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.
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 a three-year spending freeze on
domestic programs, but the Defense Department is exempt from the
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.
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
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. Not a single
mainstream media story discusses how defense spending increases will
have on job growth.
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