Last week during a Panel Discussion at the 2010 West Conference & Exposition, one thing that kept coming to mind was the goings-on in the mother country as they struggle to fund their defense budget. I kept hearing echos of what I have read about the challenges in the United Kingdom in some of the comments and observations about the future of the USN.

They have about a decade’s head-start in some areas, and not in a good way. If we choose to benchmark what decisions are being made there – we might be able to mitigate some of the down side; maybe.

Let me explain a bit.

Let’s look sideways (to the UK today) and look forward (2020s). When you look at what was promised in 2000 and what we have now – and project that difference forward – I don’t see as chickens coming home to roost, but vultures.

Just to have a sound foundation; for source documentation we are going to use the best magazine your money can buy, The Economist, and some comments last week by VADM David Dorsett, USN, Deputy Chief of Naval Operations for Information Dominance (N2/N6) and Director of Naval Intelligence (DNI) from last week. We’ll get to him later.

First let’s look at the fundamental underpinnings of our defense budget – not strategy – MONEY.

From the latest issue of The Economist,

Mr Obama’s budget reveals a road-map to fiscal catastrophe. At no point over the coming decade will the deficit be below 3.6% of GDP; and after 2018, it starts rising again. The cuts the president has proposed are comically insufficient: a budget freeze on non-security discretionary spending, which amounts to only about 17% of the entire $3.8 trillion budget; and a toothless deficit commission (a better version has already been killed by obstructive Republicans in Congress) whose recommendations will doubtless be ignored.

Note the right side of that graph. 2020. Keep that in mind.

First is the fact that the British have been under a left-of-center government for over a decade. That is neither here nor there – but a simple observation. Especially in the USA, but in general the UK as well – a Labour/New Labour/Democrat Party in power does not result in significant military budgets without a national emergency. From War on Terror to Overseas Contingency Operations etc, again – no editorial commentary, just a review of the historical ledger.  In addition, a decade of high deficits as we are likely to see, it won’t really matter who is in power in a decade – the need to cut will be there is spades.

The British’s overall budget woes are roughly parallel to ours +/-. Ahead of our timetable, they are starting the battle to find money to replace their SSBN fleet now, and their defense budget – starved for years as a % of GDP vs. OPTEMPO – is shredding as they try to rebuild and maintain a fighting force in Afghanistan with other smaller international commitments.

Hard choices, many already made in the Royal Navy, are being demanded more and more as past neglect needs to be repaired out of hide. Financially they just cannot get the money they need in competition with other domestic programs their government has obligated itself to spend money on.

Let’s look at what is happening in the United Kingdom. From an earlier edition of The Economist;

This will cost about £1.2 billion ($1.9 billion) over the next three years. Some £280m of it will come from the Treasury, which has already provided £14 billion from its reserves to pay for the wars in Iraq and Afghanistan. The lion’s share, however, will be found by raiding other parts of the overstretched defence budget, with planned cuts that would realise around £1.5 billion over three years.

This amounts to more than trimming fat (by, for example, slashing the number of civil servants at the Ministry of Defence); solid muscle is to be sliced into as well. The Nimrod surveillance aircraft, one of which exploded over Afghanistan in 2006 because of a fuel leak, will be retired by March. The introduction of the new model, the Nimrod MRA4, will be delayed. This means that, at a time of greater Russian underwater activity, there will be a gap in anti-submarine surveillance to protect Britain’s own nuclear-armed subs. One of four Harrier squadrons is being lost and the rest are to be moved out of RAF Cottesmore, which will be closed. This could reduce still further training on Britain’s aircraft carriers. The loss of a minesweeper, at a time of rising tension in the Persian Gulf over Iran’s nuclear programme, was questioned by opposition MPs. Army training “not required for operations”, such as tank manoeuvres, will be reduced.

This is an unusually brave move by a defence secretary who was widely derided as second-rate when he was appointed in June, the fourth man in the job in four years. But whoever takes charge after next year’s general election will need to be braver still. Britain’s plans to buy new military equipment have long been unaffordable. Successive ministers have tried to balance the books by short-term savings (such as delaying or scaling back new equipment) that incur long-term costs. This has created a growing “bow-wave” of unfunded commitments that may finally break when an overdue Strategic Defence Review is held after the election.

Read that again. Look at those dollars you P-3/P-8 Bubbas …. because it parallels something said last week in San Diego about “..if you had to, where would you find a couple of $ billion.”

VADM Dorsett responded to that question in an interesting way. As N2/N6/DNI – Intelligence, Surveillance, and Reconnaissance (ISR) is a critical capability for him. It is a growth industry, but he has to look at how he meets COCOM demands within a limited, and possibly stagnant-to-decreasing budget.

He started a couple of times to answer, and then backed off. He paused, thought about his words carefully, and then stated with a grimace (paraphrase),

“Legacy ISR systems …”

When you fold that into the previous discussions about unmanned ISR in the panel discussion – there can be only one area he is talking about in a USN context – P-3/EP-3 and the upcoming P-8/EP-8 program. Re-read the above about the Nimrod. Ponder.

From a manpower and hardware requirements/budget POV, he is right, that is a large bucket of money – and if you need to make a call, make it.  It is a defendable call as well.  Subject to debate, sure – but defendable – yes.

That community’s vulnerability to a money grab is largely their fault. As we have reviewed at my home blog over the years, it’s leadership spent a decade hiding the possibility – and then the fact – of their exceptional fatigue life problems until they couldn’t be hidden any longer. They created bad blood through defending a Cold War staff structure while the actual personnel and platforms at the pointy end shrunk by almost 50%.

In spite of the “transformational” press they received right after 9/11 with their overhead ISR in support of OEF/OIF – starting with pressure from CNO Clark to shut up about it – they avoided toot’n their horn in this area to stress ASW — while operationally they continued to provide overhead ISR as their major contribution. The public face vs. COCOM requirements delta was huge. What got all the ISR press: UAV/UAS.

If you don’t tell your story, no one will hear it. If you don’t make yourself a lean operation while others are fighting and dying, you create distrust and envy among your peers. Neither buys you friends in budget fights.

In these two areas, the Maritime Patrol and Reconnaissance (MPR) community (as the P-3/EP-3-P-8/EP-8 folks are easier to describe) spent most of the decade setting the conditions for the same thing to happen to them that happened to their British counterpart – and in back rooms, discussions are already taking place … and some action in the shadows.

Is the “legacy” MPR fleet about to be decimated like the Nimrod? No, I don’t think so. Is the P-8 buy going to shrink? Perhaps. Could P-3 squadrons be decommissioned early? Perhaps. Is that the right answer? Perhaps. Priorities – and in the aviation side of the house, the F-35 isn’t getting any cheaper.

Let’s look at 2020 again. What else is happening in the 20′s? Well, for one, we will have to find money to re-capitalized the SSBN fleet. I offer to you that the 20 JAN HASC SEF Subcommittee meeting has an outstanding money discussion about that challenge. Deputy SECNAV Work has also discussed this challenge in other venues, and I think he has a very firm grasp of the problem, as do many in positions to know.

You have to look at it in the broader context of the budget as well. The hangover in the 20′s from this decade’s drunken frenzy of spending will couple with another cohort of Baby Boomers retiring and putting stress on the budget in ways we still do not have a firm grasp on.

In 2020 – a ship built in 1990 will be at 30 years. That LCS built in 2009 will only have 9 years or so of service life (LCS is expected to only last 20-25 years) – so by the end of the 2020′s, LCS will be dropping like flies.

When you consider that we will be limited this decade to LCS and DDG-51 for our non-amphib surface ship programs (don’t throw JHSV at me, that is just a truck – full stop – all else is spin and hope) – you have about a perfect storm for the 20′s of limited shipbuilding funds and a stunted fleet.

Stunted? If you continue to assume that CG(X) is dead, then you might get funding for the much needed DDG(X) follow-on to the DDG-51 – might, should. That will be requested in light of the SSBN money sponge – and I don’t see how with all the other needs in the 20′s, we will be able to afford both a DDG(X) and a CG(X) – and there is a good chance that we will simply have to live with DDG-51 Flight III as our “new” platform through the beginning of the mid-21st Century.

I know that looking into the future is a fuzzy hobby. Heck, if you outlined in 2000 where we were in 2010 people would have said you were a nutty pessimist – so we can only see 2020 in very large, fuzzy pixels. The beginning of the mid-century (2030) is just a silly exercise in many ways – but one that needs to be done. The pixels get smaller and clearer with each year, giving you time to shift aim as needed.

There are known-knowns (DDG-1000 will be a rump, expensive class of ships, Ticos history, DDG-51 backbone, LCS decomm’n like flies, etc), known-unknowns (will LCS even meet some of its promised ability and numbers, will DDG(X) be moving forward), and unknown-unknowns (Black Swan events), but still – 2020 is closer than we think, and there are economic facts that need to be looked at.

Huge challenge, one whose source is the lost decade of transformatinalist sugarhigh we just came out of. Yes, the “transformational” decade. The one that was to build the Fleet of the future. Well, it sure did, didn’t it? If nothing else, hoist that well known lesson onboard; avoid the transformatinalist seduction for a few decades if we can.

Look at what the Royal Navy is dealing with today, and it isn’t a stretch to see similar challenges for ourselves. Look and learn – and perhaps we can mitigate the pain.

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• RickWilmes

  “First let’s look at the fundamental underpinnings of our defense budget – not strategy – MONEY.”

  This statement reminded me of Ludwig von Mises’ book ‘The Theory of Money and Credit.’ The fundamental underpinning of our defense budget is not MONEY but “SOUND MONEY.” Ludwig von Mises identifies this fact in Part Four: Monetary Reconstruction. The following passage is of particular importance regarding this topic. The capitalization and comments in (* *) are mine for emphasis and applying to today’s context.

  “The Emergency Argument in Favor of Inflation (The Theory of Money and Credit, Ludwig von Mises, p. 466-469)

  All the economic arguments in favor of inflation are untenable. THE FALLACIES HAVE LONG SINCE BEEN EXPLODED IN AN IRREFUTABLE WAY.

  There is, however, a political argument in favor of inflation that requires special analysis. This political argument is only rarely resorted to in books, articles, and political speeches. It does not lend itself to such public treatment. But the underlying idea plays an important role in the thinking of statesmen and historians.

  Its supporters fully accept all the teachings of the sound-money doctrine. They do not share the errors of the inflationist quacks. They realize that inflationism is a self-defeating policy which must inevitably lead to an economic cataclysm and that all its allegedly beneficial effects are, even from the point of view of the authors of the inflationary policy, more undesirable than the evils which were to be cured by inflation. IN FULL AWARENESS OF ALL THIS, HOWEVER, THEY STILL BELIEVE THAT THERE ARE EMERGENCIES WHICH PEREMPTORILY REQUIRE OR AT LEAST JUSTIFY RECOURSE TO INFLATION. (*Think of Pres. Bush’s and Pres. Obama’s stimulus bills and saving the banks and auto industry*) A nation, they say, can be menaced by evils which are incomparably more disastrous than the effects of inflation. If it is possible to avoid the total annihilation of a nation’s freedom and culture by a temporary abandonment of sound money, no reasonable objection can be raised against such a procedure. It would simply mean preferring a smaller evil to a greater one.

  IN ORDER TO APPRAISE CORRECTLY THE WEIGHT OF THIS EMERGENCY ARGUMENT IN FAVOR OF INFLATION, THERE IS NEED TO REALIZE THAT INFLATION DOES NOT ADD ANYTHING TO A NATION’S POWER OF RESISTANCE, EITHER TO ITS MATERIAL RESOURCES OR TO ITS SPIRITUAL AND MORAL STRENGTH. WHETHER THERE IS INFLATION OR NOT, THE MATERIAL EQUIPMENT REQUIRED BY THE ARMED FORCES MUST BE PROVIDED OUT OF THE AVAILABLE MEANS BY RESTRICTING CONSUMPTION FOR NONVITAL PURPOSES, BY INTENSIFYING PRODUCTION IN ORDER TO INCREASE OUTPUT, AND BY CONSUMING A PART OF THE CAPITAL PREVIOUSLY ACCUMULATED. All these things can be done if the majority of citizens are firmly resolved to offer resistance to the best of their abilities and are prepared to make such sacrifices for the sake of preserving their independence and culture. Then the legislature will adopt fiscal methods which warrant the achievement of these goals. THEY WILL ATTAIN WHAT IS CALLED ECONOMIC MOBILIZATION OR A DEFENSE ECONOMY WITHOUT TAMPERING WITH THE MONETARY SYSTEM. (*In other words, get rid of the Fed and Ben Bernanke*) The great emergency can be dealt with without recourse to inflation.

  But the situation those advocating emergency inflation have in mind is of a quite different character. Its characteristic feature is an irreconcilable antagonism between the opinions of the government and those of the majority of the people. The government, in this regard supported by only a minority of the people, believes that there exists an emergency that necessitates a considerable increase in public expenditure and a corresponding austerity in private households. But the majority of people disagree. They do not believe that conditions are so bad as the government depicts them or they think that the preservation of the values endangered is not worth the sacrifices they would have to make. There is not need to raise the question whether the government’s or the majority’s opinion is right. Perhaps the government is right. HOWEVER, WE DEAL NOT WITH THE SUBSTANCE OF THE CONFLICT BUT WITH THE METHODS CHOSEN BY THE RULERS FOR ITS SOLUTION. They reject the democratic way of persuading the majority. They arrogate to themselves the power and the moral right to circumvent the will of the people. They are eager to win its cooperation by deceiving the public about the costs involved in the measures suggested. While seemingly complying with the constitutional procedures of representative government, their conduct is in effect not that of elected officeholders but that of guardians of the people. The elected executive no longer deems himself the people’s mandatory; he turns into a fuhrer.

  The emergency that brings about inflation is this: the people or the majority of the people are not prepared to defray the costs incurred by their rulers’ policies. They support these policies only to the extent that they believe their conduct does not burden themselves. They vote, for instance, only for such taxes as are to be paid by other people, namely, the rich, because they think that these taxes do not impair their own material well-being.(* QUOTE FROM THE ECONOMIST ARTICLE. “Taxes on the rich (those earning $250,000 a year or more) will go up from next January, as the Bush tax cuts expire; but Mr Obama had promised middle America that it will pay “not one single dime” more in tax, and so he is extending George Bush’s budget-busting tax cuts for the remaining 98% of Americans.”*) The reaction of the government to this attitude of the nation is, at least sometimes, directed by the sincere wish to serve what it believes to be the true interests of the people in the best possible way. But if the government resorts for this purpose to inflation, it is employing methods which are contrary to the principles of representative government, although formally it may have fully complied with the letter of the constitution. IT IS TAKING ADVANTAGE OF THE MASSES’ IGNORANCE, IT IS CHEATING THE VOTERS INSTEAD OF TRYING TO CONVINCE THEM.

  IT IS NOT JUST AN ACCIDENT THAT IN OUR AGE INFLATION HAS BECOME THE ACCEPTED METHOD OF MONETARY MANAGEMENT. INFLATION IS THE FISCAL COMPLEMENT OF STATISM AND ARBITRARY GOVERNMENT. IT IS A COG IN THE COMPLEX OF POLICIES AND INSTITUTIONS WHICH GRADUALLY LEAD TO TOTALITARIANISM.

  Western liberty cannot hold its ground against the onslaughts of Oriental slavery if the peoples do not realize what is at stake and are not ready to make the greatest sacrifices for the ideals of their civilization.(* China and Japan hold most of our Federal government debt.*) Recourse to inflation may provide the government with the funds which it could neither collect by taxation nor borrow from the savings of the public because the people and its parliamentary representatives objected. SPENDING THE NEWLY CREATED FIAT MONEY, THE GOVERNMENT CAN BUY THE EQUIPMENT THE ARMED FORCES NEED. BUT A NATION RELUCTANT TO MAKE THE MATERIAL SACRIFICES NECESSARY FOR VICTORY WILL NEVER DISPLAY THE REQUISITE MENTAL ENERGY. WHAT WARRANTS SUCCESS IN A FIGHT FOR FREEDOM AND CIVILIZATION IS NOT MERELY MATERIAL EQUIPMENT BUT FIRST OF ALL THE SPIRIT THAT ANIMATES THOSE HANDLING THE WEAPONS. THIS HEROIC SPIRIT CANNOT BE BOUGHT BY INFLATION.”

  As a subscriber to the Economist, I would like to offer the following as a better place to spend your time and money. If Great Britain, the United States and Western civilization is to survive than a proper moral defense of capitalism is required. The place to start is by reading the books featured at http://business.clemson.edu/BBTCENTER/cci/index.html The Clemson Institute for the Study of Capitalism.

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