Why defense spending mysteriously surged 13% last quarter — and boosted GDP

http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/10/26/why-defense-spending-mysteriously-surged-last-quarter-and-boosted-gdp/



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(unhappycamper comment: No shit - this caption from the Washington Post.)

Why defense spending mysteriously surged 13% last quarter — and boosted GDP
Posted by Brad Plumer on October 26, 2012 at 11:40 am

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Still, the huge uptick last quarter was unusual. So what happened? Here’s one explanation: “In the Pentagon, you have to use it or lose it by the end of the fiscal year in September,” says Lawrence Korb, a former assistant secretary of defense now at the Center for American Progress. “You see this a lot. ‘We’ve got to fly a lot this month for training, otherwise Congress will take back the money they gave us.’ “

Michael O’Hanlon, a defense analyst at the Brookings Institution, concurs that defense expenditures often rise just before the end of the fiscal year in September. Every year, Congress provides the Pentagon with a certain amount of budget authority. If the military doesn’t spend the full amount, there’s the risk that lawmakers could come back the following year and reduce the defense budget. “The Pentagon wants to show that the money’s well spent,” says O’Hanlon. “But they can also fall out of favor with Congress if they spend too little.”

But then why was the surge in military so unusually large this past quarter, compared with previous Septembers? Two reasons. First, the Pentagon is facing the prospect of sharp budget cuts at the end of the year as part of the looming sequester. There’s been some talk that the military could even lose money that’s already been budgeted but hasn’t been spent yet — so the Pentagon has additional incentive to spend funds now that have been budgeted over multiple years.

The other factor, Korb and O’Hanlon note, is that Congress was late in setting the defense budget for fiscal year 2012: The budget was finally patched together through continuing resolutions in the winter. So, for a significant period, the Pentagon was unsure exactly how much it could actually spend. That could help explain why defense expenditures and investments were relatively anemic earlier this year and then skyrocketed right before the fiscal year ended in September.