At today's Rose Garden signing of the National Save the Military Act, the flick of a pen fundamentally changed the balance of powers and the conduct of America's national defense. For the first time, a joint Presidential-Congressional Control Board will manage the U.S. armed forces, overseeing and approving all Department of Defense decisions.

The unprecedented power-sharing deal granting Congress operational oversight over Pentagon affairs came less than two months after the President's State of the Union admission that the military was "essentially bankrupt."

"The Pentagon's in receivership," one congressional leader declared at the time. "That's something the White House has to accept-and deal with-before we give them another dime."

The new arrangement "will make for interesting times," said one high-ranking Pentagon official attending today's signing ceremony. Rep. Wilson Bramwell, D-N.Y., chair of the House Labor Committee and designated member of the Control Board, already has announced he will hold hearings within three months to determine whether wage-and-hour regulations and civil service job security protections should be extended to members of the military.

And Senate Majority Leader Louise Warren, I-S.D., has suggested the upper chamber will soon schedule field hearings to examine the "shocking lack of naval bases" among the Great Plains states.

Origins of the Crisis

The Pentagon funding crisis grew out of a "temporary" downturn in defense spending that began shortly after the 2008 elections, as Congress struggle to make good on campaign promises to balance the federal budget. Loathe to restrain spending on the "entitlement" programs that now account for more than half of all federal spending, Congress focused instead on cutbacks in "discretionary funding." Defense is "the big-ticket item of discretionary spending," noted a high-ranking Pentagon official, "and the budget-cutters have gone after us with a vengeance for six years running."

The president's admission that the Pentagon lacked essential funds and materiel to carry out its duties came as a shock to many Americans. "Most of American assumed that the military was being more than adequately funded," said political pollster Evan Shasgreu. "Since the start of the Iraq war, Washington and the media kept repeating that defense spending was at the highest level since World War II. The implication was that Pentagon was flush with cash and had all it needed to keep us well-defended."

"The mantra of 'record-level' defense spending created a false sense of security," observed Wallace Fenton, a national security analyst at the International Defense Institute. "Spending over $400 billion a year on defense sounds impressive, but in terms of GDP-the total of American wealth-it's a fairly modest investment."

A History with a Past

In the early days of the republic, the United States spent between 1 percent and 2 percent of GDP annually on defense during peacetime. That changed in the 20^th century, when America emerged from World War II a different nation-a bona-fide superpower with global interests and global responsibilities. "When you have a bigger house," one defense analyst pointed out, "you need more insurance."

Over the course of the Cold War, U.S. defense spending averaged over 7 percent of GDP annually. That was unusually high, considering no "hot" war occurred during much of that period. Still, the "extravagant" spending made sense, considering that the U.S. was facing a determined, military superpower. And when the Soviet Union collapsed, most people considered the Cold-War-winning strategy an excellent investment.

After the Cold War, policymakers were unsure what level of defense spending was best. Obviously, no threat equaled that posed by the Soviets. On the other hand, the U.S. could not go back to spending less than 2 percent of GDP.

Throughout the 1990s, defense spending drifted downward as America cashed a "peace dividend." Defense spending, under the Clinton Administration, fell below 3 percent of GDP. The Clinton White House sent the military on a procurement "holiday," purchasing almost no new ships, tanks, or planes. The Army shrunk to its smallest size since World War II. With the advent of a relatively modest military operation in Kosovo, the military was revealed to be pretty threadbare. Readiness levels were declared unacceptable. Military observers warned that inadequate defense spending had taken a dangerous toll.

After 9/11, U.S. forces struggled to meet the requirements of fighting a global war on terror. Soon, what had been evident to defense analysts was apparent to all: Clinton-era spending levels were woefully insufficient to maintain a trained and ready force.

Prelude to Disaster

At the height of the U.S. involvement in Iraq, defense spending had risen to almost 4 percent of GDP, largely with the aid of supplemental appropriations approved to fund the war. As soon as U.S. troops began to withdraw from Iraq, however, Congress cut off the supplemental funds.

Following the 2008 elections, the new administration pledged to maintain support for the troops, but that commitment didn't last. Long-range defense budgets, already forecast to drop as a percentage of GDP, were cut even further in the "draconian" budget offered by the new president.

"I had little choice," the president recalled in this year's State of the Union address. Taxes jumped in the first years of the administration, but that money went to deliver on election year promises to boost domestic spending.

Within two years, the 2008 tax hikes had slowed economic growth, creating a huge budget deficit. The economy fell into "stagflation," a combination of slow economic growth and high inflation not seen since the 1970s. To the consternation of Washington, the budget shortfall grew bigger, not smaller. No money remained for defense.

Conservative critics of the White House and Congress said the disaster could have avoided by keeping taxes low-to stimulate economic growth-and reining in the growth of programs like Social Security, Medicare and Medicaid-the "Big Three" entitlement programs that accounted for the largest (then only 46 percent) and fastest growing part of the federal budget. "But, who would have stood for that?" the president lamented in the State of the Union address.

The Hollow Force

What the president didn't admit was that Washington had short-changed the Pentagon from the first days of his administration. First, the White House eliminated controversial programs such as missile defense, modernizing the U.S. nuclear arsenal, and space-based defense programs. In jettisoning these strategic programs, the White House scrupulously avoided describing its actions as "defense cuts." Instead, they insisted, the moves were calculated to "save money for the troops on the ground." Still, that wasn't enough to balance the budget, and Pentagon appropriations were pared back further and further each year.

The cutbacks could not have come at a worse time for the Pentagon. The military had never recovered from the equipment purchases forgone during the Clinton era. Most of the new money infused after 9/11 went to pay for operations in Iraq and Afghanistan. And that was only part of the problem. The Army, for example, had a $50 billion dollar backlog in fixing and maintaining its equipment before the war. While in Iraq, things only worsened as equipment deteriorated far faster than anticipated. While the military needed more and more money to train forces, modernize equipment and fund fighting operations-it found itself getting less and less.

Observers worldwide soon noticed that America's military had gone hollow. When the U.S. cut its missile, nuclear and space programs, countries quickly lost their faith in-or fear of-the American nuclear deterrent. Both the Middle East and Northeast Asia saw an opportunity (or, they would say, the need) to bring nuclear chips to regional and international negotiating tables. Several countries raced to build nuclear and space-based weapons. "It was a simple choice," one ambassador recalled, "We can't depend on the Americans anymore."

At a meeting of the Anti-America League in Caracas, the secretary general announced, "America is now a paper tiger. If we all push on all fronts, we will force the tiger back into his cage. America no longer has the will or ability to act on many fronts."

Back to the Future

As American forces were withdrawn from Iraq, a distinguished military historian noted, "The situation now is analogous to what happened after World War II and Vietnam. Having been 'rode hard,' the U.S. military is being 'put away wet.'" He noted that, when the Korean War broke out, America sent the first troops of its hollow army into battle shod in sneakers and armed with weapons that didn't work.

Similarly, the post-Vietnam army, hollowed out by the ravages of Carter-era stagflation, invited outrages like the Iranian hostage crisis and the subsequent failed rescue attempt at Desert One. The "paper tiger" regained its muscle and sinew-and its Cold War-ending deterrence value-only when President Reagan rebuilt the military in the 1980s.

Today the security of the nation is at risk. "The problem," concluded one senior defense official, "is that missions change faster than force structure … who knows if we will have time to rebuild before the military is needed again? And of course, it will cost us a fortune. It is a heck of a lot more expensive to rebuild a broken military than it is to maintain a good one."

Rewriting History

The situation, many Washington insiders acknowledge, could have been avoided if Congress-even as late as 2008-had committed to sustaining defense spending at 4 percent of GDP over the long term. That would have provided sufficient resources for the Pentagon, with very little negative effect on the overall economy.

Sustaining "4 Percent for Freedom," however, would have required Congress to address the need for tax reform and redesign the Social Security, Medicare and Medicaid entitlements. Fixing those problems would have kept the economy growing and limited growth in federal spending to sustainable levels. "We know in hindsight that entitlement spending was more than just the major economic challenge of the time," GAO economist Laura Patterson recently observed. "It was, in fact, the major challenge to our national security … and we failed to see that."

"Such Monday morning quarterbacking is all well and good," the President replied, "but you can't change history." 

James Carafano is a senior research fellow for defense and homeland security at The Heritage Foundation and coauthor of "Winning the Long War: Lessons From the Cold War for Defeating Terrorism and Preserving Freedom".