With so much financial turmoil, it's important to grasp what last week's budget deal does and doesn't do. Note, for starters, that it won't create much "fiscal drag" on the economy. The spending cuts are simply too small in a $15 trillion annual economy. The deal might shave one-tenth of 1 percent off annual growth in the next decade, estimates the forecasting firm Macroeconomic Advisers. Note also that the deal isn't a victory for the tea party over liberals. Liberals got much of what they wanted while the tea party's influence may wane. Taxes may rise if the Bush-Obama tax cuts expire at the end of 2012.
But the budget deal does reflect national priorities, for good or ill. It's mostly a triumph of the welfare state over the Pentagon. Even before the deal, the Obama administration projected that — assuming continued withdrawals from Iraq and Afghanistan — defense spending would shrink to 15 percent of the budget by 2016. This would be the lowest share since before World War II. The deal's added cuts, potentially as much as $950 billion over a decade, would reduce that further. In the 1950s and 1960s, defense often was half of the budget.
Drastic military retrenchment seems unwise. It would threaten readiness, training and the replacement of aging weapons. Many planes, ships and vehicles are approaching or have passed their planned service lives, says Heritage Foundation defense analyst Mackenzie Eaglen. To take one example: F-18s were designed to fly for 6,000 hours; now, many are headed toward 10,000, she notes.