The Emperor Has Too Many Clothes: Adjusting America’s Military Spending to Reality

Monday, November 14, 2011

Congressman Barney Frank discusses the Obama administration's strategy and current level of spending on national defense.

This meeting was part of the C. Peter McColough series on International Economics.

GORDON ADAMS: Good afternoon. Nice to see you here. I'm Gordon Adams. I am here to start off this meeting and introduce the congressman.

I want to welcome you today to this meeting with Barney Frank, the U.S. representative from the 4th Congressional District of Massachusetts and the ranking member, former chairman of the House Financial Services Committee in the House. This event is part of the council's C. Peter McColough Series on International Economics.

I want to ask everybody in the audience, because I always forget to do it myself, to turn off your cell phones or any beepers or other electronic apparatus that you have, literally off, not just on stun -- (laughter) -- all the way off, so we don't have any damage done during the meeting.

I also want to remind everybody that this meeting is on the record, and also to remind those of you participating that the next meeting of this series is going to be with Charles Evans, the president of the Federal Reserve Bank of Chicago. And that will be tomorrow morning.

Let me just give a very brief introduction to a member of the House who has been there for more than 30 years and somebody who has enormous respect across the board in the Congress and in Washington. Barney Frank represents the 4th Congressional District. He has been the chair of the Financial Services Committee.

He is the co-architect of the Dodd-Frank Wall Street Reform and Consumer Protection Act, controversial but very important, and called most sweeping overhaul of the nation's financial regulatory system since the Great Depression. He is a well-respected member of Congress from the state of Massachusetts, where he has also served locally and has done a great deal of work there with fishing, commuter rail and a number of other local issues in the state of Massachusetts and in his district.

And he's somebody who has a well deserved reputation for speaking out forcefully and in an extremely informed way on the broad set of issues of American national security and defense budgeting.

So with no further ado, Congressman Frank.

REPRESENTATIVE BARNEY FRANK (D-MA): (Applause.) Thank you, Gordon. I appreciate the introduction. I have only one regret, which I've expressed on other occasions. And you introduced me with "no further ado," as my career draws towards near -- an end. At some point I would like to be introduced "with further ado," because I -- (laughter) -- I have a great curiosity as to what further ado would look like. It involves a guy on a unicycle and he's juggling -- (laughter) -- and I want -- I want it.

I'm very pleased to have this platform and this audience, because I am talking what I think is the single most critical question in the country today. We cannot sustain the current level of spending on national defense and our capacity for self-governance in a way that addresses the quality of life and that maintains confidence of the American people in its governance.

Now, that would be a terrible dilemma if there was a demonstrated need in the from of threats to our national existence or other very important values that required that level of spending. I think there is a fortunate coincidence here. We don't need it and we can't afford it.

I take some comfort in what appears to me to be at least some agreement on this -- not as to the numbers; I don't want to misquote him or misappropriate him -- but on the concept, from the great essay by Henry Kissinger in yesterday's Book Review about John Gaddis' book on George Kennan. I was in the plane coming back from California, and kind of jolted up and put this in my pocket. Unfortunately, I threw it out, I think, with a tissue, but -- (laughter) -- Gordon had it.

"At the same time" -- this is Henry's words -- "At the same time, Kennan deserves recognition for raising the key issues of the long-term future. He warned of a time in which America might strain its domestic resilience by goals beyond the physical and psychological capacity of even the most exceptional society."

And let me give you an example of some of what I think are those goals. From CQ Today, a publication that covers international government very well, November 3rd, talking about the Air Force and its new bomber -- and this is a quote, uncontested -- President Obama -- this is not a quote from them, this is their description, that nobody in the administration took exception to: President Obama's national security strategy calls on U.S. forces to be able to strike virtually any target on the planet.

Remember, you can't just strike any target on the planet and leave it. Striking any target on the planet means the capacity then to follow up. You don't do hit and run. That's an example, I think, of something beyond our goals.

Or this quote from the -- (just the ?) Times the other day talking about how the Iraqi government is mad at ExxonMobil for thinking about doing oil in Kurdistan, and it says: The State Department and the military have sought to tamp down antagonism between Kurdistan and the central government for years, and American troops have died trying to keep the peace along that internal border.

Now, I wish that there were not tensions between the Kurds and the Arabs. I have to say that I do not regard it as a threat to the United States; but even more than that, a humanitarian instinct might lead me to support that if I thought we could do it. But I do not think that heavily armed young Americans are going to be able to resolve the tensions between the Arabs and the Kurds. And maybe as long as we're there, that'll happen, but we can't be there forever. And I think these are just two examples of what we are doing.

Another -- let me go back to the fundamental framework. I have for some time felt we were overspending on the military. One high-ranking military guy -- can't quote him -- told a friend of mine, said, tell Frank he's right; here's our problem: We take on these military tasks, and once we've pretty much done them, we never stop -- we just build one on top of the other.

I mean, I -- NATO was a great accomplishment for Harry Truman. It was America intervening to protect the poor and weak nations of Europe, post-World War II, from a brutal and vicious and aggressive communism that had been weakened -- the Soviet Union -- by World War II, but because of the the repression was able to put everything into the military. That was in 1949, and America reached in there. Three elements: a poor and weak Europe; aggressive, heavily armed communists; American manpower and money. Two of those elements aren't there anymore. The American manpower and money is still there.

The European average GDP defense is 1.7 percent. Ours is three times that.

You cannot -- there are people here who will think, well, we've got to reduce Social Security and scale back the cost of living, which I do not support. For people who say the cost of living is too expensive, I must tell you that in the past two years the elderly got no cost of living. So I assume, if we scale it back, they're going to owe us a couple of bucks. (Laughter.)

But the point is that trying to sell the American public on these reductions comparable -- leaving them substantially less than people are getting in Western Europe, when we are subsidizing their defense, doesn't work. Again, fortunately there's no need for it.

We continue to have the triad for defeating the Soviet Union in a thermonuclear war. We have intercontinental ballistic missiles, nuclear submarines, and the Strategic Air Command --- not coincidentally, one for each service. That's part of our problem. The Army gets the missiles, the Navy gets the submarines, obviously the Air Force gets the planes.

There is no more Soviet Union to engage in a thermonuclear combat. I have a modest suggestion. I want to say to the Pentagon, you know those three ways you have of delivering thermonuclear weapons on a heavily armed Soviet Union? Pick two; give up one. (Laughter.) Tell me how many billions we would save if you gave up one.

I mean, I am very -- and I want us to be the strongest nation in the world because, you know, I can't think of anybody who would make me feel better. But we overdo it. I am glad the Air Force is the strongest air force in the world. I would not feel insecure if the Navy, instead of being the second strongest air force in the world, was tied for third. (Laughter.) I mean, this is -- we have overdone it.

We talked before, one of the things we need a big Navy for, we're told, is to keep open the sea lanes between us and China. Well, there is no threat to those sea lanes, it seems to me. We're told, well, who could possibly threaten us? The Chinese, because they are building a naval capacity. It is true; the Chinese actually are now in the process of building their first aircraft carrier. It is a retrofitted Ukrainian ship. (Laughter.) It does not strike terror into my heart -- (laughter) -- compared to how many we have. But I understand that, if I'm Vietnam or Malaysia, that's a little scarier.

But the point is, what are we protecting the trade routes from? Is it plausible that the Chinese, whose economy prospers so much from those trade routes, that they would shut it down? How is it plausible that the Chinese want to shut down the trade routes over which they make so much money?

And again, we should be the strongest nation in the world. There are problems with the Koreans. I don't want to reduce our reassurance to the South Koreans. I think a presence in the Middle East is important. But we have overdone in Western Europe. We have overdone in the thermonuclear capacity. I believe the war in Afghanistan has long since passed the point where it is useful. And that's where we are.

But here's -- I've been arguing that for a while. This has now been transformed because we clearly have to do deficit reduction in a substantial amount over the next 10 years -- not in the near term; counterproductive, we should be spending more.

I will make, as an aside, one of the oddest arguments I get from people, mostly on the conservative side, who tell us we cannot reduce military spending at this time because it would be bad for the economy because it would cut jobs. This from people who make no such argument when we fire teachers, cut back on highway spending, shut down environmental cleanup, stop the construction of housing for the elderly.

Paul Krugman -- did me the favor of quoting me -- is calling this "weaponized Keynesianism." (Laughter.) There are people who will tell you that government cannot create jobs except they can't tell the difference between the defense fund and the WPA. (Laughter.)

But even if you believe that this is true, the question is not whether we cut defense spending or not, but whether we cut defense spending or something else.

And I will tell you now -- you know, it's not always audiences that know who I'm talking about; this one I think has a substantial percent of you that do -- every question I approach in public policy, I keep in mind the wisdom of a great 20th century philosopher: Henny Youngman. (Laughter.) And I'm serious about the wisdom. It was in his great couplet: "How's your wife? Compared to what?" (Laughter.)

That's -- that's the fount of wisdom in public policy: Compared to what? If you cut military spending, either you give up that much deficit reduction or you cut medical care, or you cut the environment. In fact, given the fact that so much military spending is spent overseas, that it in fact is -- much of it is for products that are not meant to be reused, and that it's pretty capital-intensive, it is -- it doesn't do all that well for jobs -- that's not a reason to cut it, but it is a reason to reject the notion that we can't afford to cut the military.

And that's the issue. If you don't cut the military, if you exempt the military from deficit reduction, you have to make it up in -- either you reduce the amount of deficit reduction, or you cut other things I think beyond the point which is tolerable. And that has worse -- a worse economic impact by far.

Now, one other argument that I want to address -- and I think there's an extremism here. I think it's culture lag, why we -- why has it been hard. America had no interest in defense, no need for it before world -- before 1940 -- momentarily in World War I; went back again with a great reaction against it. From 1940 to 1990, this country was threatened by heavily armed, very bad people who were an existential threat to us, and that became a dominant part of our psychology.

Beginning in 1990, that slacked off, and George Bush the first and Bill Clinton took advantage of that. And in fact, the balanced budget that we got towards the end of the Clinton administration was based on some domestic tax -- spending cuts, not all of which I liked, in conjunction with the Republicans; but tax increases on the upper-income people and substantial reductions in military spending, begun by George Bush and Clinton, so we had gotten it down.

Then came terrorism, and we have this problem in which terrorism -- the need to defend ourselves against these murderous thugs has been inflated to be the level of physical threat of the Communists and then the Nazis. They're terrible people, but they don't have thermonuclear weapons, they don't have submarines, they don't have airplanes. Yes, it is -- it's in some ways more complicated to fight them, and I'm all for that. But it's not -- bases in Germany don't fight the terrorists. Nuclear weapons in the stockpile don't fight the terrorists in the numbers that we have.

Now, the one other argument we get is from -- and I -- people just exaggerate it. And I'll close with this, and then get into the discussion with Gordon, whom I delighted to be here with. Leon Panetta has argued very strongly that we cannot make any further reductions in military, other than what's already been talked about -- which are of course reductions in a great level of increase that was planned. (Laughter.)

He says that we can't make any further reductions because if we do we will repeat the mistake we have made over years of hollowing out the military. And Mr. Panetta said -- and I went and checked it, and he did say it. You can look it up -- to quote another great sage, Casey Stengel. There it was. He said: We hollowed out the military after World War I, World War II, Korea, Vietnam and the Cold War. Leon Panetta said we made the mistake of hollowing out the military after the Cold War.

Now, the Cold War ends towards the end of George Bush's administration, so this hollowing out of the military presumably took place under the presidency of Bill Clinton. And Bill Clinton's budget director? Leon Panetta. (Laughter.)

It is extraordinary to me that Leon Panetta -- not only was he -- and then he became chief of staff. So he is now -- it just shows the unreality of the criticism. And by the way, I am sure I will find the quotes -- I'm going to go look for them -- of Leon Panetta justly taking credit on behalf of the Clinton administration for the balancing of the budget that occurred in part because he hollowed out the military. (Laughter.)

Now, it's not just a verbal trick here -- and I'll close with this. And I've said this to people and I've asked other experts about it. The notion that we've hollowed out the military assumes that there were times when we endangered ourselves because we had a need for military force and it wasn't there; it was hollow. The former Republican chairman of the Appropriations Committee, now head of the defense appropriations, very angry on the floor, said: You know what you guys want to do? You want to create more hangar queens. Hangar queens were the planes that we had in the hangers because there weren't enough pilots to fly them. And I think if you look at our military situation, the answer is demonstrably not that we had too few pilots; we had too many airplanes. (Laughter.) And they weren't in the air because we didn't need them. (Laughter.)

And my challenge to these people who talk about hollowing out the military, which I have repeated and have never gotten an answer: Tell me any time in the last, I don't know, 20 years, certainly, maybe 30; I can't think of one -- when America's national security called for the use of force and we lacked sufficient force to apply. The problem is often that force is not the appropriate answer, or that force is difficult. I cannot think of a time -- again, yes, we had the terrible tragedy, the people killed in Somalia, but it wasn't because we didn't have enough force. The problems are more complicated. So the notion that we have hollowed out the military, they must be able to show us times when we lacked the military capacity to accomplish an objective that we needed to accomplish. I admittedly cannot think of one.

And so I will just close with this. People losing -- people are very angry at this government, and we're in a vicious cycle. People are angry at the government because they don't think the government does enough, and the government doesn't do enough in part because people are angry and deny it the resources, and -- like people who don't want the government to do anything.

We are in danger, I think, of a long-term diminution of our capacity to govern in a way that addresses the quality of life in America because there is this great demand for deficit reduction. And if you continue to spend -- and skepticism about revenues -- so that if you continue to spend at anything like the current level on the military -- I'm talking about a reduction that would get us down after the war in Afghanistan and -- to 450 billion (dollars) a year, still dwarfing any other conceivable combination of nations in opposition. If our allies need -- feel the need to do more, let them do more.

And I should say one other thing I wanted to mention. The last time we were told about the terrible consequences of insufficient military activity was, of course, Vietnam, and we were told that there would be terrible consequences if -- to our national security. Today we are being told that we have to protect Vietnam against China. So I'm a little skeptical that that had the lasting negative effect that people thought. It did on people there, and I don't deny that there are people overseas who need us. I am skeptical that we do nearly as much good as some people assume when we get in there. But that's the -- that's -- we come to the nub.

The country is clearly -- both economically and politically, there's going to be serious deficit reduction. If the military's exempted from any further deficit reduction, our capacity to provide for the quality of life in the United States -- for better education, for better infrastructure, for environmental cleanup, for decent medical care -- will be, in turn, diminished. And the diminution of that will lead to further loss of confidence in the government. And I think that breaking out of a negative cycle that, as I said, leaves us not governable -- to go back to the Henry Kissinger -- we are about to strain our domestic resilience by goals beyond our physical and psychological capacity in the military area. And this coming year is the opportunity to deal with that.

Thank you. (Applause.)

ADAMS: Thank you, Congressman. A good starting point, I think, for what I'm sure will be a good discussion to continue.

I have to confess, with some embarrassment, that I was the guy who worked on defense for Leon Panetta when he was at the Office of Management and Budget -- (scattered laughter) -- so if you've got to blame somebody, don't blame Leon Panetta, blame me. But let me ask -- start by asking you a question about that.

The same military, in that period of time from -- starting with the end of the Cold War in 1989 through 1998, between two administrations -- it was quite bipartisan -- 700,000 people was the shrinkage in the armed forces; 300,000 people was the shrinkage in Pentagon civil service; 30 percent was the -- 36 percent was the constant dollar cut in defense budgets; 50 percent was the cut in defense procurement; and the force that remained behind was the one that used Saddam Hussein as a speed bump in 2003. Would you care to comment, historically, at this -- a little more about this relationship between build-downs and our superior --

FRANK: Right, but -- and you're right. And, of course, before Saddam Hussein, in one of the most successful applications of military force, I think, in American history, Bill Clinton intervened in the former Yugoslavia. And, again, the constraints there were somewhat -- were political. But I think that that is -- and I appreciate that. That is absolutely the case -- that this hollowed-out military force, which we now retroactively learned was hollowed out, continued to have dominance in the world and was successful -- extremely well -- in the former Yugoslavia and in expelling Saddam Hussein from Kuwait.

Plus, of course, it was that same military -- because George Bush takes office and -- well, he did expand it some; that didn't happen by the time we went into both -- we went into Iraq the second time. And once again there were problems in Iraq in the second war -- and I voted against it -- but there was certainly not a lack of military capacity. There was certainly no problem with executing shock and awe. They were bad political decisions. So I appreciate that.

There is no evidence whatsoever that this very substantial drawdown in any way diminished our capacity to do what we needed to do. And as you know, it made it -- it was an essential element in the -- in reaching a balanced budget.

ADAMS: Let me -- let me pursue that one step further. You said in The Boston Globe over the weekend in a piece that you did for The Boston Globe that you thought we could cut defense by a third. I thought the figure was interesting because, if you look historically at the reductions that have happened over a 10-year period in the three prior build-downs -- Korea, Vietnam and the Cold War -- that the Defense budget has actually gone down 30 percent in constant dollars. So it was approximately close to --

FRANK: I appreciate it. And I had this one advantage, which is I counted in that -- in fact, I probably was on the -- on the light side of the cut because that assumed that -- that included the reduction from Afghanistan, from the current 650 to -- if you took down a third from, say, 660 or 670, you're at about 440. And so that -- in terms of the base budget, that's even less, although it is an interesting budgeting thing, the way we do this. We budget for the Pentagon, but then when we have a war, we budget separately. It is a little bit as if the Pentagon has us on retainer -- (laughter) -- and we pay them an annual amount, but when they go to war, then they charge extra.

The problem with that is that, as you know, the war account is now being used to hide some spending, to disguise some spending from the base budget because the base budget is subject to some statutory caps and the war account is not, because we never want to -- and certainly don't want to scrimp on the people who we send into battle; so that you shift a little bit. But that's the number that I think is reasonable.

ADAMS: Let me come back and ask you a third question, and then shortly we'll want to go out to the audience and ask them to ask questions as well.

The supercommittee. We now have under way a process in Washington, about which we will hear a tremendous amount over especially the next week --

FRANK: Yeah, the week.

ADAMS: -- because over the next week roughly, the committee -- the supercommittee has to either come up with something or not come up with something.

FRANK: They have to come up with something by a week from today for it to be CBO'd.

ADAMS: What do you expect? Do you expect agreement? If a sequester happens, is a sequester important? What should we think about that? Is this a sideshow? Is it the main event? And how long will this process then take to roll itself along until we get some conclusion?

FRANK: I do not expect them to come to an agreement. I don't see how that can happen. What is interesting -- by the way, one of the factors here is the Republican presidential nominating process, because any effort to compromise on the part of the Republican members of the supercommittee goes counter to the increasing harsh rhetoric of the -- of the -- of the Republicans in the presidential nomination. So I do not think they are going to be able to come up with something.

If they don't, we then have a -- we do have a very interesting situation because the sequester -- now it's interesting. Leon Panetta has said that the sequester would be devastating, and many of the Republicans have said they will then seek to amend the sequester.

The important thing to remember is the timing -- two timing things: The sequester doesn't take effect until January of 2013. What also doesn't take effect until December 31st of 2012 is the expiration of the Bush tax cuts. So there is much more play here than people realize, and there is the potential for a deal.

My Republican colleagues, who have said they don't want to be for a tax increase even on the wealthiest, have the option, it seems to me, next year, if this goes well, they could vote for a bill that extended 98 percent of the Bush tax cuts. So the only vote they would be casting would be for a tax -- a tax reduction, but passing that would have the effect of a tax increase of several hundreds of billions over the 10-year period. And that could be part of a deal in which the sequester was amended. Remember, any Congress can amend what any Congress did, and so the sequester is just a statute like any other, subject to regular amendment, but it would have to be a consensus, given the filibuster. So you might get a weakening of that.

On the other hand, what the president is doing is keeping up the heat, because if you listen to Leon Panetta, he would appear to be supporting those Republicans like Lindsey Graham and John McCain who say they will amend the sequester to exempt the military.

Now they have a problem, by the way. If you amend the sequester to exempt the military, either you reduce by hundreds of billions the amount of deficit reduction you get or you put Medicare, Social Security and a lot of the other things very much in the gun sights, and I think that's politically very difficult.

But the president has just announced -- Secretary Panetta has been saying, I speak for the president, not another dime. But the president has now announced on several occasions that he would veto any amendment to the sequester.

So I think best, likeliest thing: We don't get a deal, but next year there is a deal with more flexibility, but the deal involves some tax increase on the wealthy because the Republicans can say, hey, I didn't want to do this, but that crazy bastard was going to veto the whole thing and, you know, I had to do it. (Laughter.)

ADAMS: Let me ask you one last question, and then we will -- we'll go to the house. I happened to be reading my copy of Bloomberg Business Week last week, and you were quoted in there as calling the effort to protect Defense a(n) orchestrated effort, which you said was happening because they can't win on the merits of national security.

FRANK: Absolutely. I do think there's cultural lag here, as I said. The American public, for a long time, was appropriately worried about existential threats to our existence as a free society. Now, I think it got exaggerated to some extent during communism, but both the Nazis and the communists were heavily armed, very bad people, who we had reason to worry about. And for a long time, that was it.

And we were talking about it before, I mean, this is why -- and there was this fear, particularly on the Democratic and liberal side, that there was this great vulnerability if you appeared to be insufficiently committed to protecting America.

And that is why an extraordinarily able and wise guy -- I mean wise in the best sense -- Michael Dukakis, wound up in a tank -- (laughter) -- because he was told by his advisers: You've got to show, you know, how tough you are. And this is a problem for all Democratic presidents. And it was the case that Democrats felt this.

I think that's culture lag. I believe the American people does (sic) know the difference between the thugs in al-Qaida and their capacity to murder people, and the Soviet Union's capacity to wreak substantial physical havoc on our society. And that is there, and I think they understand that. They also understand that there is -- the tea party, for instance: There's a kind of Buchananite wing of the tea party. There are people in the tea party who are true isolationists, but they also have a refreshing disrespect for establishment opinion in some ways.

So I think they understand that you cannot now scare the American people into a $650 billion defense spending by the terrorists. And that's why when the president announced he was withdrawing from Iraq it was overwhelmingly popular -- with a handful on the right, including some of the Republican presidential candidates, attacking him.

And so I think, yes, they have understood this. That is why we now have -- and it comes, quite extraordinarily, from people who said the stimulus was a waste of money, and this is a waste of money. They are now talking about defense spending as a job creator. And I think that the resort to defense spending as a job creator is a response to the fact that the -- that the fear factor no longer suffices.

ADAMS: Let me -- let me now turn it out to all of you to ask questions. Please raise your hand. I'll try to recognize you as frequently as I can. Try to limit yourself to one question. When you ask it, make sure it's a question, not a filibuster, if possible. (Laughter.) And when you -- when you -- I recognize you, stand up, wait for the microphone and state your name and affiliation before you ask our question.

Over here.

QUESTIONER: Hi. Lauren Schibay (sp) from the Center for Good Policy (sp). I'm just wondering about the waste factor. Post -- during and after the major combat operations in Iraq, there was much written about extensive no-bid contracts, tremendous kind of waste in terms of out-sourced services, you know, just gross mismanagement of the military spending in some of our operations, and even here. I wondered if you could talk about --


QUESTIONER: -- the oversight element and what that does in terms of these budget cuts.

FRANK: Important. First of all, one of the problems with waste is that here's where Congress is probably culpable, because some of that waste is spent in our districts. And I don't -- I don't think that very profound statement by Eisenhower about the military-industrial complex -- I think it's culture lag, more than that, that's driving this. But there's an element of it -- we add a little bit of extra icing on the cake.

Secondly, yes, it would be good to try to cut down the waste, and Michael O'Hanlon has a piece in today's Times talking about ways to do that. But I think -- and we were talking about this before, and I was glad to know that people are working on this -- that you've got to begin with a new strategic concept that the fundamental problem is that we are -- we have persuaded ourselves that we need to do more than we need to do, and if we -- we have to scale that back.

Now, as to getting rid of the waste, it is very hard to impose efficiency on people from the outside. The best way to make people more efficient is to limit the amount of money they get. I think one of the great enablers of inefficiency is that people in the Pentagon have not felt constrained by -- look, for most of us, it's easier to be inefficient than efficient; efficient takes work. And I think the -- one of the by-products -- one of the benefits, more than a by-product, of capping the spending at a lower level will be to (enforce ?) them to be much more efficient. And I -- yes, we should try, but it's very hard to do.

And by the way, as an acknowledgement to that -- and you all read about, you know, government audits -- my understanding is that the Pentagon has now promised to have an audit completed in 2014, because there has not been an audit. So there will be an audit in 2014. So the way to do that is to cap the spending, and now -- you watch them get more efficient.

ADAMS: Over here. Yes, you.

QUESTIONER: Stephen Blank. For many companies, legacy costs, human legacy costs, have been a huge burden on efficiency and competitiveness. Looking forward, how important will these pensions, health costs, you know, be to the defense budget?

FRANK: Very, very good point. By the way, remember, too, when I talk about the military spending, the cost of caring for veterans does not get added into that. That's in the Department of Veterans Affairs -- which gives us great health care, by the way. (An aside: ?), the most popular health care with its consumers in the United States is provided by the Department of Veterans Affairs. And that is government medicine: You go into a government hospital and lay in a government bed, and a government nurse listens to a government doctor and sticks a government needle in your rear end. (Laughter.) So for people who tell me that the government can't do medical care, I point to the Department of Veterans Affairs.

But the answer is one of the things we have to do is to reduce the size of the military -- end strength, in their terms. We have more people than we need if we didn't have all these bases and if we weren't ready hit every target in the world.

The way to reduce those legacy costs is to reduce the number of people who will incur them today. I do not think we should be cutting back on the veterans now. You can make an argument about Tri-Care. But a -- well, again, another benefit of reducing the current thing is to reduce the legacy costs, although there's a very interesting article -- and I was not aware of this.

Gretchen Morgenson has the article in yesterday's business section of The Times about the extent to which the Pentagon budget is being used to top off pension shortfalls in defense contractors, so that if you work for a defense contractor, your pension is better protected than if you work elsewhere. That does seem to me to be an area we could look at, not to single people out, but to stop them from being singled out. But again, the legacy costs are very important.

And obviously the worst of the legacy costs, both in human terms and in money, are caring for the wounded. And yes, we should go to war when we have to. Look, I voted for the war in Afghanistan. I voted against the war in Iraq. I go to every funeral of which I am notified of someone who lives in the district I represent, in Afghanistan. Those are the worst days of my life, because I do believe that war is sometimes necessary, but I want to be reminded that it's always terrible. And to the extent that we are less promiscuous in -- (inaudible) -- force, it works better, although you can never get rid of it altogether. But the legacy costs go down as you reduce your force to what you need.

ADAMS: Right here.

QUESTIONER: Evelyn Leopold, a U.N.-based journalist. Could you kindly comment on Libya? Was that more or less than we needed to do?

FRANK: It was a good model for the future, but also a lesson. Some (attacked the president ?). And I am -- the world is better off without Gadhafi, although the method of the killing was troubling. And I think that was appropriate for the U.S. to do this, but it was also revealing in this sense. Yes, the Europeans were willing to do it, but they didn't have the wherewithal. They had to be supplied by America. We had to provide them -- there was more American participation than conceptually we wanted. And, I mean, this is France and Italy. We're I don't know how many thousand miles from Libya. France -- you know, you could spit and hit Libya if the wind is right. (Laughter.)

But what's happened is -- well, Libya shows, first of all, that yes, there is an appropriate role for our allies to come together to do some things that make sense, as I think that one did conceptually, but two, that we have enabled them to become too weak and that we should be encouraging them to do more, not to fight Stalin, but yeah, they should be able to do more of this. But they pretty much -- they wore themselves out just doing Libya and we had to -- we had to resupply them. So it is a good model.

Look, this is true of much of it. I think the French in Africa can do a better job, in many cases. I think it was good that people went into Cote d'Ivoire and got rid of a guy who was defying the presidential election and there was some force there. The U.N. forces can do it. U.N. forces are playing more of a role than people think they are.

Part of it is, though, that we need to say to them, good, but now, you know, it's time to take the training wheels off the Libyan bike, I guess is the metaphor I would use. (Laughter.)

ADAMS: Sir, right here.

FRANK: Hi, Jerry.

QUESTIONER: Jerry Cohen from the NYU Law School now and the council. We're hearing something about a return to Asia, the pivot toward Asia now that we withdraw from the Middle East to some extent. Could you say something about what you see as our strategic goals that ought to be implemented in Asia?

FRANK: Yes. One, I -- I appreciate that, Jerry. "Return" seems to me an odd word, unless South Korea is part of Latin America. (Laughter.) Because we have had a substantial and ongoing presence -- which I don't dispute, because you do have, you know, a crazy man with nuclear weapons, and that's disturbing. I do think we could remove the Marines from Okinawa, whose only purpose has been to destabilize Japanese politics, so when the first alternative government to the conservative regime got elected, we caused them trouble.

I would tell when you I mention to people that there are Marines in Okinawa, they think they all got out when John Wayne died. I mean, they don't know what -- so I guess the strategic purpose we're told is we have to contain China. And I think we overdo that. Again, I do not think that China is prepared to commit economic suicide by shutting down the sea lanes. I do believe -- there was an article, again in the Times, somebody proposing that we make a deal with China and sell out Taiwan. I found that offensive. I would not, as I read about Ai Weiwei, want to turn people in a democratic society over to that regime.

So yes, we should maintain a presence there. I don't think it has to be as large as people think. When someone on the -- going to the paper, someone on Leon Panetta's plane, an official on Leon Panetta's plane, who was either the pilot or Leon Panetta -- (laughter) -- said we cannot afford to withdraw even 5,000 troops from Asia because it will be psychologically (unsettling ?). I think the answer is, yeah, we have a legitimate strategic interest in deterring North Korea and in giving Taiwan some assurance, but I don't think we have to keep open the sea lanes. I don't think we have to mediate every dispute between -- about the Spratley Islands in the South China Sea. And the notion of a return troubles me because it suggests a significant increase when we haven't been absent. We have a very significant presence there. I think the current presence is at least as much as we need, maybe a little more. The 7th Fleet is there.

And I have to tell you, when I read about some of this stuff, I try and be respectful. We talked about Les Gelb, but I mentioned Pete (ph) and Jordan (ph) that I met Les Gelb in 1962 when he was a section assistant in Henry Kissinger's foreign policy course, which I took along with Morton Halperin (and what was another one of them ?). And I followed this stuff very closely, and I must tell you that much of it seems to me to be geopolitical gobbly gook. I read it and I (don't know ?) what they're talking about.

And I should have said one other thing -- and this is part of it. And it comes from the neoconservatives. I read William Kristol's book. It is this notion that it is not appropriate for a nation with an aspiration of greatness just simply worrying about the quality of life in its -- in its -- among its people, and to be available to help others. It's kind of like the debate, I guess, in the 19th century about Great Britain versus Little England; that, you know, people say, what are you, Denmark, the Netherlands? What do you want, to just be happy and eat well -- (laughter) -- and I'm serious -- have good health care -- people denigrate that. They say, don't you understand that this is American exceptionalism. This is a serious part of our debate.

God created America -- Mitt Romney: God created America to bring stability to the world. I tell you the truth, I wanted to get a refund on my Bible. (Laughter.) Because in the Genesis that I've got, it says God created the Earth, God created the water, the sea, the night, the day; it didn't say He created NATO. (Laughter.)

QUESTIONER: Thank you. My name is Roland Paul (ph), and I'm a lawyer. Some years ago I was on the Hill in the staff at the Senate Foreign Relations Committee. And you may sort of answered this in your last answer but -- and you made some very good points, I must say -- but to what extent are you concerned about losing the war in Afghanistan?

FRANK: I'm not at all -- well, I'm concerned in this sense. I would not want to live under the Taliban. They are bad people. But I am skeptical of our ability to win that war. As long as we keep troops there, we can forestall them taking over. What happens when we leave, I don't know. But I -- we can't be there forever.

And by the way, George Bush had no problem (earlier ?) with the Taliban. Remember that the Taliban were in power when George Bush became president in 2001, and they did a lot of terrible things. It wasn't until they refused to give back Osama bin Laden after he continued his murderous campaign -- which began with murdering hundreds of innocent Africans in Kenya and Tanzania, and continued -- that we went in there.

And what I'm saying is I -- one, I don't think the war in Afghanistan is winnable. I do think I am in favor of keeping the capacity -- including drones -- to go after terrorists. There are bad people. If you can kill these bad people, there's no other way to deal with them, I am pleased -- (I'm pleased to do that ?), sorry for the necessity but pleased that we respond to it.

But I don't see any negative consequences -- let's put it this way -- for us from leaving Afghanistan. I see some negative consequences for people in Afghanistan but that's -- we can't do that for them, and they seem, at best, ambivalent about it.

And the other thing I can say is this. The negative consequences that I am told could happen if we lost the war in Afghanistan, given that there is no communism in the world today, are less dire than the negative consequences I was told we would encounter if we lost the war in Vietnam. And for all practical purposes we lost the war in Vietnam, and someone ought to tell me what the negative consequences were of losing the war in Vietnam, which is now one of the reasons we have to restrain China, is to protect Vietnam.

So, no, I doubt both our capacity to win that war and the negative consequences, other than for the people of Afghanistan. And I wish there were ways we could do it. I -- I guess my view about the military has gotten fairly firm, and it's this: We have a wonderful military, extraordinary people, and we arm them very well, and they can stop bad things from happening. The mistake is for us to think that they can make good things happen. They did a wonderful job of getting Saddam Hussein out of Kuwait, and I voted against it (when I ?) was wrong, because I thought Bush Sr. would ask like Bush Jr., and I regret that vote.

But when we went into -- the second time and tried to make a better Iraq, it didn't work. And that's the answer with Afghanistan. I do not see our capacity to do anymore than perpetuate the status quo at great cost to the future.

QUESTIONER: Stephen Cass (sp). You've made some very interesting comments about Secretary Panetta. What about the president?

FRANK: Well, I'm curious about that. I'm a little troubled. I know there was a wrestling match about getting out of Iraq. I believe, by the way, personally from what I've been able to get, that a key winner in that was Vice President Biden. And Biden wanted to get out; there were other people who wanted to stay in.

I think the president is still deterred -- we talked about this earlier -- by the fear of looking soft. I think fear of the political impact of publicly being criticized by General Petraeus had a -- had an impact before. And I was troubled that Panetta kept speaking for -- said, I'm speaking for the president when I say no further cuts. But over the last few days, the president has authorized statements that said he will oppose any amendment that's sequestered. So he's better than that, but still not good enough.

Look, I will go back to this, and -- you know, I speak now partly, obviously, as a liberal. I worry about what this does to the country. I am convinced our ability to do things with the federal government that I think are necessary for the quality of life and for social justice, inequality, as a liberal -- the prerequisite is a substantial defense reduction. It is simply impossible to talk any reduction in the gross inequality that we have without some resources being deployed by the federal government.

That's not all it is. Little things. Like community colleges, which I think do such a great thing as transmissions forward, they're all hurting right now because they all (have to be ?) publicly funded. So I worry about that, and it's one of the things I, frankly, looked at -- you know, to get across to the president, that our capacity as people who believe in a positive role in government, to improve the quality of life and to reduce inequality, is threatened by the military.

And I don't know where the president stands now. He's clearly -- when he said he would veto the sequester, that was very helpful. And I just don't know, maybe he's trying to not get to that point. And in fairness, too, I have to say even Panetta and some of the Democrats, their argument is that we should raise taxes to avoid this. My Republican friends basically say you will not raise taxes at all and you will not reduce military spending at all, which is then, of course, devastation for everything else.

ADAMS: Yes, sir.

QUESTIONER: What changes do you foresee in --

ADAMS: Would you introduce yourself?

QUESTIONER: -- the attitudes of the Europeans --

ADAMS: Hello? Would you introduce yourself?

QUESTIONER: Your name.

QUESTIONER: What? If I push something?

QUESTIONER: Your name.

ADAMS: No, I just want your name and affiliation.

QUESTIONER: Oh. Larry McQuade from River Capital.

ADAMS: Thank you.

QUESTIONER: What attitudes do you foresee in the changes or activities of the Europeans and the Japanese and the Chinese and so forth if we adopt the course of action you're recommending?

FRANK: Well, one, I think it would -- and I'm serious about this -- it would have a very great psychological effect on the Europeans, because they would instantly decide they were much safer. And I mean this seriously, because they tell us we need to keep the troops there. And if we were to withdrawal substantially the troops from Western Europe, they would not increase their military budgets. I wouldn't if I were they. I'd like them to have a little better capacity in Libya. I think they would acknowledge the fact that they are -- they are not threatened.

In Japan, it would be mixed. After these long years of the conservative government being in power in Japan -- the more liberal government won, the one that's now in power, they were in, out again -- one of the biggest problems they had was that they had promised to ask America to leave Okinawa, and the American government refused and very much destabilized that government. And I think if we did it in the right way and noted the 7th Fleet was still there, that they might be a little bit upset but it would certainly have no negative consequence on us.

And I'm glad you asked that question, because the other thing is, what does it mean if they'll be upset? Well, to some extent, I must tell you, it's like -- I'm supposed to get worried, I'm told, because the Chinese are making some economic advances in Africa. Good luck to both of them. How does it hurt me if the Chinese are selling and buying things and have -- I mean, they're not taking our markets away. Well, there will be anti-Americanism, they said. I do think the interventions cause more anti-Americanism than the troops there.

But if they -- they will tilt towards China. I don't -- you know, that's one of these geopolitical -- they'll tilt towards China. Well, people don't know the difference between a country and a pinball machine. (Laughter.) I don't know what it means, they'll tilt towards China. You know, how doe that -- let them. I mean, I do think one of the things we have is that we believe the rest of the world -- that we need the rest of the world more than they need us in terms of attitudes. I mean, yeah, we have some real things. I want openness to markets, et cetera, et cetera.

So the answer is they might -- if you ask them, they might -- they would prefer we were there, although it's more ambivalent in Japan. But it would not -- the best answer -- I've talked for too long -- it would not change their behavior in any way that would seem to me to cost us anything or penalize us in any real way.

ADAMS: Yes, ma'am.

FRANK: Behind you, Lucy.

QUESTIONER: Oh, sorry. I'm Lucy Komisar. I'm a journalist. I was glad you made the point about the audit, because I know the Pentagon has refused to comply for quite a few years with the congressional law that says you have to have an audit. Whatever happened to the idea of zero-based budgeting? And could this be put together with an audit so that maybe you can get rid of two of the air forces instead of just one?

FRANK: Well, I don't want to get rid of both. I mean, I do think there are bad people there and I want some troops.

Secondly, I'm skeptical of zero-based budgeting. I think it's an overrated exercise. I mean, I -- (said, oh ?), you start from zero. Well, I know we need an army. I don't have to go back to zero. And I think it's an intellectually very difficult exercise. I think incrementalism has a lot to be said for it in this situation.


QUESTIONER: Jeff Safer, JRSafer Insight. You make an excellent case, Congressman, but you say you're having to go at a moving target; first the people on the other side are making arguments, all these security arguments, then they're making jobs arguments.

Isn't behind it all the fact that you -- your colleagues, anyway -- are the enablers of this? You expect the Defense Department to ask for more, just like the Agriculture Department does, the Transportation Department and anybody else. But if somebody's going to say no, it's going to be the Congress. What is it that has to happen to create the environment on Capitol Hill where that can happen?

FRANK: Well, one -- yes, of course, we -- they can't spend money we don't vote. I think it -- there is this fear that's out there. I think it -- the viewpoint I have is growing in Congress. There is more willingness to do it. And what has to happen I think has happened; namely, that the question has now been transformed from whether or not to cut defense, should we take the risk on that, to should we cut defense or Medicare, should we cut defense or raise taxes on wealthy people. And now that it is a zero-sum game, I am somewhat optimistic that this will work.

I believe that if we go to a sequester and they have this terrible dilemma, I do not believe they could get a bill through now -- 10 years ago, they could have gotten a bill through to exempt defense from the sequester. I don't think they could do it today, because they would either have to raise taxes, reduce the amount of deficit reduction, or make cuts in Social Security, Medicare, that went too deep. So I think my colleagues are there.

I am also spending a lot of time trying to energize people. (Listen, ?) when anybody comes to see me from any group and says, we need more money for cancer research, we need more money for mental health, or we need more money for environmental cleanup, my answer is: Yes, and you will only get it if we can reduce military spending, because we are at a limit and it's got to be either/or. That I think is beginning to help.


QUESTIONER: Jeff Laurenti with the Century Foundation. Congressman, sea lanes are also cited as the reason for a major American military presence in the Middle East. And you had in your opening presentation suggested that, unlike Europe, Middle East levels of force deployment probably are about right. And yet we see that in the next three, four years, Europe will exceed the U.S. in terms of being the biggest oil importer; China by 2020. To what extent, if the security of oil traffic through the Gulf is the major reason for our major military deployment there, can this, should this, be in a sense multilateralized? And if that's not really the reason, what size force deployment do we need --

FRANK: Well, I agree.

QUESTIONER: -- for whatever U.S. interests are?

FRANK: I wouldn't -- by the way, if I -- if I was sloppy in my thinking and said that we should keep it at the level it's at, no, I don't think we have to stay at the level we're at anywhere, including in America. But I do see a (precedent ?). I don't think it's the sea lanes. And we were talking before: Of all the things the Iranians would do, shutting off their ability to sell oil would seem to me to be the -- they're, I think, you know, more likely to go to shul than to shut off their -- you know, their oil. (Laughter.)

But the purposes, I think, are twofold: one, to reassure some people about Iran and the fear of Iran; and two, I would very much like there to be peace in the Middle East. Peace in the Middle East will require an Israeli government that is prepared to take some risks. Israel being a democratic society and with people being skeptical, there is no way to get an Israeli government to take the kind of risks that I think will need to be taken unless they have a very high degree of security in America. You talk about how many troops they need in the Jordan Valley: The less they think America's going to be there, the more they're going to need, and the harder it's going to be.

So I think an American presence in the Middle East to reassure some people about -- reassure people about Iran is a part of it. But in particular, I do think peace in the Middle East requires there to be an Israeli population that believes that America will be there as a guarantor of the peace; the Israelis, you know, have asked for troops. And that's a thing that -- (inaudible) -- and that doesn't mean you have to have the -- all the forces that we now have. And look, it's an embarrassment that we have this -- and you know, sometimes you have to have some compromises. Bahrain is not obviously the favorite place to be. But I don't think it has anything to do with the sea lanes. I don't think that is the -- that is the problem.

I'd like to move them a little bit -- would it be, what, south -- and go after the Somali pirates. Now, that would be a very useful thing to do.

ADAMS: The mic.

QUESTIONER: Hey, Warfield Price (sp), J.P. Morgan. Do your comments on cutting expenditure also relate to intelligence? And can you talk a little bit about the zero-sum game between intelligence and actually --

FRANK: I would cut that some, although, you know, we -- I guess there was this terrible mistake, that they released a document which had the intelligence budget. And they immediately withdrew it and said: Nobody -- nobody read this. (Laughter.) It was almost like out of "Saturday Night Live."

But I don't know enough. The -- I'd like to say this. The orders of magnitude are not the same. If we scale back our strategic reach, there should be some reduction. On the other hand, I -- you know, intelligence about the bad guys, so we can kill them, is important. But I'm somewhat agnostic on that and -- I would assume that you'd cut back on some of the strategic -- (inaudible) -- that says we've got to be able to hit every target everywhere in the globe. But it's one of those things that we've got to know where every target everywhere in the globe is. But I don't see major savings there, but it's not an area of my expertise.

ADAMS: Pete Peterson.

QUESTIONER: Pete Peterson. Congressman, you mentioned a very interesting number: a third reduction in the budget. What are those specific elements that would lead to that kind of reduction?

FRANK: Well, 120 come from pulling out of Afghanistan. That's the incremental cost of the war in Afghanistan. And then, there are a variety of candidates. Reduction in end strength -- i.e., the number of people in the Army -- some would say in Air Force and Navy. I don't think we need the F-35; The Times had a good story about some of the nuclear reductions.

But, to some extent, Peter, I would leave them some flexibility and let them, you know, make some specific decisions. But I -- you cut 120 out of the -- of Afghanistan; then you've got to find another hundred. And it's a combination of reduction of the nuclear arsenal; withdrawing -- and of course, it costs more money to keep the troops over there -- reduction in end strength of the military; reduction, as I said, in the nuclear arsenal and a cutback in the procurement of the weapons. That is the mix.

And I'm prepared to be somewhat flexible, because I do think -- and part of this is -- and you know, like you talk about the work you're doing -- to some extent, it would depend on the strategic thinking. You start with, what is the strategy?

I think at this point we have a global strategic framework: We've got to hit every target on the globe; we got to provide security and stability everywhere. And I -- once we recalibrate that to what is our national security needs, and what are legitimate humanitarian needs or cooperative needs -- for South Korea, for Israel, for Taiwan -- once you decide that, then I think you get more into the specifics.

So, to some extent, it's an estimate. But it is based on reduction in military end strength and shutting down many of the overseas bases -- oh, and reduction in the Navy. You know, we don't need to do the sea-lanes, and we don't need some of the new nuclear weapons -- the new nuclear delivery systems.

ADAMS: Anybody else?

Yes, sir.

QUESTIONER: Nissa Agua (ph) of Pace University. In both the theory and practice of corporate finance, we use a metric called net present value or internal rate of return analysis. Does the government do any type of quantitative measures like that when agreeing to do either stimulus spending or cuts in defense spending?

FRANK: Not in cuts in defense spending. They try to do it with stimulus spending, although the problem with government is that there are always multiple objectives. For example -- and this one of the factors -- the Economic Recovery Act -- but if you -- I'll give you a little semantic inside information here: From the very beginning, in 2009, we were urged to refer to it as "recovery" and not "stimulus" because they did focus groups that reported that "recovery" sounded better to people than "stimulus." My response was that that seemed counterintuitive to me: that most people that I knew preferred being stimulated to recovering -- (laughter) -- but I was apparently -- I was apparently not -- my instincts were not right.

But the problem was that it was both to get jobs, but also to promote green energy. It was a -- unlike, say, where you are in a private sector and you have profit as your overwhelming motive, we often have multiple motives, so it is harder to figure out what it is in -- of what it is, the net present value you are calculating. In the military, it almost never happens because you have a -- you know, the -- and I think part of it is that with the military -- and it goes back to that first question about efficiency -- the military has not -- they ordinarily do not feel nearly as constrained as almost any other organization by shortage of resources. And so, why would you bother doing that if you think you're going to have the money anyway? I mean, these people who have overruns and overruns and -- are built in.

So the answer is, in most cases, no, I mean, I think the Federal Reserve, the Treasury do more of that where there is a more mono-purpose situation.

ADAMS: We have one more question here, and I think that will be the last one, as we've reached pretty near the bewitching hour.

QUESTIONER: David Nachman (sp), the Attorney General's Office of New York -- only for identification. (Laughter.) If you could peel off 20 to 30 of your Republican friends to support the vision that you've outlined today, where's the rest of your party on this?

FRANK: Well, the Democrats are getting better. They're not all there. Again, I would defend their -- on the votes we've had on this, the Democrats were about -- trying to remember -- something like 135 to 55 for substantial cuts. And I'm sufficiently confident of that that I've asked for a caucus of the Democratic -- of the House Democrats this week to talk about this.

We had a vote this year, before we got into the zero-sum framework, on -- the Appropriations Committee proposed increasing the military budget by $17 billion -- less than the president, who had asked for 34 (billion dollars), and that was encouraging to me. A tea party Republican, Mick Mulvaney from South Carolina, offered an amendment to cut out all 17 billion (dollars), but he didn't get -- and he -- I voted for it; others did. He got about 150 votes. I then had a fallback, which was to cut the 17 billion (dollars) to 8 1/2 billion (dollars) -- cut it by half -- and I got 181 votes; which was, A, discouraging and, B, the best we've ever done on this. So it is moving.

And the answer is -- and by the way, on that -- this is what has occurred: Between my amendment and Mulvaney's, 71 Republicans voted for one or the other, and so I -- we're getting close to 200, and maybe more. If the question is amending the sequester, then I think we have 180 of the 195 Democrats, and it is -- it is -- it is a -- it is ongoing.

But the Democrats are -- and again, on the Democratic side, even Adam Smith, who is the senior Democrat on the Armed Services Committee -- he comes from Washington; has a good respect for Boeing, but he's doing this on what he thinks is the right policy. He says to the Republicans, OK, I agree we shouldn't cut the military; you got to raise taxes. And that is very interesting. That's going to be the key piece for them.

So the answer is the Democrats are about 70 percent there -- better than it was. And I'm keeping the work on them.

ADAMS: Well, stay tuned for more, because I am certain this is an issue that is not going to go away. Those of who have watched and appreciated Barney Frank as long as I have know that if he ever gets tired of serving in Congress, he has a great future in political stand-up. (Laughter, applause.)

Thank you, Mr. Congressman. (Applause.)







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