While the details on what this proposal actually entails, this seems like it would be a fairly substantial cut to the U.S. defense budget, and a reorientation, perhaps somewhat ironically, to the force posture envisioned by Bush-era SecDef Rumsfeld. Rumsfeld was a proponent of the so-called revolution in military affairs (RMA). The RMA view of conflict is that technical superiority is the key to military superiority. It is closely tied to systems theory and theorists such as John Warden and John Boyd (notice anything about these two guys' military training?). If you are able to attain, analyze, and act faster than your opponent, you can strategically outmaneuver him or her, and defeat them. This is, of course, tied closely to maneuver warfare, which is typically mechanized.
In contrast are views held by strategists such as Martin van Creveld, John Nagl, David Kilcullen, Andrew Exum, Stephen Biddle, and the other so-called "COINdinistas" (Counter-Insurgency Operations). The COINdinistas view (and it is more nuanced than this) is that low-intensity conflict: insurgency, terrorism, failed-states, etc. are of increasing prevalence, and thus force-structure and posture should reflect these realities. Subsets of these analysts also think that, generally, the nation-state is decreasing in importance, and so these trends in the types of conflicts that occur will continue. Thus war between nation-states is increasingly unlikely. The content of the arguments aside, the main point of contention is what U.S. military procurement and budgets end up looking like. Those in favor of RMA favor investment in technology such as stealth aircraft, ICBM upgrades, new mechanized armor units, etc. while those in the COIN camp favor increases in spending on infantry and support staff that directly contributes to the military's ability to engage in sustained counter-insurgency and other types of low-intensity conflict.
Who is right? That really depends on two factors. First, which projection about the future nature of war is correct? In either case, we can't really say with any amount of certainty, the world-system is simply far too complicated, and as neither camp possesses a crystal-ball, neither can have any justifiable certainty about the future of warfare. That said, I would argue that the COIN advocates have not made particularly convincing arguments about why inter-state war is less likely. Although there has been a long period of time without a great-power war, there have been other long periods of peace (Pax Britannica, Pax Romana, etc.). Additionally, there have been instances where economic interdependence was supposed to prevent great power war, and failed too (World War I). Increases in the incidence of low-intensity conflict does not necessitate a commiserate decrease in the likelihood of great-power war. Arguments about the declining power of the nation-state may or may not be well-founded. Although there has been much ink spilled over the effects of globalization and the generation of transnational identity, there remains relatively few instances (especially amongst great-powers) where we have seen major slips in the governing power of the state.
Second, what type of conflicts the U.S. is engaged in. Those in favor of a strategy like off-shore balancing such as Stephen Walt are fine without a military capable of fighting in long low-intensity conflicts, regardless of whether they are globally increasing in prevalence (the idea is to get other states to fight those battles for you). This certainly rings of the Powell Doctrine, but that perfectly illustrates the problems associated with this view. Since the term was first coined in the run up to the 1990-1991 Gulf War, the doctrine has not been followed (with the exception of the recent Libyian campaign). As an illustration of the problem consider the 2003 invasion of Iraq. The invasion called for a strictly conventional battle-plan, which was executed very well. When the insurgency began, however, the military had to rapidly transform itself into a force capable of fighting a war it was unprepared for. So the question becomes, what type of wars will politicians prefer fighting? That will likely have to do with whether low-intensity conflicts are becoming more prevalent, but not necessarily. I don't think there can be an accurate assessment of future executive behavior in this area.
So in a situation such as this, where the executive cannot credibly commit to refrain engaging in low-intensity conflict, the possibility of great-power conflict remains, and there are budgetary restrains, what are the legislators to do? Optimal force configuration remains a mystery. The U.S. retains conventional superiority by a large margin in most theaters, but what the acceptable bounds of such superiority are is a topic of some debate (i.e. do we have to be able to deter a Chinese invasion of Taiwan with carrier groups in the Taiwan Straits, or fight a two theater major power conflict?). To add to the complexity, there is the possibility that having a military capability might in some particular area perhaps makes politicians more likely to use it. Thus having a force structured towards low-intensity conflict might increase the number of low-intensity conflicts the U.S. engages in. Conversely, having a military oriented towards major power war may not only contribute to the likelihood that the U.S. initiates conflict, but also the likelihood of a arms spiral. Even if the U.S. views preparing for conventional major-power war as a benign activity, it could easily be interpreted as an aggressive move by other states. What President Obama outlined, however, is a plan to do everything: a COIN capacity, a 2 theater war capability, and budget cuts. This is, of course, impossible. How the looming (presumably) DOD budget cuts turn out will be very interesting though.