I've posted in the past that when Nixon was tossing out his campaign pledge of eliminating the draft, then COL Jack Vessey questioned, during a conversation amongst a group of us, whether we could afford the ultimate payroll costs. His premise was that in order to be "competitive" with civilian sector compensation, the necessary compensation for E-1 through E-4 to stimulate enlistments would drive the whole pay structure through the ceiling, to include the ultimate retirement costs as well. Overall, he predicted cuts in the classic 50% at 20 years service retirement, which was first done in 1980, as well as other benefit cuts.
To stem the bleeding that the pension base caused, annual pay increases, which were adjusted to place all the increase into base pay (from which pensions were calculated) were soon spread across both base pay and non-pension generating allowances. Thus, on retirement day, an E-7 who was receiving about $6,000/month in base pay and allowances, would have his retirement computed only on the $4,100 that represented base pay. Not a complaint, but an observation.
It would appear that Vessey was spot on, as there has been for a while serious concerns over the payroll costs. Rummy resisted end strength increases, less it take away from his hardware desires. Columnist David Wood recently wrote this piece on the subject.
We've discussed the socio-political aspects of the AVF. Now, perhaps, there might be economic discussion as well?