This is how major US defense contractors reacted to the unveiling of President Barack Obama’s fiscal year 2011 spending plan for the Pentagon, part of the president’s overall $3.8 trillion budget proposal.
Shares of General Dynamics, a maker of military aircraft, submarines and munitions, rose 3.9 percent and closed at $69.43 in trading on the New York Stock Exchange, the uptick due in large part to additional spending on the war in Afghanistan, according to Sanford Bernstein, a financial research firm.
Northrop Grumman Corp., which builds unmanned spy planes and ships, rose 2.3 percent to close at $57.92. Boeing Co., a manufacturer of aircraft carriers, shares increased by 1.8 and closed at $61.70. Lockheed Martin’s shares rose 37 cents to close at $74.89. Raytheon Co., a missile supplier, was up by a percentage point to close at $52.96, while shares of L-3 Communications Holdings, a firm that supplies intelligence gathering and monitoring equipment, was up 1.6 percent to close at $84.64. And shares of Harris Corp soared 4.2 percent to close at $44.74. Harris manufactures tactical radios utilizes encryption technology.
All in all, it was a good day for the military-industrial complex.
Indeed, Craig Fraser, an aerospace and defense analyst with debt ratings firm Fitch Ratings, said the Defense Department’s record $708 billion base budget, up $18.2 billion or 3.4 percent, was “better than we expected, across the board.” The spending covers the fiscal year which begins October 1, and runs through September 30, 2011. Adjusted for inflation, the defense budget is the largest since World War II.
The budget was released along with the Pentagon’s Quadrennial Defense Review (QDR), which for the first time in years has done away with the concept that the US must be prepared to wage two wars at once. The QDR says the US must be prepared for broader security challenges, which includes investing in technologies to battle threats from al-Qaeda.
About $159 billion will be used to continue funding the wars in Iraq and Afghanistan identified in the budget as “overseas contingency operations.” The wars have already topped $1 trillion.
Separately, the Obama administration also asked Congress to immediately approve a $33 billion emergency supplemental it included with the budget, which comes on top of $130 billion lawmakers approved late last year, to immediately pay for the troop surge in Afghanistan. The $33 billion is not included in the Pentagon’s $708 billion spending package. So that means the Pentagon’s actual spending proposal comes to $741 billion.
On the campaign trail, Obama vowed not to finance the war using emergency supplmental requests. Rather, he said he would pay for the wars out of the Pentagon’s overall budget. But this is the second time Obama has asked Congress to approve emergency funds for the wars. The Bush administration financed the Iraq and Afghanistan wars with emergency funding requests that were swiftly approved by Congress.
Travis Sharp, a defense budget analyst at the Center for American Security, said the Pentagon’s base budget represents a 40 percent increase since 2001 and when the costs of the wars are factored in overall defense spending has increased by 70 percent.
Sharp said the base spending plan for 2011 is 3.5 percent of gross domestic product. Adding in war costs, it comes out to 4.6 percent of GDP. Obama has called for a three-year spending freeze on domestic programs, but the Defense Department exempt from the proposal.
Aside from the size of the defense budget, another controversial aspect of it is what it will fund. More than $2 billion will be used to purchase unmanned aerial vehicles, or drones, which the Obama administration has used increasingly over the past year to target suspected terrorist hideouts in Afghanistan and Pakistan. The drones, which the administration wants to double in production, have been blamed for a significant rise in civilian casualties.
“The Budget … bolsters Unmanned Aerial Vehicles, helicopters, and cyber capabilities and electronic warfare, which are key components in the ongoing task of rebalancing the military to focus on current and emerging threats,” according to a copy of the Defense Department budget.
For the first time, according to The Los Angeles Times, the Air Force is proposing the purchase of more drones than combat aircraft and will double the production of the MQ-9 Reaper, “a bigger, more heavily armed version of the Predator drone, to 48. The Army will also buy 26 extended-range Predators.”
“The expansion will allow the military to increase unmanned patrols – the number of planes in the air at once – to 65, up from its current limit of 37,” The Los Angeles Times noted.
Defense Secretary Robert Gates told reporters Monday that the use of drones will continue to increase “even as the wars in Iraq and Afghanistan eventually wind down.”
“The more we have used them, the more we have identified their potential in a broader and broader set of circumstances,” Gates said.
Spending on the Predator and Reaper drones will jump from $877.5 million in 2010 to $1.4 billion next year.
The budget also says “a major goal of the administration is to provide the troops with the most effective and modern equipment possible.”
“To accomplish this, the 2011 Budget continues to develop and procure many advanced weapons systems that support both today’s wars and future conflicts,” according to the budget. “These include: the F-35 Joint Strike Fighter, a new family of ground vehicles, new ships such as the next generation ballistic missile submarine, and the P-8 aircraft.”
In a speech at West Point last year announcing his revised strategy for the Afghanistan, Obama said, “we can’t simply afford to ignore the price of these wars.”
But that’s exactly what it appears the Obama administration has done.
Spending on the wars for the next two years is projected to hover around $159 billion, which is only slightly less than what the Bush administration spent during its last years in office. The proposed spending for 2011 is three times more than what Obama projected it to be a year ago and the soaring costs of juggling two wars has a major impact on new deficit numbers.
While Obama said in his State of the Union address last week that creating new jobs for Americans is now his “number one priority for 2010,” the massive defense spending his budget proposes will actually do the opposite, according to Dean Baker, co-director for the Center for Economic and Policy Research.
In a report published on Truthout last November, Baker said, “defense spending means that the government is pulling away resources from the uses determined by the market and instead using them to buy weapons and supplies and to pay for soldiers and other military personnel. In standard economic models, defense spending is a direct drain on the economy, reducing efficiency, slowing growth and costing jobs.”
“For some reason, no one has chosen to highlight the job loss associated with higher defense spending,” Baker wrote at the time. “In fact, the job loss attributable to defense spending has probably never been mentioned in a single news story in The New York Times, Washington Post, National Public Radio, or any other major media outlet. It is difficult to find a good explanation for this omission.”
Baker would be just as disappointed reading the latest round of news reports on defense spending. It appears that the same void exists within mainstream media circles related to how the Pentagon’s budget increase will impact job growth.