Thursday, April 3, 2014

Spot on predictions in 1970

In the late 60's, it was difficult for Aviators to advance beyond O-5, as the demands of Viet Nam and the Training Base precluded assignments in our Basic Branch that were necessary for advancement.  Being an Aviator was just a special skill identifier for officers in the various Branches.  As I have mentioned elsewhere, in 1969, CSA William Westmoreland decided that a shortfall in O-6 Aviators should be "cured" not by special instructions to promotion boards to advance highly qualified Aviators based in OERs and responsibility levels in lieu of "Branch Material" assignment, but to put 70 Colonels through Flight School.  Within the established Aviation community, we quietly referred to these Colonels as "Change of Life" or "Manopause" Aviators.  Some were quite good, and some were a farce.  I was an Instructor at Ft Wolters at the time, and chosen to instruct some of these Colonels.  Fortunately, the four assigned to me (two at a time) were first rate, and were very valuable mentors for learning the ins and outs of the rarefied air of DA and Army policy.  The second pair (both WWII, Korea and VN combat vets) were students when Nixon sent his Special Message to Congress on Draft Reform.

Shortly after the above message, after giving the two Colonels a Saturday morning tour of the maintenance facilities and fleet management operations for the School (we operated some 1,300 helicopters), one Colonel put on a barbeque for our families.  While gathered around the fire, beers in hand, the three of us began to discuss the President's plan.

Both COLs saw it as our "marching orders", and while they expressed their views on the future impact of an AVF, neither was judgmental.  Rather, they were looking at what they saw that leaders in the future would have to contend with.  Of course, none of us could predict the future conflicts our nation would be involved in, and most assuredly not the past 11 years.

First off, one COL addressed the magnitude of the opening round of increase in pay and benefits Nixon put on the table to be able to recruit and retain sufficient numbers of troops.  He predicted that the day would come when force structure will be significantly limited by personnel costs versus strategic needs. He also predicted that increasing pay would begin to cause an erosion in benefits, due to 1) the pay being seen as sufficient for the troops to do without subsidized benefits and 2) the burgeoning personnel costs of the AVF.

If we were going to pay "competitive"  wages that recruited and retained, the COL said, we would be locked into an ever increasing upward spiral.  When the economy is strong, higher wages will be needed, but when the economy is weak, there would be no way to decrease wages.  Thus, from a "market standpoint", the odds are that DOD would be always paying a premium wage.  And his prediction was pretty much spot on.

We have seen the force structure limits of personnel costs.  Rumsnamara vigorously fought end strength increases to preserve funds for fancy hardware, without regard to the impact it was having on the troops who had to face repetitive tours in hostile fire zones.  And, we are again trimming back end strength to meet funding constraints, while pay increases are suggested to be seriously capped for the next few years.  The payroll tab is just too high.

One benefit which he saw as being "fragile" was our newly received CHAMPUS (1966) which was the very first national program of civilian health care funding for dependents and retirees.  We are all aware of the various proposals floating to shift more of the cost of TRICARE (CHAMPUS' descendant) onto retirees, no less active duty dependents.

Another was retiree pay.  Since 1980, there have a couple of pieces of legislation to try to bring down pension costs, not the least of which was the recent attempt to cap COLA prior to age 62 for currently serving and retired personnel.  Congress has been basically schizoid about pension computation.  Do you reduce the pension tab and hinder retention?  So far, they have been very reluctant to find out.  The one attempt to seriously reduce pension rates, REDUX in 1986, didn't last long, and was made effectively voluntary, drawing few takers.  Another decrease in pension liabilities took place when military pay increases were spread across base pay, meals and quarters allowances, versus solely on base pay.  That took the portion added to allowances out of the pension computation.

While it wasn't a major personnel cost in 1970, Housing Allowances in subsequent years rose dramatically to match the average community rental costs plus insurance and utilities.  This year, they are being scaled back a fair bit.

Additionally, that COL saw various appropriated fund (tax supported) activities being shifted to non-appropriated (no tax support) status as well as commissaries coming under attack.  Again, spot on.

On a "lighter note" he also foresaw base closures for cost savings that would reduce the number of "enjoyable duty stations", no less result in fewer opportunities for "compassionate assignments", thus reducing the "attractiveness" of military service, which would only raise the costs of recruiting and retention.  We have seen several BRAC rounds, and DOD is now pleading with a highly reluctant Congress for more.

After all has been said and done, it has been end strength that has been the major tool in keeping personnel costs and thus DOD costs down, and there are definitely limits to end strength reductions if you wish to have a standing military of any capability.  So, where does DOD go from here?


However, it was the other COL who raised the most interesting notion.  In 1970, junior enlisted and junior officers looking forward to "getting out" was an every day occurrence that had been in place for 25 years.  After all, the draftee or three year enlistee was definitely going to be able to earn more on the outside, as would, most likely, the first tour Lieutenant.  Turn over was a natural course of military life.  Would a well paid AVF result in greater pressure to stay in, both in terms of finances and peer pressure?  What would be the psychological impact of such pressure to stay in on an all volunteer population versus a draft motivated population?  (BTW, it was from these two COLs that I first heard the term "draft motivated military").

It is this last question that intrigues me, as along with the pressures suggested by the COL, another new factor arose, that of long term assignments to the same unit.  In the Army, the same groups have been rotating into and out of Iraq and Afghanistan, pretty much together, for 10 years.  Has a notion of "responsibility" to one's comrades pressured Soldiers to remain in service even when they would prefer to do otherwise?  Are the combined uncertainties of civilian life and a sense of loyalty to one's fellow soldiers placing a new stress on AVF troops that wasn't there before?  Added to that is the impact of "Stop Loss" extending ETS dates, making another tour overseas guaranteed for many troops.  Does that further raise the pressure to just "stay in" after returning to CONUS?  Have we effectively created a personnel "meat grinder", and has this "meat grinder" contributed to PTSD rates?  Are there a significant number of troops who feel that there is effectively no "escape" without "turning on their comrades"?

I don't pretend to know the answer to the "stress" questions, but I do think they are in play.  Have we painted ourselves into both a fiscal and psychological stress corner?   Can we attempt to be a "world class military" power without breaking the bank in both fiscal and personnel terms?  Has our love affair with military adventures gone too far?  Is anyone even asking these questions or just accepting unchallenged "givens"?

BTW, the one issue I do not recall being discussed was an increased reliance on women in the military!


17 comments:

  1. "If we were going to pay "competitive" wages that recruited and retained, the COL said, we would be locked into an ever increasing upward spiral. When the economy is strong, higher wages will be needed, but when the economy is weak, there would be no way to decrease wages. Thus, from a "market standpoint", the odds are that DOD would be always paying a premium wage. And his prediction was pretty much spot on."

    Actually, no - that's nonsense.
    Wages display a very strong downwards rigidity in the market economy as well. The idea that you can reduce pay rather freely in a market economy is at best of anecdotal relevance.
    And he'd still be wrong even if there was no downward rigidity of wages in the market economy, as there would be no need to increase mil pay as long s civ pay hasn't catched up; the scenario is about "competitive" pay, after all.

    Military bureaucracies tend to require large budgets for personnel because
    (1) many of the jobs suck, and neither rank nor pay is specific for a specific job
    (2) very large militaries need to pay much because they need to pay at the marginal rate, and that one is increasing with size
    (3) a trend towards top-heaviness, with high-ranking officers skewing the average personnel costs
    (4) wastefulness (especially in countries where a special prestige allows the military to get away with administrative incompetence)
    (5) hardships of deployments and cruises
    (6) inability to quit as easily; basically the military is paying for the ability to deny the people the freedom to quit the jobs within weeks
    (7) risk premium
    (8) relative uselessness of job experience for later career stages in the civilian world

    A great cost-saving more would be to aim for less personnel, and with a slimmed-down head.

    ReplyDelete
  2. Sven- "(3) a trend towards top-heaviness, with high-ranking officers skewing the average personnel costs"

    Under US law, officers in the grade of Colonel cannot exceed 0.8% of the total manpower, Lt Col, 1.9% and all flag officers (generals and admirals), 0.07%.


    "Wages display a very strong downwards rigidity in the market economy as well. The idea that you can reduce pay rather freely in a market economy is at best of anecdotal relevance."


    Entry level wages are far more elastic in the market, especially in the US, where collective bargaining (unions) is a negligible force (under 7% of the private sector). Military wages are set by law, and have never been reduced when there was a "surplus" of available entrants, but enlistment "bonuses" have. The Army's per entrant costs of recruiting in 2012 were $22,300. How many employers in the civilian market pay $22,300 per recruit for inexperienced high school graduates?

    However, the point of my post was not the "rights or wrongs" of military service, but the spot on predictions of these two officers on the direction and size of the personnel account, which in 1970 was not a limiting factor. Nor was the potential for the personnel account to so severely limit the force structure ever addressed in the "Gates Report".

    Yes, reducing personnel will reduce costs. However, since the military is a labor intensive task, reduced personnel means reduced capability. As it is, many support tasks have been contracted out to avoid the immediate ancillary personnel costs (medical, mess, training, housing, etc) as well as long term personnel costs (pension, veterans benefits).

    I am not advocating any level of capability, but it is clear that our Congress is in a quandary over having the level of military capability they want and being able to pay for it, something that was clearly evident to these two COLs (one of whom, BTW, rose to Chairman of the Joint Chiefs), but totally overlooked by Nixon et. al.

    As the size of the force diminishes, unless our country chooses to be less "adventuresome", the nature of the military task will become even less desirable than you describe and will demand even more personnel costs to recruit and retain. Unfortunately, our elected officials cannot, or choose not to see this.

    "American exceptionalism" bars us from reassessing our place in the world. Thus, we have those who simply think we should take military action everywhere and anywhere.

    ReplyDelete
    Replies
    1. " The Army's per entrant costs of recruiting in 2012 were $22,300. How many employers in the civilian market pay $22,300 per recruit for inexperienced high school graduates?"

      How many employers in the civilian world are hiring under anywhere near the same circumstances?

      Delete
  3. http://www.frbsf.org/economic-research/publications/economic-letter/2012/april/strong-wage-growth/

    Look at figure 2.

    ReplyDelete
  4. Al,
    You don't mention suicide when discussing stress of military service. There is a new DOD study on the topic and the result/conclusion is that the rate is so high because we recruit folks who should , or would've been unfit for the draft army. This seems a reasonable concept, except why not discharge them when they become clinical?
    But that's just a tangent on your essay.
    Strangely the other day i came to the same conclusion as you in that we have painted ourselves into a corner,and in so many different ways.
    jim

    ReplyDelete
  5. Sven

    I quote from you link:

    "Because nominal wage growth for a large fraction of workers has been held to zero, a somewhat higher rate of inflation would grease the wheels of the labor market by allowing real wages to fall"

    From the Rand Corp: Basic [military] pay grew 45 percent from 2000 to 2011, more than the Employment Cost Index (ECI) (up 33 percent) and the Consumer Price Index (CPI) (up 31 percent). Regular military compensation (RMC - total of basic pay, allowances for meals and housing, tax advantage of allowances and market value of free health care for deopendents) grew even more. After adjusting for inflation, RMC grew an average of 40 percent for enlisted members and 25 percent for officers. RMC growth was higher because of increases in the basic allowance for housing. RMC is above the benchmark of 70th percentile of civilian pay and stands at the 80th percentile or higher for enlisted personnel and officers with a bachelor's degree and the 75th percentile for officers with more than a bachelor's

    I would invite your attention to the figures that show that the compensation of enlisted personnel increased 60% more than officer personnel, refuting your claim of "high-ranking officers skewing the average personnel costs".

    ReplyDelete
    Replies
    1. You're unable to actually refute what I wrote until you fill in the missing variables:
      * change of share of officers
      * difference in individual pay between officers and enlisted
      for those 25 and 40% are about per head, not for the groups.

      qty of officers * average cost or pay per officer
      qty of enlisted * average cost or pay per enlisted
      The former product grew by a higher percentage than the latter. That was my assertion.

      Delete
    2. Sven-

      As I posted above, the ratio of officers, by grade, to enlisted in the force is fixed by law. There has been no change in this ratio for a very long time. The structure cannot become increasing "top heavy" as you allude. As I posted, the law limits Lt Cols to 1.9% of the total force, and COLS to 0.8% and Generals to just 0.07% of the overall force.

      Rand Corp figures were based upon average RMC of each of the two groups. If each officer's RMC increased by 25%, then the total officer RMC (group) also increased by 25%.

      To put it in simple numbers:

      A "Full Colonel" with over 20 years service is paid about 10 times more than a new Private just out of Basic Training.

      If 1.2 Million enlisted each receive a raise of $25/mo, it results in a $360 Million/yr payroll increase.

      If you gave the 38,780 "senior officers", LT Col through General, (2.77% of a 1.4 million force) 10 times that much of an increase ($250/mo), it would total up to $11.6 million in increased cost, or about 3% of the combined total increase.

      In short, the Senior Officers are not the major payroll expense you make them out to be.

      Delete
  6. jim-

    There are so many human factors involved in the "stress" and reaction to same. Mrs Av questions the easy access to videophone and the "stress" whining wives can put on soldiers totally unable to help them with leaking faucets, bills, etc. Back in RVN, the women generally just "kept the home fires burning" and we had to assume they were doing OK, which we generally did.

    As to the quality of the "protoplasm", I would be hard pressed to accept that the lowered admission standards haven't brought in a fair dose of people that would have difficulty with life in Hometown, USA, no less the rigors of any form of deployment. As I said above, we are running these folks through a meat grinder. A friend of mine said many years ago that one of the benefits of the draft was a good peppering of older, more self-sufficient people in the lower ranks. Also, the percentage of junior enlisted with dependent families has increased dramatically, and one of the driving forces behind ever increasing pay for folks in their first 2 to 4 years of service is to made married life affordable. In short, a wealth of socio-demographic changes since 1973, yet the Gates Report really addressed none of these.

    ReplyDelete
  7. "n the Army, the same groups have been rotating into and out of Iraq and Afghanistan, pretty much together, for 10 years. Has a notion of "responsibility" to one's comrades pressured Soldiers to remain in service even when they would prefer to do otherwise?"

    This is only partly true from my experience. Coming back from a deployment, soldiers are pretty quickly dispersed. It's the rare bird that stays in the same battalion for more than 3 years (at least for combat units). In most cases, for officers, you'll get 2 years on the line (presuming a new LT), then transition to another battalion HQ/XO position in another battalion. Same applies for sergeants. Once you get to captain and senior enlisted, you might be expected to be around for 3 years in the same battalion, but not always.

    Honestly, the Army does a pretty serious job of breaking up groups of soldiers. 6 months after returning from theater, the number of soldiers who had deployed with my unit was down to below 50% and within a year was down to more like 30% or so. Not sure if that was how the handled it in 2005-2006 but that's how it was when I was around. A couple dozen key leaders stay, but everyone else goes elsewhere.

    ReplyDelete
  8. The USA military has a serious medium term problem.
    Today, it outspends the next 10 countries combined (more actually). However, maintaining this relative advantage is unsustainable as its competitors get richer.

    Instead of exhausting itself trying to stay on top of a very greasy pole, the US government should be seriously thinking of managing the transition while it *has* the advantage.

    ReplyDelete
  9. Ael -

    Instead of exhausting itself trying to stay on top of a very greasy pole, the US government should be seriously thinking of managing the transition while it *has* the advantage.

    A level of rational thinking that has yet to be seen since the fall of the Soviet Union, and totally counter to the notion of American exceptionalism.

    ReplyDelete
  10. Corrected a typo in the Original Post. CHAMPUS began in 1966, not 1996. Prior to CHAMPUS, military dependents had no health care insurance for outpatient civilian care. If you didn't have access to a military treatment facility (MTF), you paid out of pocket. Dependent inpatient medical care could be covered pre-CHAMPUS, but required pre-approval by the nearest MTF, and was directly paid by the approving MTF. Thus, your dependents' care was at the discretion of the local MTF commander.

    ReplyDelete
  11. What is significant today, is that costs are not only being addressed by force size, but several measures are concurrently on the table to reduce per capita force costs. It is the drive to decrease per capita costs that is a significant change in policy.

    And it is not just a matter of selecting one or two measures, but to implement all.

    -Reduce the retirement benefit for current and future retirees

    -Cap active duty pay increases to less than inflation

    -Shift more health care costs to dependents and retirees

    -Reduce the level of housing allowance

    -Reduce the commissary benefit

    It's not just a matter of savings via fewer troops, but also having to make each those fewer troops less expensive to have on the rolls. That's not a road with which the US has had experience. The logic behind the AVF in 1970 was that military compensation and benefits could "easily" be competitive enough to man the "necessary force", and policy makers are now having to come to grips with what is really "easily competitive" as well as what defines "necessary" - cost or capability.

    ReplyDelete
  12. http://www.armytimes.com/article/20140224/BENEFITS02/302240023/DoD-budget-seeks-cuts-BAH-commissary-Tricare-benefits

    ReplyDelete
  13. Aviator,

    http://www.warcouncil.org/blog/2014/2/7/l8kh5385sv6nk2g2vlca2lqp43rb4b

    Someone is asking the same questions as you...

    ReplyDelete
  14. PFK-

    It doesn't take a PhD in math to raise the question, and obviously, the two COLs were on the right track back in 1970, although neither claimed the wisdom to predict when the line would be crossed, just that someday it would be. Both men were concerned that the Gates Report effectively made assumptions about the costs involved that were based on assumptions that had no precedents from which to extrapolate.

    Reducing BAH rates (housing allowance) is, at least, a relatively gentle way to do things. Your current BAH is frozen until you PCS, so a troopie would not take a hit immediately, and could plan for his housing budget at his next duty station based on the BAH in effect for that locale at his estimated time of reporting in.

    What should be of concern is the unpredictable effects of the combination of a draw down and pay/benefit cuts. If it has a negative impact on recruiting and retention, it could easily disrupt the force.

    Every RIF in the Army during my watch stimulated a number of good people getting out voluntarily "ahead of schedule". They just didn't wish to deal with the turbulence and/or uncertainty. If voluntary exit programs are used, it's difficult, under current law, to control who and how many decide to exit. How do you refuse voluntary exit to your best performers?

    Just as the AVF took us into uncharted water, the first ever combined RIF and reduction in pay and benefits will take DOD into uncharted waters. And, unlike the civilian world, there are no equivalent employers to "steal" experienced personnel from in the case of exits causing skill shortages. It's all going to have to come from within.

    ReplyDelete