The longer-term security environment has yielded asharp reduction in the perceived need for U.S.conventional forces, includinglarge poolsof manpowerand munitionsstockpiles and heavy air, land,and sea forcestructures.
In this second decade of the 21st century,two obvious realities characterize the prospec-tive international security environment facingthe United States. First, the Obama adminis-tration has implemented a significant reduc-tion of U.S. military operations in the MiddleEast and southwestern Asia, and a reversalof that dynamic is not likely. Obviously, new contingencies are possible given the natureof the evolving security environment in theMiddle East and southwestern Asia writ large,and future U.S. military deployments in thoseregions cannot be assumed away. But U.S.operations in Iraq have ended, and they arediminishing in the Afghan theatre. The do-mestic political effects of those wars make re-newed ground operations in the Middle Easthighly unlikely.Second, in the context of the longer-termsecurity environment, the collapse of the So- viet Union and the attendant conventionalthreat in Europe has yielded a sharp reduc-tion in the perceived need for U.S. conven-tional forces, including large pools of man-power and munitions stockpiles and heavy air, land, and sea force structures.
The endof the Soviet threat allowed a decline inU.S. active-duty manpower worldwide fromabout 2.1 million in 1990 to about 1.5 mil-lion in 1995 and about 1.4 million in 2000and thereafter, which then increased againafter 2001 to prosecute the wars in Iraq and Afghanistan.
The Obama administrationhas announced its intent to reduce active-duty Army and Marine Corps manpowerlevels over the next five years by 92,000, orabout 12 percent: for the Army from 562,000to 490,000 and for the Marine Corps from202,000 to 182,000, but both forces will re-main above their 2002 levels.
In addition, current plans envision a U.S.military posture characterized by a continu-ing shift toward operations requiring smallerforces and a reduction (or a reduced growthrate) in defense outlays.
This might yield a continuation of the downsizing of the forcestructure that began in the 1990s but was halt-ed or reversed after 2001.
In short, the chang-ing long-term threat environment facing theUnited States, at least arguably, will yield anoptimal force structure smaller than that cur-rently supported.The discussion above suggests that thedemand for defense services as reflected incollective decisionmaking (a concept definedmore fully below) may be declining. This isillustrated by the intensification of the pub-lic debate over the future of the defensebudget, notwithstanding the reductions inthe U.S. force structure that have been im-plemented since 1990. This paper does notoffer an evaluation of the “correct” magni-tude of U.S. defense outlays over the next 10fiscal years, nor of the proper allocation of such outlays (or the allocation of reductionsin spending) across the many dimensions of the defense budget. Instead, the focus hereis on the aggregate economic effects of re-ductions in defense outlays assumed to beimplemented. Accordingly, for purposes of analysis we take as given a reduction of $1trillion over the next 10 years, roughly con-sistent with the work by Benjamin H. Fried-man and Christopher Preble, and other re-cent studies.
Table 1 presents data on recent and pro- jected new defense budget authority as re-quested in the Obama administration’s FY 2013 budget. An annual average reductionin defense outlays of about $100 billionwould have been about 17.9 percent of to-tal defense spending (new budget authority)for fiscal year 2011; the respective figures forfiscal years 2012 through 2017, as estimat-ed by the Office of Management and Bud-get in the FY 2013 budget, range from 17.8to 18.5 percent.
For the 10-year period FY 2013–2021, the Budget Control Act (BCA)imposes, ostensibly, a spending (budgetauthority) reduction of $487 billion. Note,however, that this purported cut reflects theBCA spending limit relative to the FY 2012budget proposal, which is not the same as anactual prior amount of spending (or budgetauthority).
The FY 2013 budget proposal of the Obama administration comprises a mix