The damn thing is so big, so indigestible, yet it was swallowed so fast that to this day one suspects not even David Stockman really understands the full dimensions of the administration’s budget. Sure, you get the gist of it; every fourth-grader knows Reagan wants to slash domestic spending and pour on the coals for defense. But beyond that, what do those thousands of charts and figures really mean?
One thing they certainly don’t mean is new ideas. For all the headlines, cover stories, and triple-dose Sunday-morning interview shows about “new beginnings” and “new departures,” “master plans” and “blueprints for America,” the budget doesn’t exactly knock you off your feet with its creativity and insight. Some of the particulars might make the hairs on your neck prickle—and well they should. But overall the document presents nothing like the profound “rethinking of assumptions” it promised.
Rethink. That was the key word. It suggested to cheerleaders and tomato-throwers alike that something fresh and original might actually make it into the budget. Even if the ideas weren’t acceptable, at least they would be … new. Instead we got more of the same. Cuts and boosts. Less and more. Bad (this time, domestic programs) and good (this time, defense). Some of the adjustments are so dramatic, they contain so much shock value, that you almost forget how conventional they are. You forget that the domestic approaches slapping a “cap” on some spending programs, shunting others off to dusty death in the form of block grants—are not “new beginnings” toward a more effective government but tired old quick-fix ways of picking up a few billion in savings and dumping the problem in someone else’s lap. And you forget that for all the eye-popping size of this defense budget, most of it is for more of the same things Carter was buying. The “new” items are old ideas, like the B-I and the battleships.
Cutting domestic spending is like dieting. It can be a good plan if it’s done intelligently. The trick is to reduce consumption in the right combination. That means figuring the cumulative effect, not only on your weight, but on your health. The Reaganites didn’t do the latter when figuring their social cuts—the combination of cuts in programs like Medicaid, food stamps, and welfare. “Taken alone,” concluded a University of Chicago study authorized by Thomas C. W. Joe, a high-ranking HEW official during the Nixon administration, “each cut seems to be small enough to allow a recipient
to absorb it with other income. Taken together, the effects of the cuts are great enough that many families will be unable to meet their monthly living expenses.” According to another source, the Congressional Budget Office, 649,000 poor and near-poor families will lose an average of 16 percent of their spendable income. And of the very poorest families in the entire nation—those with incomes 50 percent below the poverty level—more than half will have to get by on something less than what they get now. Remember, these are not wily welfare chiselers who have been identified, caught, and punished. They are millions of hapless victims of a confused policy, singled out at random and told that a few thousand dollars a year is too generous a sum to live on.
Given Reagan’s longs standing attitudes, none of this comes as much of a surprise. What’s peculiar, though, and what should give you the sense that the administration is not dieting properly, is the effect of the cuts on the working poor, a group for whom Reagan might have been expected to have some fondness. Take, for instance, a New York mother with two children. Right now, after working all month for $4 an hour and collecting all the welfare payments, food stamps, and so on for which she is eligible, she will bring home $212 more each month than her neighbor, who also has two kids and sits home watching soap operas all day. Under the Reagan plan, that New York working mother will be bringing home only $37 more a month than the soap opera watcher. Why should the mother continue working? Why should her neighbor turn off the tube and start pounding the pavement for work? The effect of all this on the estimated 50 percent of adult welfare recipients who are either working at low-paying jobs or actively seeking work isn’t hard to imagine.
Captrap
This is the kind of masterful thinking that pervades the food-stamp-cut proposals, too. In trying to throw a million people off the rolls, the Reaganites succeeded in erecting the kinds of cutoff points for earnings that are guaranteed to make people quit their jobs. A woman with three children and making $5.25 an hour now qualifies for $99 a month in food stamps, but under the Reagan plan, if she gets a raise of even a dime an hour, she loses all of the stamps. Think for a minute about the salary of $5.35 an hour. It can barely feed one person with a kid, or even two. It cannot possibly feed a family of four anything but a few boiled potatoes and Ken-L Ration. This doesn’t mean the Reaganites were wrong to train their eyes on food stamps. It was smart, for instance, to establish a system allowing the government to recoup overpayments issued in error—a feature unaccountably missing from the previous program. And it made good sense to end a silly provision allowing recipients applying for stamps at the end of the month to get them for all of the earlier weeks of that month. But overall, the food stamp cuts were shot through with malice. Even a usually pliant Congress couldn’t quite stomach the Reagan crackdown on elementary school kids who eat free school lunches then go home to families with food stamps. And the $10 billion cap on the program is an absurdly simplistic—and cruel—way of holding down spending.
Food stamp caps, wildly popular with Republicans (Florida Senator Paula Hawkins announced her support for this year’s at a Senate luncheon where sirloin steak, out-of season asparagus, and a strawberry mound graced the menu), are a cheap gimmick for holding down the deficit. They were a harmless enough deception during the Carter years, when supplemental appropriations could always be expected to make up the difference after the program ran short. But Reagan has pledged to oppose any supplements, even if unemployment (and thus food-stamp need) rises. That means everyone on food stamps—even the most “truly needy” recipients of all—will have their stamps cut significantly somewhere around the end of FY 82 when the funding runs dry. Poor people had best learn the fiscal calendar—and avoid getting hungry in the fourth quarter.
They should also avoid getting sick, for a similar cap is scheduled for Medicaid spending. But the administration is making no effort to correct the waste, fraud, and abuse (remember those Reagan words?) that have turned the program into a joke. Keep in mind that Medicaid’s staggering expense increases have come at a time when nearly two million fewer patients are eligible than were five years ago. Obviously it is medical costs that are the problem. But instead of cracking down on the inflationary habits of the health industry, the Reagan administration has chosen the quick fix of putting a cap on overall spending.
The budget cut can be a powerful weapon, not just to reduce or increase programs, but as a way of fighting to improve them. The failure to do that for Medicaid was duplicated throughout the domestic budget. The threatened elimination of Amtrak and mass transit subsidies provides good examples. These subsidies are wasteful for a particular reason: most of the federal money ends up with the labor unions as fat pay contracts and perks. The Amtrak contracts are such that even after the service cuts next year, $200 million will have to be paid to rail workers whose trains are in storage. We’re getting nothing for something.
If the administration had really wanted to reform transportation, it would have tied federal subsidies to a reduction of featherbedding and to control of the cost of salaries and benefits. City negotiators, who have been almost powerless in their talks with unions, could then accurately claim, “Uncle Sam made me do it.” Similarly, Amtrak could be given both an incentive and the legal power to reduce its labor costs. For example, it is now paying many of its conductors $35,000 a year for working days that consist of a mere 100 miles of travel.
Rethink . . . reformulate . . . Despite all the rhetoric, the Reaganauts still don’t understand that the best way to make genuinely important changes, changes that can both save money and improve a program’s effectiveness, is to rethink the basic concepts that underlie the big-ticket income-maintenance items. This was painfully clear on the issue of Social Security.
Reagan hasn’t even begun to come to grips with the basic structural weakness of the system. The central problem with Social Security is very simple: we can no longer afford to give it to those who don’t need it. Working people, including many poor ones, are helping pay for trips to Europe for wealthy recipients, who get Social Security checks not to make them more financially secure (which they already are) but as a kind of bonus underwritten by the rest of us. Eighty-year-old Representative Claude Pepper, to use an appropriate example, is a millionaire who also receives more than $7,700 in Social Security a year.
But instead of trying to do something about that, Reagan moved to cut benefits across the board—which means the elderly widow living in squalor would have her benefits cut by about the same as Claude Pepper. The second major part of the Reagan plan, ending early retirement, makes more sense: people stay healthier longer now than they did when age 62 was first specified for early retirement, and working as long as possible can be good for your health. But this idea was sprung on people who assumed something different—people who had already made their arrangements, already planned the move to Florida. All of which makes the Reagan plan unfair, not to mention unpopular.
But let’s say you’re 39 or 49 instead of 59. You aren’t making those specific retirement plans yet (or you shouldn’t be), and even if you are, you’ve still got time to adjust—if the government warns you. Here’s where presidential leadership comes in. Reagan’s most important task is to educate the people about demographic realities, explaining that Social Security is a pay-as-you-go transfer payment, not the kind of salt-it-away insurance policy many of them still believe it to be. His responsibility as educator includes acknowledging that the program can no longer afford to pay those who live comfortably without it, and preparing those under 50 for the changes ahead.
Those changes should include eliminating the payroll tax and funding Social Security through the income tax. That should assure not only that Social Security goes to those who most need it, but that it’s paid for by those who can most afford it. Right now, the regressive Social Security tax weighs so heavily on poor and lower middle income people that even if Reagan’s income tax reductions do all they promise, most individuals in these brackets will soon be paying substantially more in total federal taxes (income and Social Security combined). That makes Reagan’s tax-cut plan an even greater charade than it already is. The majority of Americans not only won’t get any relief, they will be shelling out more—thanks to rocketing Social Security taxes.
Another scandal is the generous pensions given federal civil servants for retirement as early as age 55. Some of them are earning more in retirement than they would if they were still working at their jobs. Others, called double dippers, retire from one government job and take another, so they collect both salary and pension.
For all his brave noises about taking on the federal bureaucracy, Reagan has been extremely cautious about taking on the government-employee lobby. Washington has about 361,000 federal employees. The Reagan Revolution, for all its promise, will eliminate only about 4,500 jobs, or a little more than one percent of the local federal work force. One percent. After all the build-up, all the rhetoric about really changing Washington, Reagan’s favorite whipping-boy got off without a scratch. Thousands of bureaucrats will be kept on to administer nonexistent programs, author doomed regulations, and spend money left out of the budget.
The Department of Energy, which as recently as January was slated for total elimination by the Reaganauts, anticipates losing only about 275 out of 8,500 employees in the Washington area. The National Endowment for the Arts, whose budget may be cut by 50 percent, is scheduled to drop no jobs. (The same number of people will administer half as much money—how’s that for productivity.) Ditto the Humanities Endowment. Nor will the majority of other agencies and commissions, most of which have more bureaucrats than they could possibly need. The Environmental Protection Agency, which has less to do since its major pending regulations were frozen, will let virtually no one go. Most significant of all, the 28,583 Washington-area employees of the Department of Health and Human Services are expected to suffer an insignificant number of layoffs.
It is easier to eliminate money than to eliminate the jobs of the bureaucrats who hand it out. One reason is that the civil servants have a powerful lobby. The poor have none. Another reason is that it is much easier to say “cut $50 million” than it is to figure out which 50,000 officials could be cut without impairing the government’s effectiveness. The latter takes real knowledge of the bureaucracy; the former merely requires indifference to the poor.
Hot Rod and High Tech
Mindlessness, you might say, is indivisible. Mindlessly increasing defense spending grows out of the same grooved mentality as mindlessly slashing domestic programs. Still, you have to hand it to the Reaganites: they have taken an approach to public affairs thoroughly discredited by liberals, and given it new life. Throwing money at problems is popular again.
Exactly why the Pentagon was almost totally exempt from budget cuts remains a mystery, but part of the answer might be found in the person of David Stockman. It may be that Stockman, who opted for divinity school at the height of the Vietnam war, feared the New Right would paint him as some kind of macho-lacking peacenik if he even blinked at a defense project. Meanwhile, defense contractors felt they had best hop the gravy train while it rolled past, and thus pressed their advantage early on.
It would be one thing if we were really buying more security with Reagan’s billions; unfortunately we may be buying less. As James Fallows demonstrates in his new book, National Defense, military spending has little to do with military strength. Many weapons cost fantastic sums but don’t work when you throw the switch; they actually detract from security by diverting resources away from useful weapons and encouraging an attacker to probe for weaknesses.
Like hot rodders, generals are obsessed with speed. For the army, that translates into the M1, or Abrams tank, which is powered by a jetfighter engine allowing it to do 60 m.p.h., an impressive clip for a tank. If wars were fought on the interstate highway system, this Chrysler built monster would be devastating. Unfortunately, the M-1 turbine engine doesn’t adjust well to a certain battlefield condition: dust. No matter. With Reagan’s blessing the Pentagon has pushed the $20 billion M-1 program out of the experimental stage.
The air force is plagued by similar speed demons. Modern fighters rand bombers are so expensive, complex, and unreliable mostly because of the exotic metals, control devices, and ultra-hot engines needed to hit Mach 2 (twice the speed of sound). But the Pentagon brass and the budget people who rubber-stamp their wish list ignore the minor detail that Mach 2 is not used in combat. Mach speeds can be used on rare occasion to give chase or flee when outnumbered, but that is almost irrelevant because supersonic flight consumes fuel at such an unbelievable rate. So the pilots don’t even use the feature of the modern bombers and fighters that costs the most money. Of the thousands of hours logged by U.S. warplanes over Vietnam, only a few minutes were at high-supersonic speed. And many of the pilots who traveled at that speed ended up as POWs, because their planes ran out of fuel and crashed.
This is the kind of thinking we’ll get with the return of the B-1 bomber, which Reagan has slated for preliminary funding. The Pentagon proposes to spend about $20 billion to acquire just 100 B-1s. No more than 100 can be afforded, because the plane’s titanium skin, movable wings, and super-reamed engines all features designed to allow supersonic flight—make the B-1 so expensive. If short-range fighters operating close to their bases cannot use Mach speed because it burns too much fuel, how can intercontinental bombers flying thousands of miles over oceans? The proper move would have been to design a new, less complex subsonic bomber smaller than the B 1 and thus harder to detect and shoot down. Instead, Reagan seems willing to spend $20 billion or more for the answer to a question no one asked.
The largest single U.S. military acquisition item in the Reagan budget is the F-18 fighter bomber. The F18 is the Veg-A-Matic of warplanes. It is supposed to replace two navy and three air force planes and perform more functions than anyone can count. Yet many military sources say it’s a step backward from each. It provides less range and power than the F-15 interceptor, less maneuverability than the F-16 fighter, and less firepower than the A-10 attack bomber. Moreover, as airplanes increase in complexity, the start-up costs of production (making thousands of tools and dies and constructing assembly lines) increase dramatically. The F-15, already in production, costs about $15 million a copy; the F-16 about $10 million; the A-10 about $3.5 million. The new F-18 that Reagan wants so badly will cost—ready?—$27 to $30 million. That means that for the price of three effective planes, Reagan will buy one that does no job particularly well.
Uncommon Carriers
The saga of the all-purpose F-18 points up an emerging defensive shortcoming the Reaganites have ignored in their haste for the now-familiar high-tech fix: the numbers problem. This year, the air force contains 7,034 airplanes for use by active and reserve forces. That is less than half of what we had in 1965 and less than a third of what we had in the low-defense budget year 1955. For fighters alone, the situation is particularly bad. In the 1950s, the U.S. built about 3,000 jet fighters a year. Next year—even with Reagan’s increase—we’ll get 230.
The eggs-in-one-basket approach is popular throughout the military but especially in the navy, where the administration plans three new nuclear-powered “wide deck” aircraft carriers at $2.5 billion a shot. Senator William Proxmire estimates that with aircraft wings, escorts, and manpower costs, the total price tag for this generation of “floating target” carriers will reach $30 billion. What concerns even many navy people is that aside from showing the flag off the shores of some helpless Third World nation, carriers can’t do much—particularly against the Soviets. Almost every weapon a carrier contains (the F-14 “fleet defense” fighter, for instance) is designed for, well, the defense of the carrier itself.
The bigger-is-better fallacy is even more dangerous underwater. If Reagan continues to follow Carter’s lead (and he shows no sign of turning back), we will replace our 41 Polaris and Poseidon submarines with ten to 12 Tridents—thus making it 75 percent easier for the Russians to locate and attack our most important strategic system.
Rather than sinking $25 to $30 billion into a dozen or fewer Washington Monument-length Tridents, why not build a large number of conventional subs that could swarm the seas in such numbers the Russians could never hope to locate all of our missiles at once? This is the concept called Shallow Underwater Mobile (SUM). Lots of small submarines carrying two to four missiles as powerful as the proposed MX, and a crew of about 15 sailors. A SUM-type submarine is already available—not from Connecticut but West Germany. Called the HDW-2000, it could be adapted to carry MX-type missiles in launching canisters. It is estimated that we could put 110 SUMs at sea, complete with 575 MX-type missiles, for the same cost as 12 Tridents (and their 288 missiles). So why don’t we settle for half as many-55 SUMs—which would carry the same missile load as the Trident and drive the Russians crazy as they tried to find five times as many submarines.
SUM would be a nice alternative to the Trident. It would also be an alternative to the “racetrack” MX, which, because of mounting opposition, even from Mormons, Reagan may yet put out of its misery.
You might think with all the opposition to MX out in the Reagan West, SUM would be a shoo-in. But never underestimate inter-service rivalry at the Pentagon, where the air force is far more worried about the navy than the Russians (and vice versa). The air force is determined to keep its next big ticket project away from its rival branch. Instead of moving to put a lid on such rivalries (which even high-ranking officers freely confess in private, and freely admit to be against the national interest), Reagan and Defense Secretary Caspar Weinberger recently moved to intensify them. They decided to make the Rapid Deployment Force an independent command, adding a fifth service branch to the Pentagon. It seems all four branches were squabbling over who would get the RDF glory. Instead of addressing the underlying problem, the administration took the easy way out by elevating RDF yet another example of its desire for a simple, mindless quick-fix at the expense of really improving the country’s management.
It’s still a little early to tell, but so far the administration hasn’t stressed better organization in other ways either. According to outgoing GAO administrator Elmer Staats, who issued a list of 15 examples of gross Pentagon waste before retiring, merely preventing each service from having its own aircraft depot could save $2.5 billion.
Aside from savings, changes of that kind might do something about the sad state of our supply and maintenance programs. Take the U.S. air force at Bitburg, West Germany—the front line of NATO’s defense. A Wall Street Journal reporter visiting Bitburg recently found that only 60 percent of its crack F15 interceptors were capable of getting into the air. Lack of spare parts—and the difficulty of installing those parts that did arrive—was the problem. (One fighter was grounded awaiting a single screw.) Reagan’s budget will make these problems even worse by adding all sorts of fancy new weapons that will spend more time in the shop than on the field.
By now your head should be spinning with billions, but we haven’t even looked at where the real Pentagon money goes: manpower. Almost 60 percent of the defense budget is spent on paychecks. Reagan surely won’t get rid of any Pentagon civilians (although some could use it), and we all know the size of the armed forces will increase, so how can the administration save money on personnel costs?
The answer is to get rid of the all-volunteer force, which has added tens of billions to defense manpower costs since 1973. The all-volunteer force damages the fabric of society by placing the responsibility for military service on the poor— what we call the “Let Them Hillbillies Go Get Shot” Factor. [For an in-depth discussion of The Washington Monthly‘s reasons for favoring the draft, see “Draft the Rich,” April 1980.] And the all-volunteer force also damages the military—by forcing it to devote money resources to attracting new recruits, rather than keeping skilled career soldiers.
Reagan’s proposals will exacerbate pay problems rather than ease them. Under his plan, the U.S. will spend $50 billion in the next five years for pay raises across the board, starting this month with a 5.3 percent pay raise for everybody in the military. In the same way that the administration has not targeted Social Security cuts to those who can best absorb them, it has not targeted military pay hikes to those who most deserve them—the skilled career people the military needs to keep. Instead, new recruits will get just as much of the new money. Right now, for instance, the army wants a $10,000 bonus for teenagers who go into the infantry, and the air force and navy want $15,000 bonuses for engineering students fresh out of college.
The new lures for recruits will come at a time when enlistment is up; the armed forces met “101 percent of their objectives” in the first six months of the fiscal year. But even when the demographics eventually force enlistment back down again, the military should not squander its money on expensive recruitment and pay and benefit incentives. If we viewed a hitch in the army as a service rather than a job—something everyone, rich or poor, had to do if drafted—then the military wouldn’t have to worry about “comparability with the private sector” (an impossible goal anyway), and the government could pay recruits what it could afford. Those who have both talent and the desire to reenlist would get the bulk of the pay raises. At the same time, salaries at the top of the scale could be cut considerably. This year, 16,000 colonels and generals will receive salary increases that will give them more take-home pay than Caspar Weinberger makes. Good targeting is as important for pay as it is for weapons.
Genuflection Projection
All of the budget numbers contained here—and all the others flying around Washington—are speculative. They are based on predicting inflation; in Reagan’s case, optimistically predicting it. If Reagan is wrong, these figures are wrong and the whole budget mess means less than we thought.
On the domestic side, Reagan is even more optimistic than Carter last year (when he had an election and thus a need to sound upbeat). The budget is based on the assumption that interest rates will be ten percent by October, the beginning of the fiscal year. That might not seem relevant, but don’t forget the fantastic amounts of money the government borrows. Every point difference in interest rates amounts to about $2.5 billion in spending.
Danger signs on the defense side aren’t as clear. But they’re flashing. Before being shackled to the official Reagan assumptions by the passage of the May budget resolution, the Congressional Budget Office estimated that defense increases through 1986 will cost $136 billion more than the $1.5 trillion increase Reagan already wants. Part of the likely defense inflation will stem from the legendary cost overruns that plague nearly all hi-tech weapons. But part will stem from pure supply-side economics. Reagan is increasing demand for defense items much faster than productive capacity can increase, and when demand runs ahead of supply, the result is always inflation. “Too much money chasing too few goods,” as you may have heard a Republican or two say. Or, as in the budget “revolution” as a whole—too much Reagan chasing too few ideas.
