Since 1996, the Pentagon has lost track of $8.5 trillion — it simply doesn’t know what the money was spent on. That doesn’t even include the billions lost to known waste and abuse.
But despite that troubled budgetary record, the government is preparing this month to increase defense spending.
On March 8, the U.S. House of Representatives passed the defense spending bill for fiscal year 2017, providing $516.1 billion in the “base budget” and $61.8 billion for “Overseas Contingency Operations” (OCO) — i.e., wars. While the budget must still pass the Senate, this represents an increase of $5.2 billion over the last fiscal year. Adding in the $5.8 billion in supplemental funding provided by December’s Continuing Resolution, the current budget comes to a total of $583.7 billion for the year. Still outstanding is a supplemental budget request that is expected to add $30 billion to the OCO, which would raise that number significantly.



Though some members of the House have hailed the new bill as a pivot from defense spending cuts and a necessary step toward increasing national security, it is useful to put this budget in context. While the current bill does not bring military spending entirely up to its 20111 peak, much of the difference comes from a reduction in spending on the Iraq and Afghanistan wars, rather than from the Pentagon’s base budget.
Despite the sequestration in 2013, the base budget has continued to rise once again, and though the active military engagements in Iraq and Afghanistan have been reduced, continued military action there and elsewhere has kept the OCO account open.
The International Institute for Strategic Studies provides detailed calculations of total world defense spending that shed light on how the United States compares to the rest of the world. By the Institute’s calculations, the United States in 2016 spent 39 percent of total world defense spending, only 2 percent less than the next 15 countries — including China (10 percent) and Russia (4 percent) — combined.
Source: The International Institute for Strategic Studies, The Military Balance 2017
Those percentages are a function of other nations’ spending decisions, as well as those of the United States, but you might think that if security was the main driver of defense spending, spending as much as the next 15 nations combined should be enough to provide a reasonably secure environment. An increase in spending for 2017 may seem excessive.

Troubled projects

As Politico notes, the current House bill contains $6.8 billion more in additional procurement funding than even the original 2017 request from the Obama administration, including “$750 million for six additional Navy and Marine Corps F-35 Joint Strike Fighters and $495 million for five extra Air Force F-35s,” as well as adding “$433 million for the DDG-51 destroyer program, a third Littoral Combat Ship and $150 million in advance procurement for a new polar icebreaker.”
Both the F-35 Joint Strike Fighter and the Littoral Combat Ship are produced by Lockheed Martin, and both have been plagued by cost overruns and technical problems. Yet even with the overruns and the verbal sparring regarding the continued budgetary issues surrounding the programs, the current bill still increases spending for these projects.
Lest you think that Lockheed Martin is alone, it should be noted that these are only two programs in a general pattern of behavior within the defense sector.
Consider the $31 to $60 billion lost due to waste in Iraq and Afghanistan or the potential misuse of the OCO “slush fund” since the conclusion of those wars.
Or consider the known cases of waste and abuse, such as spending $1 billion to destroy $16 billion in ammunition, or $1 billion for shoddy airplane maintenance.2 And, of course, there is that missing $8.5 trillion.
How does such behavior persist in the defense sector, and even seem to be rewarded with additional spending? The answer is straightforward: it may be that military spending, rather than being purely about security, has a political component as well.

Political budgets

The political nature of defense spending comes about in two interrelated ways.
First, the nature of the budgetary process, financed through a system of generalized taxation, erodes the link between decision-making and those who bear the full cost of the decision. In fact, rather than being faced with the full cost of decisions, agencies in the defense sector face a perverse incentive. When a private firm makes budget errors, it risks losing shareholder value.
However, if a defense agency does not spend its entire budget, that money will be cut and given somewhere else. Rather than being punished for overspending, agencies are punished for saving money. The Department of Defense does not have shareholders, and there is no real recourse for taxpayers to sanction egregious misuse of resources.
Second, defense spending decisions are made through a political process that requires agreements between the Pentagon, the president, and Congress. The current defense bill has only passed through the House. It has to jump further political hurdles as it moves through the Senate. Firms that want to succeed in this process need someone politically connected and skilled at navigating the system on their payroll, and they need to use those skilled and connected people in lobbying to keep the defense budgets high.
This year’s budget cycle is no different. To see how this works, return to Lockheed’s troubled F-35 program. According to the Center for Responsive Politics, in 2016 “70 representatives signed a letter to the leadership of the House Defense Appropriations subcommittee urging continued support for the program. In the 2016 cycle, those 70 lawmakers received nearly $3.5 million from the defense sector” and “collectively received a total of almost $578,000 from Lockheed Martin in the 2016 cycle, nearly 17 percent of their defense dollars.”
It does not take much imagination to envision a relationship between campaign contributions, letters, and increases in spending for the program. Again, Lockheed is not the only player in this game. It is simply one illustration of the phenomenon.
It is not difficult to see why these dynamics in national defense create what is sometimes referred to as the “permanent war economy.”
While it may not be possible to completely remove politics from such decisions, these dynamics should not go unnoticed when the U.S. taxpayer and voter are offered the rationale of national strength and security as the primary reason for increased spending. That rationale is not the only incentive that policymakers face when engaging in public sector budget decisions.