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The Independent Institute

Hard of Hearing
Why the House’s Attempt to Save Defense Spending Might Flop

It was probably the most ballyhooed congressional hearing on defense for the year. As the monthly economic news continues to show poor job growth, and as the elections heat up, the Republican chairman of the House Armed Services Committee, Buck McKeon, and defense contractor Lockheed-Martin saw a major opportunity to protect the Pentagon budget and their bottom line. On Wednesday, just as the House of Representatives was about to debate the 2013 Department of Defense Appropriations bill, McKeon held a big hearing with Lockheed and other industry representatives to explain why the American economy could not possibly stomach the $55 billion in defense cuts set to occur in January, as required by last summer’s Budget Control Act and the failure of the congressional “Super Committee” to cut a broad budget deal.

To heighten fear of the so-called “sequester,” McKeon and Lockheed have been arguing that an obscure piece of legislation called the Worker Adjustment and Retraining Notification (WARN) Act requires contractors to send out notices of impending pink slips to tens, if not hundreds, of thousands of defense industry workers. And because of what they maintain is the WARN Act’s 60-day advance-notice requirement, those warnings would come just a few days before the November elections. The only possible rescue from the predictable panic among politicians, especially Democrats, would be to undo the $55 billion in automatic cuts to the defense budget and save the jobs. Or that’s been the idea.

But leaving nothing to chance, the day before the hearing, the defense manufacturers trotted out yet another study arguing that the sequester would cost over a million jobs in defense and related work; former Vice President Richard Cheney was brought into Washington to chime in on how destructive the Pentagon budget cuts would be; Lockheed’s testimony was leaked to the Washington Post to produce an article published the morning of the hearing to soften up any reluctant politicians; and press conferences abounded.

All the usual hot rhetoric was rebroadcast in excess. To supplement Secretary of Defense Leon Panetta’s memorable description of the sequester scenario as “doomsday,” the president of the manufacturer’s mouthpiece, the Aerospace Industries Association’s Marion Blakey, called the alleged impending lay-offs “Armageddon.” Describing his own hearing as “probably one of the most important hearings I can remember,” McKeon chimed in with “catastrophic” (another Panetta term) and termed the Obama administration’s purported lack of concern about this looming event a “cavernous silence.”

I fully expected that these crude tactics would be effective and that the Democrats at the hearing would be stampeded into clamoring for the sequester to be repealed with little to no concession from the Republicans.

I was quite wrong: From the McKeon/Lockheed perspective, the hearing was a complete bust.

The Democrats on the committee didn’t buy any of what McKeon and the manufacturers were putting down; actually, they made the hearing into an embarrassment to McKeon and his industry sidekicks, as McKeon’s deflated and underwhelming comments at the end of the hearing made painfully clear. Instead of badgering his Democratic colleagues into submission, the chairman was left making excuses for the corporations’ planned exploitation of their own employees, saying they were “just trying to run their businesses in an orderly manner.”

Despite repeated prompting, the Lockheed witness, CEO Robert Stevens, could not identify a single contract that would be terminated, nor specify the number of workers that would be laid off. All he really had was more rhetoric: “devastating,” “undermining the aerospace industrial base,” and then “catastrophic” and “meat axe,” again borrowed from Panetta. Even though he did not know what contracts would actually be affected or how, he nevertheless insisted that he would need to send out those thousands and thousands of pink slip warnings just before the elections.

Another major witness, EADS North America CEO Sean O’Keefe, was not even sure of that. The closest he got to warning of pink slip notices was saying that EADS “will have to do something” He was clearly not entirely on board with Lockheed and McKeon. The president of Pratt and Whitney, David Hess, was even less helpful; he didn’t really know what the law requires or what he would do; it was all “not clear.” A small-business contractor, Della Williams, president of Williams-Pyro in Fort Worth, Texas, volunteered that her company was “not covered” by the WARN Act. Not exactly the clarion call McKeon and Lockheed wanted to broadcast.

They were lucky no one asked them about the schedule the WARN Act actually requires or the number of jobs that the $55 billion sequester might actually take out of defense production. Some sharp reporting by Bloomberg and some skeptical analysis by a former OMB official at Washington’s Stimson Center have cast serious doubt on both the concocted requirement to send pink slip warnings just before the elections and about the real number of jobs that $55 billion less in Pentagon spending next year would incur. The Bloomberg story explained that the notices, when required, would not be called for until well after the elections, and Gordon Adams at Stimson made clear that the job numbers in question were wantonly inflated by including thousands upon thousands of employees who do no defense work.

Nor did the witnesses get to what the budget sequester would actually mean to the Pentagon, if it occurs. According to the Congressional Budget Office (CBO), it would reduce Department of Defense “base” spending, not including additional war spending, to $469 billion. That amount, also according to CBO, would return the Pentagon to the 2006 level of spending, adjusted for inflation. In historic terms, Pentagon spending would therefore remain about $35 billion above its average Cold War level, and it would stay as much as $100 billion above the low points that followed previous high spending periods, such as the Korean and Vietnam wars and the Reagan era. Finally, it should be noted, the level of spending, not including additional war spending, would still be more than twice the combined defense budgets of China, Russia, Syria, North Korea, and Iran.

There are problems with the sequester. The cuts would be abrupt, and—according to some—they might have to occur automatically across various selected accounts, perhaps even individual programs. But those are not the elements that the plaintiffs are primarily concerned about. They are concerned about the amount of money—and the truth is the amount left by the sequester is historically generous. But to McKeon, Cheney, Lockheed, Panetta, and the other hysterics, these data mean nothing. Unfortunately for them, the chasm between their rhetoric and the facts has become so gigantic that people in Washington are actually beginning to notice.
