Our AIG Defense Policy

I think one could make a useful analogy between America's defense programs and the current financial crisis. Like many of our erstwhile investment banks, the Pentagon is hugely leveraged - tied to a series of legacy defense commitments from the Cold War, both formal and informal. Like the banks, those stumping for more defense dollars are chasing exotic products whose connection to underlying assets are strained.

It is in this light that Dov Zakheim's "worrisome" indications on Obama's defense spending should be seen:

While the administration is certainly funding short-term military needs, it appears willing to sacrifice long-term U.S. military superiority. We should not forget that, even if China's GDP is no longer growing at 8-9 percent each year, even a five percent annual growth will enable Beijing to continue to modernize and expand its military capability over the medium to long term, while the current U.S. defense budget clearly limits our capability over the same time frame.

The U.S. currently outspends China by roughly 5.8 to 1 on defense. If you include America's Asian allies, the ratio expands still further. We have an orders of magnitude advantage over China when it comes to strategic nuclear weapons. China is also ringed by Russia and India, large powers in their own right and not exactly fast friends with the Chinese.

Still, as Zakheim argues, the U.S. is leveraged and to the extent that we are invested in nation building in Iraq and Afghanistan and still tethered by Cold War-era defense commitments, our ability to invest in defense R&D will be more constricted over the long term. Now, there are multiple paths one can travel from this conclusion. Zakheim, like our erstwhile bankers, takes the one that leads directly to your wallet: "The United States should spend what it needs to on defense, be it 3, 4, 5 or 8 percent of GDP."

But really, why stop at eight? If we're unwilling to discipline our defense policy with a sober appraisal of our core interests and defense needs, why not spend and invest away? It's not like the money will ever run out. Right?