The “High Beta” Presidency: Anything Could Happen
What does the Trump Administration portend for defense policy? Will it increase the defense budget? Will it change the size, structure, and disposition of military forces? Will it cancel important acquisition programs? For now, the best answer to these questions and all the others surrounding defense policy is, “Maybe”. After all, Mr. Trump’s campaign was largely bereft of careful policy prescriptions for defense, and the transition has done little to dampen the volatility of expectations.
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 being the measure of a stock’s volatility, 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 leading indicators of change. These are the signposts and metrics I will be following as the new Administration’s defense-policy 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 first indicator of the direction and pace of change the Trump Administration will bring to 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 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 size, structure, and disposition. That US forces in Afghanistan work alongside ~6,000 NATO personnel also amplifies the resonance of the defense-posture signal we should be listening for 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, a figure which might most fairly be regarded as the Better Buying Power price. Achievement of F-35A unit prices in Lot 10 substantially below (or, for that matter, above) $95 million could well signal that the President’s acquisition alchemy does in fact portend 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 an inductive 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 and metrics to distinguish the tales from the truths.