As we lament the lack of strategic direction in American foreign policy, it is useful to remember the classic aphorism that diplomatic power is the shadow cast by military power. The many failures and disappointments of American policy in recent years, in Iraq, Afghanistan, Egypt, Libya, North Korea, Syria, Russia and Iran are symptoms of the steady shrinkage of the shadow cast by American military power and the fading credibility and deterrence that depends on it.

Although current U.S. spending on defense adjusted for inflation has been higher than at the height of the Reagan administration, it has been producing less than half of the forces and capabilities of those years. Instead of a 600-ship Navy, we now have a 280-ship Navy, although the world’s seas have not shrunk and our global dependence has grown. Instead of Reagan’s 20-division Army, we have only 10-division equivalents. The Air Force has fewer than half the number of fighters and bombers it had 30 years ago.

Apologists for the shrinkage argue that today’s ships and aircraft are far more capable than those of the ’80s and ’90s. That is as true as “you can keep your health insurance.”

While today’s LCSs—the littoral-class ships that operate close to shore—have their uses, they are far less capable than the Perry-class frigates that they replace. Our newest Aegis ships have been upgraded to keep pace with the newest potential missile threats, but their capability against modern submarines has slipped.

Air Force fighter planes today average 28 years old. Although they have been upgraded to keep pace with the latest aircraft of their potential adversaries, they have no greater relative advantage than they had when they were new. There are merely far fewer of them in relation to the potential threat. In deterrence, quantity has a quality all its own.

There is one great numerical advantage the U.S. has against potential adversaries, however. That is the size of our defense bureaucracy. While the fighting forces have steadily shrunk by more than half since the early 1990s, the civilian and uniformed bureaucracy has more than doubled. According to the latest figures, there are currently more than 1,500,000 full-time civilian employees in the Defense Department—800,000 civil servants and 700,000 contract employees. Today, more than half of our active-duty servicemen and women serve in offices on staffs. The number of various Joint Task Force staffs, for instance, has grown since 1987 from seven to more than 250, according to the Defense Business Board.

The constant growth of the bureaucracy has resulted from reform initiatives from Congress and by executive order, each of which established a new office or expanded an existing one. These new layers have accumulated every year since the founding of the Department of Defense in 1947. Unlike private businesses—disciplined by the market—which require constant pruning and overhead reduction to stay profitable, each expansion of the bureaucracy is, to paraphrase President Reagan, the nearest thing to eternal life to be found on earth.

The Pentagon, like Marley’s ghost, must drag this ever-growing burden of chains without relief. As a result something close to paralysis is approaching. The suffocating bloat of overstaffing in an overly centralized web of bureaucracies drives runaway cost growth in weapons systems great and small. Whereas the immensely complex Polaris missile and submarine system took four years from a draft requirement until its first operational patrol in February 1960, today the average time for all weapons procured under Defense Department acquisition regulations is 22 years.

The latest Government Accountability Office report, released in October, estimates that there is $411 billion of unfunded cost growth in current Pentagon programs, almost as much as the entire 10 years of sequester cuts if they continue. The result has been unilateral disarmament.

What is to be done? As with most great issues, the solution is simple, the execution difficult. First, Secretary of Defense Chuck Hagel must be supported in his announced intention to cut the bureaucracy of uniformed and civilian by at least 20%. Each 7,000 civilian reductions saves at least $5 billion over five years. Second, clear lines of authority and accountability, now dissipated through many bureaucratic entities, must be restored to a defined hierarchy of human beings with names. Third, real competition for production contracts must be re-established as the rule not the exception. Fourth, weapons programs must be designed to meet an established cost and canceled if they begin to exceed it.

While sequester is an act of desperation that adds more uncertainty to an already dysfunctional system, it does seem to be acting as a spur to focus Congress on the urgent need to stop our unilateral disarmament by making deep cuts in bureaucratic overhead throughout the Pentagon, uniformed and civilian.

The way forward for Republicans is not to default to their traditional solution, which is simply to fight sequester cuts and increase the defense budget. Instead, Republicans should concentrate on slashing and restructuring our dysfunctional and bloated defense bureaucracy. With strong defense chairmen on House and Senate committees already sympathetic to the overhead issue, and a willing secretary of defense, this Congress can do it. That will place the blame for the consequences of sequester and the earlier $500 billion Obama cuts squarely where it belongs, on the president and the Democrats.

The way will thereby be prepared for Republican victory in the 2016 elections based on a Reagan-like rebuilding mandate that can actually be carried out by a newly streamlined and more agile Defense Department.

Mr. Lehman was secretary of the Navy in the Reagan administration and a member of the 9/11 Commission