels will exceed any previous high by any other president in any year in peace or in war since the death of President Roosevelt in 1945, except for President George W. Bush from 2006 to 2008.”

“…current military spending is lapping at historic highs, not lows.”

How can that be?  The explanation follows; it is also at Time’s Battleland blog.

Correcting the Pentagon’s Distorted Budget History

The Defense Budget Is Even Larger Than You Think: part two of two

Given the warped measures that high-spending advocates and the Defense Department use to calibrate past, present and future defense spending (described here Monday), it is important to find an independent, objective yardstick to measure Pentagon spending trends accurately.

Unfortunately, there isn’t one.

If there were, this debate would be over, and I could retire.

Click on Image to Enlarge
Click on Image to Enlarge

The Bureau of Economic Analysis in the Commerce Department might be tasked with the job of finding one, but it actually plays a major role in devising the Pentagon’s self-serving measures of inflation. The Office of Management and Budget has its own deflators that are only slightly different.

Both embrace the proposition that a large portion of cost growth in Pentagon spending should be counted as inflation: the Pentagon experiences more inflation than other agencies and should get more money-the argument goes.

In the 1980s, the Congressional Military Reform Caucus argued that the Pentagon should be held to an independent but analogous measure of inflation, and identified the Producer Price Index as most appropriate. Others, especially the Defense Department, disagreed.

The differences will not be resolved here, but the question remains: what would the Pentagon’s budget history look like if it lived by the rules followed by most everyone else – especially the rest of the federal government, and the American economy?

Many employ the Gross Domestic Product (GDP) price index to calibrate the broad economic activity of the U.S. economy. The White House’s Office of Management and Budget broadly uses it. Currently it comes in the “chained” version, which attempts to weigh purchasing substitutions as prices increase. There are many controversies on the appropriateness of this measure; for example, see John William’s Shadow Government Statistics website.  However, it is significant to note that the Congressional Budget Office uses such a generalized deflator in much of its defense budget analysis, especially for measuring spending over time and comparing military spending to other types of spending.

Thus, the official and most widely-used measure currently employed by OMB and others to calculate economic growth and economy-wide inflation is the “GDP (Chained) Price Index.”

OMB publishes it every year, and the data goes as far back as 1940 in its Historical Tables (Table 10-1). To answer the question, What would the Pentagon’s budget history look like if it lived by the rules followed by the rest of the federal government and the American economy?, the GDP (Chained) index is the appropriate measure.

Figure 4, shows the defense budget in current-year dollars, in the Pentagon’s calculation of constant 2014 (equal value) dollars, and using OMB’s GDP (Chained) Price Index to calculate separately constant 2014 dollars. Keep in mind that these very different graph-lines are all for the same annual defense budget. Most notably, there are some remarkable differences between the Defense Department’s version of its constant dollar budget history and that history as told by the measure of inflation used by the economy at large.

Phi Beta Iota:  Neither the Congressional Budget Office (CBO) nor the Office of Management and Budget (OMB) can be relied upon for the truth, the whole truth, and nothing but the truth because they have both been politicized and despite having the ability to do so, neither is permitted to actually create or demand ethical devidence-based decision support.

See Also:

Winslow Wheeler: Graphics Lie — and Tell the Truth — a Comparative Commentary on the Actual US Defense Budget from 1947 to Date