January 21, 2017
The High Beta Presidency
Anything could happen in defense policy under the Trump Administration
By Steven Grundman
So wide is the range of possibilities for the Trump Administration and so uniform their distribution that it would be foolhardy to make predictions. Indeed, in response to friends, colleagues, and clients who ask my views about how President Trump may change the Pentagon, I hew to the simple refrain, “Anything could happen.” Or, as an investor put it to me, “Trump’s promises to be the ‘high-beta’ presidency.” Beta is the measure of a stock’s volatility against the market as a whole, though the analogue to molecular biology and the treatment of hypertension may be equally apt.
In the face of such abject uncertainty, I have abandoned forecasting in favor of a watch-this- space posture of vigilant discernment of the leading indicators of change—my map of the signposts and metrics I will be following as the new Administration’s choices unfold:
Defense spending. The signpost of defense spending on which I am focused will compare the Trump Administration’s proposals for total (i.e., “Base” plus “OCO”) discretionary DoD budget authority (“051”) in 2017 and 2018, as measured in current dollars, to the Obama Administration’s plans for those two years. For 2017, the Obama Administration has requested a total of $589 billion ($524 Base + $65 OCO). For 2018, it planned a Base budget of $557 billion, to which my baseline adds an estimate for OCO of $62 billion (the three-year trailing average), for a total of $619 billion. As the new Administration unveils its defense spending plans, I will regard deviations from the $1,208 billion sum of the outgoing Administration’s plans for 2017 and 2018 as my indicator of the direction and pace of change in defense spending.
Force posture. The signpost of force posture for which I will be looking concerns US force levels in Afghanistan. Last summer, President Obama reset to a level of 8,400 his Administration’s plans to station US forces in Afghanistan. That decision marked the second time in a year the Pentagon had prevailed upon the White House to slow the pace of troop withdrawals from Afghanistan, which it previously had hoped to reduce to a small “embassy presence” before leaving office this month. Despite its relegation to the back pages of the news, Operation Freedom’s Sentinel remains the single largest contingency operation driving the deployment of US forces abroad. Consequently, how the Trump Administration regulates the US commitment in Afghanistan will offer a leading indication of its approach to force posture. That US forces in Afghanistan work alongside ~6,000 NATO personnel also amplifies the resonance of the defense-posture signal we should be hearing in President Trump’s Afghanistan policy.
Acquisition. My signpost of change in acquisition management will be the unit cost of the F- 35A variant that results from negotiations beginning this month over LRIP Lot 10, which is expected to produce about 90 aircraft of all three variants beginning in 2018. Although the President-elect’s Twitter contretemps with Boeing and Lockheed Martin most probably reflect a preparation of the battlefield over defense spending rather than procurement policy, the single measure of acquisition on which the President-elect has focused his attention—cost—may well serve as an early test of whether acquisition is in for a change. The DoD’s F-35 program executive officer, Lieutenant General Christopher Bogdan, went on the record in mid-December with his expectation that Lot 10 will “come down in price… somewhere on the order of six to seven percent” when compared to Lot 9. Achieving that reduction implies a unit cost in Lot 10 of $95 million for just the Air Force variant, which we might call the Better Buying Power price. Achievement of F-35A unit prices in Lot 10 substantially below (or above) $95 million could well signal that the President’s acquisition alchemy portends important change in how the Trump Pentagon will go about buying weapons.
Of one thing we do know for sure: Donald Trump is a master of the political narrative, and the story about public policy counts far more than those of us with a deductive train of mind might care to admit. It’s all the more reason, therefore, that we whose livelihoods and businesses rely on gaining insight into defense policy need a map of meaningful signposts to distinguish what’s really going on from the tales told about it.
Steve Grundman is the M.A. and George Lund Fellow at the Brent Scowcroft Center. A version of this essay was first published by Aviation Week & Space Technology.