Well, it's not a horse race. It's not a question of being able to beat the other guy, but of capability. It's not about who you can beat, but what you can do. (Though the amusing answer to your last question is yes -- for many recent years, the direction was that the military needed to be at a level to prosecute two overseas wars while maintaining homeland defense).

One of the QDR review panels talked about current issues in defense. It's not authoritative direction, but it does give a taste of how the military is about more than just competing with the next peer. Here's what they had to say about its goals:

  1. America has for most of the last century pursued 
  four enduring security interests:

    a. The defense of the American homeland

    b. Assured access to the sea, air, space, and 
    cyberspace

    c. The preservation of a favorable balance of power 
    across Eurasia that prevents authoritarian domination 
    of that region

    d. Providing for the global ―common good through 
    such actions as humanitarian aid, development 
    assistance, and disaster relief.


  2. Five key global trends face the nation as it seeks 
  to sustain its role as the leader of an international 
  system that protects the interests outlined above:

    a. Radical Islamist extremism and the threat of 
    terrorism

    b. The rise of new global great powers in Asia

    c. Continued struggle for power in the Persian Gulf 
    and the greater Middle East

    d. An accelerating global competition for resources

    e. Persistent problems from failed and failing states.


  3. These five key global trends have framed a range of  
  choices for the United States:

    a. These trends are likely to place an increased 
    demand on American "hard power" to preserve regional 
    balances; while diplomacy and development have 
    important roles to play, the world‘s first-order 
    concerns will continue to be security concerns.

    b. The various tools of "smart power" – diplomacy, 
    engagement, trade, targeted communications about 
    American ideals and intentions, development of 
    grassroots political and economic institutions – 
    will be increasingly necessary to protect America‘s 
    national interests.

    c. Today‘s world offers unique opportunities for 
    international cooperation, but the United States needs 
    to guide continued adaptation of existing international 
    institutions and alliances and to support development of 
    new institutions appropriate to the demands of the 21st 
    century. This will not happen without global confidence 
    in American leadership, its political, economic, and 
    military strength, and steadfast national purpose.

    d. Finally, America cannot abandon a leadership role in 
    support of its national interests. To do so will simply 
    lead to an increasingly unstable and unfriendly global 
    climate and eventually to conflicts America cannot 
    ignore, which we must then prosecute with limited 
    choices under unfavorable circumstances -- and with 
    stakes that are higher than anyone would like.

It's not a question of just saying, "Do the same job with less." The military we have exists to do certain jobs and there are a lot of very smart people interested in doing those jobs very efficiently. No, if you want a cheaper military, you need to do less. You need to start picking goals to give up. If you really wanted to pare the military down to just homeland defense, you probably could do that job with a lot less, but you wouldn't be able to render humanitarian aid or make the world a safer place for everyone (us included).

Here's another example of a policy goal not directly related to homeland defense or beating someone else's military (This from the Nuclear Posture report):

    Toward a World Free of Nuclear Weapons

    The long-term goal of U.S. policy is the complete 
    elimination of nuclear weapons. At this point,
    it is not clear when this goal can be achieved. 
    Pursuing these NPR recommendations will strengthen 
    the security of the United States and its allies and 
    partners and bring us significant steps closer to 
    the President’s vision of a world without nuclear 
    weapons.

    The conditions that would ultimately permit the 
    United States and others to give up their nuclear
    weapons without risking greater international 
    instability and insecurity are very demanding. 
    Among those are the resolution of regional disputes 
    that can motivate rival states to acquire and 
    maintain nuclear weapons, success in halting the    
    proliferation of nuclear weapons, much greater 
    transparency into the programs and capabilities of 
    key countries of concern, verification methods 
    and technologies capable of detecting violations of 
    disarmament obligations, and enforcement measures 
    strong and credible enough to deter such violations. 
    Clearly, such conditions do not exist today. But we 
    can – and must – work actively to create those 
    conditions.

Applying effort toward achieving those goals may require a larger or smarter (more expensive) military. We do it, not because we want to beat China, but because it's something we want to do and think is worth the cost.