Opinion: The Right Defense Budget Debate Is About Strategy Not Inflation

The budget request for fiscal 2023 from the Biden administration adds $145 billion through 2025 to the Future Years Defense Program it inherited from the Trump administration. For 2023 alone, the White House is proposing to increase the Pentagon’s previous plan by $42 billion, channeling new purchasing power to advanced R&D, nuclear deterrence systems, missile defense, space systems and a more modern, resilient base of installations and industrial capabilities. Military and civilian workers would receive a 4.6% pay raise, their biggest increase in 20 years. For fans of a strong defense, what’s not to like?

Plenty, according to the administration’s critics. A recent editorial in The Wall Street Journal about Biden’s second successive higher-than-expected defense budget, for instance, is titled “America’s Declining Military.” The ostensible thrust of such criticism is that inflation will outrun the budget’s substantial increases. The underlying complaint, however, is about strategic priorities and what Deputy Defense Secretary Kathleen Hicks insists is a “budget request [that] makes the investments to advance these priorities . . . that connect our means to our ends.” Let’s consider both objections.

The inflation argument holds the irresistible form of logic but the irrefutable substance of a fallacy. It’s tempting to assume that today’s consumer prices, which over the past year have inflated at an annual clip of about 8%, should pace prices the Pentagon will be paying in the fiscal year beginning six months from now. However alluring, the argument is wrong on two counts.

First, even nonpartisan expectations of inflation during 2023 are much lower than what we have experienced over the past year. The Congressional Budget Office is today basing its estimates of the budgetary effects of inflation on a rate for 2023 of 3.2%. Similarly, the median 2023 inflation expectations of Federal Reserve bankers polled at their March meeting was 2.7%. By comparison, the Pentagon Comptroller testified to the House Armed Services Committee in April that his budget for 2023 builds in enough money to accommodate purchase inflation of 4%.

Second, as compared to the basket of goods driving consumer budgets, the Pentagon’s basket is altogether different. Purchase of motor fuel, for instance, which has been the dominant driver of upticks in the Consumer Price Index, makes up less than half the proportion of Pentagon spending than fuel does in consumers’ budgets. Also, large chunks of Pentagon costs are set in the near term by policy, not by the market. Most notable among these are pay and benefits, but even prices of goods and services the military departments buy from defense agencies—including fuel—are stabilized by rates that already have been fixed and budgeted for in fiscal 2023. Finally, Pentagon procurement contracts are mostly fixed-price and over long terms, deflecting inflation risk onto contractors.

This is not to say that stewards of defense spending can afford to be nonchalant about inflation. Indeed, more imminent than in 2023 comes the threat from inflation to the execution of the 2022 budget, which was neither proposed last year nor appropriated last month with a view to the actual price spikes over the past 12 months. Instead, I mean simply to refute the contention that the administration has turned a blind eye to inflation, leaving no real growth in the defense budget proposed for 2023.

Regardless, as implied by the complete absence of rancor about inflation in debate over the 2022 appropriations, the ulterior aim of critics’ inflation focus is not economics but the strategic choices the Pentagon’s budget request implements. Broadly speaking, these choices trade off attributes of military capacity—ships, aircraft, end-strength—in favor of attributes associated with the new domains of space and cyber and with next-generation capabilities such as long-range fires, artificial intelligence and in nuclear deterrence.

There is a serious debate worth having about these choices, especially as they may mark a shift away from a strategy of deterrence by denial. Focusing debate instead on inflation will detract from the need to make tradeoffs, and a strategy that doesn’t face up to hard choices is no kind of strategy at all.