Pentagon in Congress: Inflation…. what inflation?
With rising food prices to gasoline, Congress has asked the Pentagon to step in and say how inflation will affect its $773 billion budget request. But the Hill did not get the answers it expected. Below, AEI researchers John Ferrari and Mackenzie Eaglen say it was a missed opportunity on the part of department leaders.
Congress worries about inflation – for its constituents, the nation’s finances and the military. But Hill’s plea for more information from the Department of Defense (DoD) to help mitigate negative impacts on the armed forces brought little new. The Pentagon’s response echoed Jerry Maguire’s classic “help me…help yourself” scene: Congress is desperate to help the department, and so the Pentagon would be expected to take advantage.
It just doesn’t seem to be happening. In fact, the 12-page memorandum from defense leaders in response to Congress essentially says five things:
- No inflationary adjustments have been made to the budget since November
- The Pentagon does not track the effect of inflation in budget execution
- Leaders aren’t updating forecasts even though six months of new data emerges
- No financial assistance is needed from Congress at this time; and
- No one in the department is seeking a higher salary increase for the military because of inflation.
Despite spending nearly half of all federal discretionary funds each year, the Pentagon admits that its staff does not collect actual inflation-related data when congressional funds are run. Instead, the DoD simply monitors overall spending levels, disregarding the cost of production.
Worse still, given the unabated sustained spike in inflation in sight, the Pentagon has no intention of hiring outside entities to study the effects of inflation. It’s like being the proverbial frog in the pot of boiling water: the Pentagon will never know what the actual temperature is until they’re boiled alive, from a budget standpoint.
Even though the Pentagon’s response to Congress is now six months old when it locked in its budget, department heads failed to take this opportunity to provide an update on the accuracy of its forecast and, if not is not the case, on the relevance of these forecasts for Congress. to estimate the magnitude of the problem. Without realistic estimates of actual impact, how can targeted assistance help?
Yet there is no doubt that there is a very real inflation problem. The Department of Defense prefers to use the chain price index of gross domestic product (GDP-GDP), which it estimates at 3.9%. But this price index has risen dramatically over the past fiscal year, with the most recent estimates hitting 8.0%. If there is any evidence of the remoteness from the administration’s 3.9% estimate, it is that the GDP-PI index has not been below 4.3% since 2020.
RELATED: How the Pentagon’s Inflation Miscalculations Made a Budget Hollow
Moreover, this particular index still anticipates a gradual relief from today’s pressure over the next fiscal year – a rosy outlook that few Americans expect. The GDP-PI benchmark is also generously low compared to “detailed” inflation rates for things like groceries, rent, and utilities like water and electricity.
Given these disturbing facts, Congress asked what help the military might need. Defense leaders responded in the memo’s most recent response that the “Department has not identified any additional authorization required…to address the current spike in inflation.” It defies logic, nearly eight months into the fiscal year, with next year’s defense bill hikes about to begin, why Pentagon leaders failed to take advantage of this opportunity.
Here’s the reality for department heads: Congress will almost certainly move to increase the Pentagon’s budget with inflation in mind, and if you don’t tell them where the money needs to go, it might not go in the things you actually want.
This is particularly glaring when Undersecretary of Defense Kathleen Hicks said recently that the impacts of current inflation for this fiscal year must be addressed by Congress this summer. This is a de facto admission of error in previous inflation assumptions. There’s no reason to think the outlook has improved, and the memo should have reflected that widespread knowledge. One-time assignments are indeed important, as Hicks called for, and Congress absolutely must act on them. But the hope of relying on additional spending bills next year to fill gaps in inflation assumptions, as Hicks said, is the department’s default solution to combat the inflation, is not the wisest course of action.
Instead, leaders should first admit that the Pentagon’s forecasts are grossly wrong. It’s hard to ask for help without admitting that the estimates were wrong. Then, at a minimum, the Pentagon should request additional reprogramming authority for FY22 and FY23 that will allow the services to help themselves accordingly.
Next, the Pentagon should request a two-year inflation transfer fund to help mitigate some of the impact of inflation, as it occurs in both FY22 and FY22. 23, for supply, military construction, and operations and maintenance accounts. To help Congress make decisions, the Pentagon should provide detailed charts of what a 4% inflation miscalculation (read: deficit) would mean for specific accounts in the future, which is different from back tables they provided to Congress in their response.
One area where Congress seems certain to act is that of personnel. In the memo to Congress, defense officials are pleased with the requested 4.6% wage increase, which they say is consistent with what the law requires to keep wages competitive with the private sector.
It is no secret that the military services have enormous difficulty in recruiting. While the DoD assumes the salary increase is competitive, the actual result seen is that they fail in their recruiting mission, forcing the services to pay much larger bonuses instead. More importantly, the Pentagon’s response fails to explain the impact on the troops of pay increases below actual inflation, failing to acknowledge that they are taking a real pay cut. Leaders effectively fail to defend service members or their families.
Since the Pentagon’s response landed on Capitol Hill, another round of inflation data has been released. Consumer Price Index (CPI) inflation remains near its highest level in 40 years at 8.3% – the same benchmark that service members and their families are experiencing for meeting day-to-day needs. Moreover, the Producer Price Index (PPI) for inflation remains above 11%. The Pentagon’s favorite index is now also near a 40-year high.
In sum, there are no inflationary trend lines pointing in the right direction to assuage Congressional concerns about the US military. The Pentagon’s statement that “today’s data gives us only a limited glimpse of what will happen in fiscal year 2023” is simply not true.
All inflation lights flash red.
Defense officials must provide Congress with a roadmap on how to ensure the readiness and well-being of our armed forces. If nothing is done, recruitment will continue to slump and troops will vote with their feet and leave the service. Congress begs the Pentagon to accept its offer of help. Defense leaders must say yes.
Major General John Ferrari, U.S. Army (Retired), is a Visiting Fellow at the American Enterprise Institute (AEI) and is the former Director of Program Analysis and Evaluation for the U.S. Army . Mackenzie Eaglen is a defense expert at the American Enterprise Institute (AEI) and a member of the Breaking Defense Board of Contributors.