Borrow Now, Pay Later

In "How US is Deferring War Costs", the Christian Science Monitor reports that

as war spending on Iraq and Afghanistan nears the levels for Vietnam and Korea, concern is rising over the 'borrow now, pay later' approach.

Historically, this has not been the norm.

To pay for World War II, Americans bought savings bonds and put extra notches in their belts. President Harry Truman raised taxes and cut nonmilitary spending to pay for the Korean conflict. During Vietnam, the US raised taxes but still watched deficits soar.

But to pay for the ongoing wars in Iraq and Afghanistan, the US has used its credit card, counting on the Chinese and other foreign buyers of its debt to pay the bills.

Now, as President Bush is promising to boost the number of troops in Iraq, there is increased scrutiny over how the US is going to pay for it all.

Although the article focuses on the costs of the war in Iraq, it also shines a light on what is wrong with the way our federal government "manages" its finances. Among the concerns:

Inadequate Planning

After nearly four years of fighting, reporter Ron Scherer writes,

Congress hopes to hold hearings on the financial implications of the war before the president releases his budget proposal for fiscal year 2008 on Feb. 5. Democrats, now in the majority, plan to ask a wide range of questions, from the future costs of the war to how those costs should be budgeted.

And even then, key issues will probably remain unresolved.

"We won't balance the budget in one year. The best we can expect is five years," says Rep. John Spratt (D) of South Carolina, the new chairman of the House Budget Committee, in a phone interview. "But we need to know: What is the bar we need to reach?"

Lack of information

Those who should, in theory, know best seem guilty of delusion, obfuscation, or deception.

Numbers are fuzzy on how much has been spent so far on the global war on terror. According to the House Appropriations Committee, some $471 billion has been committed so far. Spratt says it's closer to $507 billion. By the end of this year, on a cash basis, the wars in Iraq and Afghanistan will be closing in on the costs of the Vietnam War ($650 billion in today's dollars) and the Korean War ($691 billion).

Some analysts believe the cost of the war is much higher than Congress estimates. In a study last January and updated in October, Harvard Prof. Linda Bilmes and Columbia Prof. Joseph Stiglitz estimated the budgetary and economic cost of the war at $2 trillion.

Accounting chicanery

If a publicy-listed company tried to implement and manage costly projects on a pay-as-you-go basis or otherwise relied on a batch of unrealistic assessments in planning for the future, it would likely trigger an unwelcome response from shareholders, lenders, tax collectors, and others. So far, at least, Washington has had little to fear in that regard.

Ms. Bilmes, in a phone interview, says Congress looks only at its cash outlays, not at the war's future costs. For example, she says, an estimated 42,000 light trucks are in use in Iraq. Although it costs something to run them, the major cost will be replacing them. "That's not factored into the cost of the war," she says.

The same is true of the cost of taking care of injured veterans in the future. "After our study came out, what surprised us is that the VFW, the Vietnam Vets, and others said, 'Thanks for shining the spotlight on this issue, but your numbers are too low,' " Bilmes says. After working with the vets, she concluded that the future costs of caring for the wounded were much higher than she had estimated.

Poor oversight

Philosophers have often pondered the question: if a tree falls in the forest and there is nobody around, does it make a sound? It seems that many in Congress might paraphrase the question like so: if spending is treated as off-budget, does it really count?

Estimating the budget deficit has become more difficult in recent years because the White House has funded much of the war through emergency supplemental bills, which are not included in the federal budget. According to a Congressional Research Service report, it is a practice that other administrations have employed since the Korean War. This year, the White House is expected to ask for another $100 billion in supplemental war funds, but Representative Spratt says he would like to get the war back on the budget since it can be argued the war is no longer an emergency.

"Calling it an emergency means the spending does not get the scrutiny," he adds, because then the spending is reviewed by only one committee – House Appropriations. In addition, he says, emergency spending is exempt from caps on discretionary spending. This has prompted the military to include in the bill items that are not directly related to the war. Making the spending a part of the budget would end the practice of some members placing pet projects on a bill that must be passed, he says.

Sun Tzu once remarked that "all warfare is based on deception." No doubt the same might be said in regard to U.S. government finances.

Comments

[Ken Larson]

USA Today reported on 16 January 2007 in its Washington Section that the CIA plans to utilize more open sources and blogs in its intelligence work and outsource more of its intelligence software development to commercial contractors in an attempt to re-establish itself as the premiere world intelligence agency.

The "Strategic Intent" is posted on the CIA public web site. Defense Industry Daily further reports that General Electric is gobbling up Smith's Industries for $4.8B.

http://www.defenseindustrydaily.com/2007/01/ge-buys-smiths-aerospace-for-48b/index.php

I am a 2 tour Vietnam Veteran who recently retired after 36 years of working in the Defense Industrial Complex on many of the weapons systems being used by our forces as we speak. Let's look at this for a moment and do our patriotic duty by reading along with the CIA (after all, they have announced they are reading this blog)

1. The new CIA approach comes exactly at the formation of the agency’s new "External Advisory Board", which consists of the following:

* A former Pentagon Chairman of the Joints Chief who is now a Northrop Grumman Corporation Board Member

* A deposed Chairman of the Board of Hewlett Packard Corporation (HP)

* A Former Deputy Secretary of Defense who now heads up a Washington think tank with Henry Kissinger

2. Northrop Grumman Corporation and Hewlett Packard are two huge government contractors in the Pentagon and CIA custom software development arena. Their combined contracts with the government just for IT are in the multiples of millions. I wonder what the advisory board is filling the CIA's ear with?

3. Washington "Think Tanks" are fronts for big time lobbies, sophisticated in their operations, claiming non-partisanship, but tremendously influential on K Street. If a lobby cannot buy its way in, why not sit on the advisory board?

4. GE already has the military aircraft jet engine market. In buying Smith's, it takes one more major defense corporation out of the opposition and further reduces the government's leverage through competition. GE now joins the other monoliths such as Lockheed Martin, Boeing, General Dynamics, Northrop Grumman and Raytheon with tremendous leverage in the $500B +++ per year defense market.

5. Note the synergy that now exists between the Pentagon and the CIA. Note the influence by the major corporations.

6. Also note the balance in your bank account and your aspirations for the generations of the future. Both are going down.

7. The huge Military Industrial Complex (MIC) continues to march. Taxes and national debt will be forced to march straight up the wall to support it. Do you have any "Intelligence” to offer the Pentagon, the CIA and the MIC? For further inspiration please see:

http://www.rosecoveredglasses.blogspot.com