The Air Force and Navy definitely crank down their service numbers during "peace" time to invest in weapons systems instead. The lead time on ships & planes is so much longer than sailors & airmen through bootcamp that it makes sense. Plus they stick with a pretty low deployment cadence that could easily be cranked up if necessary.

The big problem is that whole categories of the military budget are waste. They are job programs in the shape of a weapon, but are overkill in our current asymmetric wars and likely useless against an equal adversary. The LCS & F-35 are trillions of dollars in waste.

Even when you are talking about a decent system, the internal level of waste is insane. I was an engineer for nuclear submarines. We were cited as an example for all other programs because we were on time and under budget. There was still a waste in every direction I could see.

I think things would get better with a switch to fixed priced contracts instead of cost plus. It requires the service to nail down their requirements up front, but at least you get the cost incentives right. Until then, the saying "first time half time, second time overtime" was pretty apt.