The era of big government is back. But conservatives ought not simply to worry about the size of government or the federal deficit--although a $1.7 trillion deficit is an eye-popper. They should worry, too, about the shape of American government. Barack Obama may be running up World War II levels of debt, but he'll be running down the U.S. military.

Of course, that's not what the headlines on administration press releases or in the actual newspapers say. Even the leading defense industry paper, Defense News, trumpeted "Obama Budget to Boost Spending" for 2010. But a closer reading of even the sketchy budget charts provided by the administration this week paints a very different picture.

Take first the question of the current budget, the fiscal year 2010 spending that Congress will approve this year. As during the Bush years, there are two critical accounts to track: the normal or "baseline" defense budget and the "emergency supplemental" appropriations to cover wartime costs. In order to understand what's really happening, it's crucial to try to keep these distinctions clear. To make an everyday analogy, it's the difference between the sticker price of your car--what it costs to bring it home from the dealer--and the expenses of filling it with gasoline and keeping it running.

In 2009, the Bush administration's baseline budget was $513 billion, and the plan was to spend $523 billion in 2010. The Obama administration announced this week that it would "boost" the 2010 figure to $533 billion. So the Obama budget is bigger than the Bush budget, right?

The reality, though, is something quite different. Here's where the question of wartime supplementals comes into the picture. The Bush administration's last supplemental requests were for $188 billion in 2008--at the height of the Iraq surge--and a $65 billion installment on the war costs of 2009. The Obama budget adds another $75 billion in war costs for 2009, for a yearly total of about $140 billion. What accounts for the whopping difference between the 2008 spending of $188 billion and the $140 billion to be spent in 2009? It's not, unfortunately, that the success of the Iraq surge or the drawdown now beginning in Iraq are saving much money. Indeed the immediate costs of a safe withdrawal are no different from those of staying on. And, with a second surge--really, a long-term ramping up--of forces in Afghanistan about to begin, the supplemental cost of those operations is going way up.

What's happening is probably that what previously has been counted as "war costs" is migrating from the supplemental appropriations to the baseline budget. This is what reformers, good-government types, and the folks in the Obama Pentagon mean when they talk about "honest budgeting."

Particularly in the 2007 and 2008 supplementals, tens of billions of dollars were spent to "reset" the Army, which has seen its equipment stocks decimated by the efforts in Iraq and Afghanistan, and to buy needed gear like the heavy Mine Resistant Ambush Protected vehicle--the Big Wheel-like carrier that is being used in convoys and for patrols instead of the thin-skinned Humvees. The Washington Post reported, too, that the costs of countering improvised explosive devices, the increasingly sophisticated "IEDs" that account for a disproportionate share of American casualties, are now to be paid for out of the baseline budget. The bottom line is this: The Obama defense budget isn't "boosting" anything. As should become apparent over the next two months as the administration prepares detailed defense budget proposals, this actually is the beginning of significant cuts in defense programs. What the president really means when he talks about "hard choices" is a less capable U.S. military.

The Obama budget is an especially stark and in-your-face announcement of a new direction for the country. Indeed, budgets are the most concrete expression of a government's prejudices and ambitions.

Consider how, per the budget, Obama imagines the America of 2016. The economy has recovered in fine style. The stimulus produced a spurt of growth and the economy is expanding permanently at about 2.5 percent per year. Inflation remains low, about 2 percent, the annual federal deficit is "only" $500 billion, and total GDP is a touch more than $20 trillion. These are the assumptions enshrined in the Obama budget.

But the government itself looks more like the government of France than what American governments have looked like in the past. We'll be spending $4.5 trillion on social entitlements--Social Security, Medicare, and Medicaid--debt servicing, and other mandatory programs. That's about 22 percent of GDP. Discretionary domestic programs--the prime source of congressional pork--have grown to nearly $700 billion, another 3.5 percent of GDP. Defense spending will be smaller. The baseline defense budget will be $594 billion, less than 3 percent of GDP. That's half the 50-year Cold War average.

The United States cannot remain the sole superpower, the guarantor of the international system, if it chooses to spend just 3 cents of every dollar on defense. The Obama administration loves to talk about "soft power" and "smart power," but the fact is that "hard power" is still real power. The Obama budget is a plan for steady American decline.

It also plans on a rapid retreat from current commitments. Announcing his Iraq withdrawal plan in a speech at the Marine base at Camp Lejeune, N.C., on Friday, Obama said--"as plainly as I can"--that U.S. combat forces would be out of Iraq by August 31, 2010, and that the "residual" force of advisers and trainers would be gone by the end of 2011. The budget codifies this timetable in dollars: The projected wartime supplemental for 2010 drops to $130 billion. The largest slice of that pie will pay for the withdrawal of 12 combat brigades from Iraq, while it's likely that the costs of fighting in Afghanistan--where commanders see 2009 as a holding of the line in preparation for more effective operations in 2010--will begin to equal Iraq costs. But the big drop is planned for 2011, the year that the Iraq status-of-forces agreement takes full effect. In that year, the Obama budget has a "placeholder" for wartime costs of just $50 billion. Based on the numbers, by 2011 Obama plans to be fighting the "Long War" at less than one-third the cost of the effort of 2008. He's fulfilling his end-the-war campaign pledges, but almost certainly at the sacrifice of any lasting victory.

An American retreat that leads to a longer-term American decline will make for a very different world. Obama's budget is a signal to friend and foe alike that the United States is turning inward, will be a less certain ally and a less powerful adversary. It's there in the numbers. Indeed, these numbers almost perfectly reprise the Clinton "peace dividend" of the 1990s--minus the peace. How the world will respond to the combination of a deep and long-lasting economic contraction and a shrinking of American power is difficult to say. The historical precedents are not encouraging: These are the conditions that preceded World War II.

There is nothing inevitable in any of this. President Obama is presenting one path forward. Other political leaders--especially those who understand America's role in the world--can present an alternative way forward.

Tom Donnelly is a resident fellow at the American Enterprise Institute.

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