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.