The Price of Budgetary Uncertainty, Part 3: The Strategic Pain
The Price of Budgetary Uncertainty, Part 3: The Strategic Pain
The tension between American governance and strategic interests.
International relations would be a lot easier if it were like Risk, where you could just consult the rulebook to understand the structure of the game that’s being played by the actors. But, in the real world, we both do not know the “rules,” and we are stuck trying to figure out how to best play the game without that knowledge.
Political scientist-turned-Youtuber William Spaniel said this in his recent video lecture on the big foreign aid bill passed last month. The focal point (and bulk of the funding) in the bill was Ukraine, an issue on which Congress was held up for several months. During that time, Russian forces have made steady advances, with the Ukrainians running out of ammunition. Considering the US’ stated aims in the war involve helping Ukraine win, this seems irrational in the abstract.
Sure, it’s a supplemental discretionary spending bill, not technically part of annual appropriations. It ended up getting bundled in with Taiwan and Israel (and Gaza), and border security aid and the TikTok affair, to appease everyone. That’s sort of the point, though. In a rational fiscal regime, all of this would have been sorted with the 2023 budget, but of course that itself took relative eons to pass. The political machinations behind the foreign aid bill are sort of a microcosm of those that underlie our general federal budget process - months of delay, and then a big fat omnibus that must get a thumbs-up/down.
Much of the reason anything gets done in Congress, especially on foreign policy, is due to sheer political will. If the blocs are sufficiently motivated, they can jury-rig existing procedures to push all sorts of things through. It just so happens that there exists a pretty broad consensus on general foreign policy objectives, at least as Russia and China are concerned. Further, the agencies - especially DoD - are highly motivated to get moving as soon as they have the authority. Things could, theoretically, be much worse.
There is still an unavoidable tension between our budget process and foreign policy - kind of the reason why the latter is constitutionally put in the hands of the executive branch. But, of course, the power of the purse lies with the legislative. The tension revolves around the fact that the international realm is inherently anarchic, often based on good ol’ vibes. The domestic budget process, however, is extremely bureaucratic and procedural. Therefore, there is a disconnect between the ability for Congress to appropriate timely funds and the executive agencies to, y’know, execute those funds. In IR, timing and flexibility are huge.
Another piece that got me thinking was from Daniel Baier in Foreign Policy magazine. Writing in fall of 2023, he said:
A more basic requirement [of being a sophisticated strategic actor] is to conserve political capital and spend it wisely—above all, by avoiding unforced errors that diminish U.S. power with no benefit for Americans. The escalating budget fight and looming shutdown in Washington is one such unforced error. … When legislators play unnecessary political theater, they and the White House are distracted from pressing national and international issues that don't wait for the show to be over.
At the US’ geopolitical zenith 20 years ago, perhaps we could have afforded this circus. When you have no challengers, it’s easy to goof around. However, American power is in relative decline. We do have serious challengers now. Things are kind of starting to blow up. Allied governments count on our ability have our act together. Even if they don’t, there’s still a risk premium that comes with hedging bets, dealing with aid uncertainty in already-uncertain conflict scenarios. Much like with federal contractors, there exists a deadweight loss in both real economic terms and unquantifiable diplomatic ones that comes from Congressional dysfunction. There isn’t a lot of runway anymore to accommodate that “political theater.”
This is a long post, if you couldn’t tell.
How is it all actually causing a strategic problem? There are a few obvious elements directly tied to the shambling budget process. Ironically, they start with another budget, except this one is internal to an executive agency.
Given that the international arena is anarchic, coercive power matters. There’s the meme that “Russia’s gonna find out why Americans don’t have universal healthcare.” As usual, it does cut to a truth: US influence is in large part based on its incomparable ability to throw money at things that go boom. The nexus of that ability is the cohort of paper-pushers in the Pentagon - the alchemists that transmute dollars into heavy metal.
Last post spoke of the PPBE process that Robert McNamara set up for the Pentagon in the ‘60s. I focused on its relationship to the Congressional budget process, but a deeper look at PPBE is important in its own right, and striking in its parallels to Congress’ problems.
PPBE is based on what was then state-of-the-art in the private sector, a far cry from what exists now. It’s slow, rigid, overcentralized, risk-averse, and prone to inertia. As international security competition and technological change heat up, this lack of efficiency and agility has become glaring.
The mid-20th century was the heyday of standardization and mass production, especially in a United States that was dominant in the wake of a destroyed Europe and Asia. A top-down, pre-planned allocation framework was optimal for heavy industry, and it made sense to adapt it to Pentagon operations, especially considering the heated inter-service rivalry that resulted in entirely siloed budgetmaking across each military branch. So, McNamara centralized the whole thing.
Not a bad idea at the time. Yet, “state-of-the-art” is an inherently dynamic concept. Circumstances change. In a piece for AEI, William Greenwalt wrote:
Once the rest of the world reindustrialized and US industry faced renewed international competition, the inadequacies of Byzantine processes become evident. … As the US auto and other industries teetered on bankruptcy in the 1970s, those companies that survived were forced to ditch their centralized planning concepts and pivot to processes focused on agility, speed, productivity, greater risk taking and innovation.
The same should have occurred in the Pentagon after its defeat in Vietnam but the opposite happened. DoD and Congress doubled down on Soviet-style central planning.
These days, agility and subsidiarity are key. Returning to (the excellent) War on the Rocks, defense scholars Thomas Spoehr and Frederico Bartels write:
The approach works just fine for a mid-century automotive factory producing a narrow number of car models with limited color choices. However, in defense matters, predictability and consistency were barely a thing in the past, let alone in the contemporary world.
There is a rigid and sequential timeline, so changes or uncertainties that exist in the first phase will carry over into subsequent phases, bringing significant inefficiencies with them. Everything has to be linear, predictable, scrutinized, and safe. The ethos of independent-minded corporate divisions, like Skunk Works in the Cold War, is lacking. In our era, capability requirements may change on a year-by-year basis. But instead:
A recent Hudson Institute study found that following the regular acquisition process can take between nine and 26 years for a needed capability to progress from an identified capability gap into an actual capability at the hands of the warfighter. The initial four to six years are directly attributed to the rigidity of the requirement and resourcing systems. … Any technology that is 10 years old is simply obsolete.
A full budget cycle takes something like 3 years to complete, and must follow a specific sequence of planning, programming, budgeting, and (once Congress appropriates funds), execution. This happens every year, and must project at least several years into the future. So, there’s a large gap between planning and execution, which also biases the Pentagon towards upgrading legacy systems instead of adopting new ones. Inertia, inertia, inertia.
Similarly, once funds are allocated, they can’t be easily reassigned in response to new developments (i.e. “agility”). Spoehr and Bartels say:
Moving funds from one appropriated account to another often consumes between three and six months of a 12-month fiscal year.
Budgets are the lynchpin to any effective policy. Circling back to Greenwalt’s piece:
Plain and simple, the budget is de facto policy. Detailed policy papers, strategies, speeches, well-meaning executive orders and laws are all meaningless without resources to back them up.
In fact, he even declares that:
Our current budget process is the primary factor behind the decline in US defense productivity and innovation.
Of course, this idea is generally applicable to much of this blog’s content. You can’t just declare a policy and, especially in the American federal government, expect it to happen in the real world. Money and resources must move.
Much is made of how much more the US spends on defense than its adversaries in dollar terms. That doesn’t necessarily mean a whole lot (shout out to Perun), because what matters is how much you can buy, and how you execute that spending authority. Other countries have an advantage in purchasing power, at least in terms of building up basic operational capabilities - think of how much easier/cheaper it is for China to build naval vessels. Further, as RAND has outlined, autocratic countries tend to have increased efficiency in executing defense funds, even if efficiency is lacking in other areas. Despite China and Russia’s creeping economic dysfunction, they are (at least dollar-for-dollar) more able to turn money into weapons.
The so-called “Valley of Death” is a good illustration of how the conjunction of the Congressional and Pentagon budget processes wastes large amounts of money and time. Eric Lofgren, Jerry McGinn and Lloyd Everhart published a paper with GMU’s Center for Government Contracting examining this concept.
For the purposes of this paper, the term “valley of death” will focus cycle time between evidence of a desirable effort and allocation of funds to a program of record. [original emphasis]
More recently, the 2021 Department of Defense Prototyping Handbook offered a similar discussion and said of the valley of death, it is “the gap between technology development and production where promising technologies often ‘die’ due to inappropriate or insufficient funding.”
The term originated in the private sector, especially in R&D-heavy industries. For them, it revolved around the gap between capital injection and revenue realization in new projects. For the defense sector, it also involves regulatory, bureaucratic, and procedural hurdles. Also, international military competition is just as cutthroat and dynamic as the business world. So, the DoD’s Valley ends up being much deeper. It is worth emphasizing that:
Commercial companies build, deploy, and fundraise within the multi-year cycle time of DoD resource allocation.
Sometimes, a project’s outcomes may be highly desirable, but there ends up being a lapse in funding or other authorization that deals a killing blow. The authors explain:
If stakeholders agree that they would be willing to seed the next stage by pulling from another effort, but could not move resources in a timely way toward that end, there is a likely case of the valley of death.
Flexibility in funding that has been already allocated is another problem:
Through the 1960s, defense officials enjoyed execution flexibility that would make their modern counterparts’ eyes water. Funds could be characterized as lump-sum, no-year, and reprogrammable.
Very different from today. Part of this is Congress’ demands for oversight, put part of it is the (DoD + Hill) outdated processes. Not only are the Pentagon’s budgetary difficulties analogous to the familiar ones in Congress’ procedure, but the latter must generally precede the former, further aggravating the problem.
The authors illustrate the idea with a symbolic “conversation” between the Pentagon and the Hill:
Pentagon: We want to prototype and create options, but are not willing to prematurely commit to production on any single idea. We need to be agile, continuously learn from operational experimentation, and move at relevant cycle times. We need to do business like to commercial tech sector.
Hill: We’ve given you all necessary authorities in the past, and we don’t get an understanding of how these funds are used. We have no evidence these things are working.
There is an inevitable impasse between execution flexibility and Congressional oversight. A balance must be struck, but that is very difficult when both budget processes are defective.
For more on the Congress-DoD dynamic, refer to my previous post.
As mentioned, coercive power is a key tool of international statecraft. That’s why I spent so long talking about the Pentagon’s budgeting. The governments of Russia and China are not privy to Washington’s insider information, and vice versa. The ability to destroy things is a powerful signal - foreign policy is all about signaling.
Carrying a big stick is not the only signal we can send. There remains the part about speaking softly. Budget dysfunction in Congress also impacts the State Department, among other organs of US influence abroad. Returning to the Ukraine bill I mentioned at the beginning, it just so happens that Russia has begun a new offensive, directed towards Kharkiv. Undoubtedly, this is a fixing operation - a diversion intended to spread Kyiv’s forces thin, allowing Russia to redouble its efforts in the Donetsk region. In other words, they are taking advantage of the gap between the US aid bill being passed and actual equipment arriving to Ukrainian units. Indeed, they have been on the general offensive the entire time the bill has languished in limbo. If it had been passed months earlier, this outcome probably would have been avoided. Perhaps effectively an instance of small stick, loud speech.
That’s an extreme example of the foreign policy costs incurred by our budget process. Other countries - Taiwan jumps to mind - are in less dire straits, but nonetheless must base good chunk of their own strategic planning around the disarray on Capitol Hill every fiscal year. Rather absurd, on the face of it. In fact, Emmanuel Macron is evidently committed to a homegrown European capability for self-defense, partially based on American unreliability. Regardless of a given administration or Congress’ policies, the ability to effectively fund and execute them is crucial to allies’ own ability to properly strategize.
America is very good for throwing money at things. It’s perhaps our specialty, for better or worse. Maintaining good relations with the US means a flow of dollars, and fewer things to worry about for foreign governments. The flow, however, is not so steady.
Budgets being up in the air harms foreign-affairs agencies in ways similar to those examined in Part I. They are required to waste time, money and human resources on preparing for multiple possible funding scenarios, and scramble to compensate when the unexpected happens. Existing issues are compounded in their severity. Agencies even have to waste energy on explaining various scenarios to partner countries. The authors of the Brookings piece above describe it as “interpreting the tea leaves.” Further, as they put it:
Waiting six to nine months for a year’s funding to be enacted and allocated means missions are planning, planning, planning, then suddenly face the challenge of completing a year’s work in three to six months
According to a CRS report, comprehensive foreign relations reauthorization has not been passed since FY 2003. Instead it becomes piecemeal, and Congress has almost always just waived statutory requirements in the appropriations measures to grease the wheels. Again, political will can overcome procedural hurdles, but is forever unreliable as a solution.
Even beyond foreign aid appropriations or DoD spending, the annual circus surrounding the budget harms our international standing. Recall the Greenwalt quote: budget is de facto policy. Baer mentioned the “tools of hegemony” and “unforced errors.” Take this idea and run with it - how do we formulate rational and efficacious foreign policy if the funding for needed actions doesn’t come through on time, or in the wrong amounts? Moreover, all of the fiscal, administrative and domestic economic consequences of the existing process (well-covered in previous posts) hurt us in material terms. When conducting strategic calculus, other governments take into account where we may fall short, and how that diminishes our overall position. Sure, if China were to attack Taiwan in the midst of a shutdown, political will would probably provide some sort of workaround to get aid moving. What if it’s not enough? That would be an unforced error, squarely due to procedural hangups.
Beyond the concrete harms, think of the signals and vibes sent by Congressional chaos. Again, foreign governments are not privy to all of the goings-on in the federal government. Even where they are, they have limited capacity to fully analyze just one country - everyone has other things to worry about. A lot of the time, they may base grand strategy on their impression of American reliability. Everyone, allies, neutrals and adversaries, is watching how things are going. Especially in autocratic regimes, big decisions may happen if the US doesn’t pass the vibe-check. Indeed, it could be argued that Vladimir Putin ultimately based his decision to invade Ukraine on the general sense that the West is disjointed, dysfunctional and in decline. He certainly factored in hard intelligence and data too, but it was a gamble, and the decision to roll the dice comes down to one’s gut. Our fiscal procedures are part of what gives foreign dictators a gut feeling that they can make some bold moves.
Baer states it like this:
If the Chinese Communist Party is convinced that the United States has entered an era of inexorable decadence and decline, the budget circus is evidence that corroborates its hypothesis.
Everything, everywhere, is dynamic, especially in international relations. Managing this reality requires the ability to stick to a consistent, rational and timely foreign policy - a requirement that is yet beyond our reach.
A glaring omission from my discussion here has been the mounting federal debt, coupled with higher interest rates. That’s way beyond the scope of this post. So, it will be the topic of Part IV. That said, it is worth noting that from a strategic perspective, unsustainable debt carries with it - and makes worse - every single disadvantage mentioned above, and then some.
Yes, we are good at tossing money around. That’s partially due to the size of our economy, but also the special role that the US plays in international finance. The US dollar remains - for now - the global reserve currency. Our financial sector is second to none in depth and breadth. However, a heavy hunk of that power rests on what the federal government does. The Fed’s actions are obviously important here too, but I’m more concerned about the fiscal. The credibility of US financial institutions (especially the government) is critical to maintaining our sway abroad. In fact, surveyed CEOs rank the debt as their #1 geopolitical worry, according to The Conference Board. If we plunge too deep into the red, for too long, the dam may break. Then, no amount of aid or weapons will save our strategic position. It’s a shadow looming over every single activity the federal government undertakes.
That’s the broader context in which the yearly squabbles in Congress occur. There are several factors contributing to the US’ relative decline as a global hegemon, but the budget process unfortunately punches above its weight among them.