Archive for the 'Economics' Tag

It is comfortable to say, “We are 5-10 yrs behind the Europeans when it comes to our budget challenges.” – I guess.

With the expansion of the budget deficit of the last few years and no move to make a serious effort to fix it, we are much closer to 5 years, if not inside that mark.

The now quaint Fleet number of 313 of just a few years ago was never taken seriously by anyone with a basic understanding of economics even before the latest budget issues, and the interesting accounting of the Fleet of 300 that we see today is also a non-starter.

Why make such a negative statement? Simple – budgetary gravity.

Back in 2008, European military budgets were sad in any event as a % of GDP. As demographics join with the inevitable default of the Western welfare state takes place in front of us, after a few years – we have this via our friends from DefenseNews.

Make no mistake – we have not even started to align our budget with reality, so what is the benchmark that we should plan for? Don’t turn away – defense is always the low hanging fruit.

Well – you can break these reduction in to three batches.
1. Doable at 5% or less: Norway, Sweden, or Germany.
1.a. Odds: minimal.
1.b. Reason for odds: We won’t be this lucky. Norway has averaged a budget surplus for over a dozen years; different planet. Sweden and Germany already made structural changes to their government systems – Sweden in the 1990s and Germany a little more than a decade ago. As a result – the budgetary stress on the defense budget is small to non-existent from the 2008 baseline. If we act soon to address larger budgetary issues though, odds of this taking place increase.

2. Painful but workable at 5% to 20%: yes, in order to protect the economic foundation that national survival requires – a 20% cut is workable. Netherlands, UK, Poland & France.
2.a. Odds: most likely.
2.b. Reason for odds: unlike Europe, we don’t have anyone we trust that we can point to and say, “Oh, they’ll take care of the international order.” These are serious nations with a serious dedication to military requirements – but they are doing what they feel them must – as shall we. Unlike those nations though, we still have a lot of inertia to maintain a global reach; close to 5% than 20% if we are lucky. More than 20% in the face of a climbing China is just hard to fathom for the USA unless ….

3. Budgetary POMageddon at 20% to 50%: if you wait too long to act on your structural budgetary challenges – the more difficult the fix. You will take on more national security risk in order to try to keep domestic tranquility. Italy, Spain, Greece, & Ireland.
3.a. Odds: small, but not minimal.
3.b. Reason for odds: Without a two-party consensus to make such a huge cut in defense, it is hard to see larger than 20% in the next half decade outside of a complete economic meltdown. With each year we delay having a budget (Senate over 1,130 days without a budget plan) and/or a view to a plan to fix present trends, the more the odds for this option grow.

So, what could POMageddon mean to the Navy? Well – let’s go to Group 3 above – Italy. Again from our friends at DefenseNews;

Italy is considering selling or donating up to one-third of its naval fleet in a bid to earn quick cash and slash maintenance costs.

The Italian Navy would be the first off the mark wit a plan to sell or donate up to 28 vessels over the next five or six years … (out of) 82 ships and six submarines. …

So, 28 out of 88 ~ 32%.

Let’s run with the fuzzy 300 ships. A 32% reduction would be a cut of 96 ships to a fleet of 204.

What was my worse case scenario a couple of years ago, 240? That would be a 20% reduction in five years. All of a sudden, doesn’t look all that out of control … if you consider what has happened to Europe.

Let’s be optimistic and cut that in half to a 10% reduction. 270 ships in 5-years. Let’s model and plan for that and consign 300 ships with 313 ships as they hang out with all those TQL books in the storage room.



To do a complete stoplight review of China’s Diplomatic, Information, Military, and Economic levers/influencers of national power is much more than one post on a blog, but you can broad-brush a few things.

In the last couple of decades, China’s “Diplomatic” and “Military” areas are a solid green with up-arrows. Though I would give “Information” a yellow with an up arrow, I will give a nod to those who would give the Communists a green.

Economic? That is a lot trickier than people think. I lean towards the demographic-wonk mantra, “China will get old before they get rich,” – but if you want a good look at another view on China’s “Economic” that you won’t get from Thomas Friedman, a nice primmer would be Reihan Salam’s latest at NR.

Without a sound economy … the dragon may not be as large or as scary, as some think – but it may be more dangerous for other reasons.

… across a wide range of economic, technological, and military indicators, the United States is actually, in the words of political scientist Michael Beckley, “wealthier, more innovative, and more militarily powerful compared to China than it was in 1991.” As Beckley explains in a recent article in International Security, China’s growth in per capita income, value added in high technology, and military spending is impressive primarily because China is starting from such a low base. That the United States has continued to grow across all of these dimensions is making it exceedingly difficult for China to catch up. Beckley thus concludes that China is “rising in place.” That is, while China is improving its economic and military position in absolute terms, it is stagnating relative to America, even in an era of sluggish U.S. growth.

While we can expect China at some point to have an economy somewhat larger than that of the United States — after all, China has four times our population — the country is plagued by pervasive corruption and bad debts that are already undermining its growth prospects.

China’s population is aging rapidly, and soon the country will have to carry the weight of tens and eventually hundreds of millions of retirees. … China’s growth is already slowing as a result. Since 2001, China has grown at an annual rate of 10.1 percent. This year, however, Chinese GDP is expected to grow at 7.5 percent. Further, the official statistics almost certainly conceal the extent of the decline.

The real threat from China is not that it will grow so economically strong that it will bestride the world like a colossus. Rather, it is that it will become so weak and vulnerable as to collapse, or to lash out at its neighbors.

When you build the next military – do you ponder how to deal with a near competitor in 25-years, or how to handle the violent collapse of a nation 4-times your size in 25-years? How would they look different, and how do you hedge one outcome vs the other?



2014 Information Domination Essay Contest