Tag Archives: Federal Budget

“Do what I say (pass my budget), not what I do (ignore your budget).”

Barack Obama - Caricature

President Barack Obama, Adult-in-Chief. Image by DonkeyHotey via Flickr

IN CASE YOU MISSED IT…

Our federal government is on the verge of shutting down. And President Obama wants Congressional Republicans to do what he says (pass his budget), not what he does (ignore their budget).

The United States government doesn’t have a budget for fiscal year 2011, yet. If it doesn’t pass one by Friday, the government will shut down. This means, as others have pointed out, that we may see something like what happened in 1995 and 1996:

[I]t actually cost the government money in back wages, lost revenue from shut-down national parks and the local economies and businesses surrounding those parks. Not all government workers go on a mandatory vacation, either. Essential staff still stay on duty – FBI and TSA workers, VA hospitals and military bases stay open, as would the US Postal Service, the prez and his employees and all members of Congress.

So, naturally,with a shutdown threatening due to Congress’ and the President’s inability to work out a compromise, what do our elected leaders do? Get down to the thumb tacks, pound out a compromise that moves our country on the path to get out of debt, and works to lighten the load on Americans?

Nope. They trade insults.

President Barack Obama on Tuesday called on congressional leaders – especially Speaker John Boehner (R-Ohio) – to act like “grown-ups” and avert a government shutdown after they made no apparent progress in reaching a budget agreement at a White House meeting earlier in the day.

In response, Congressional Republicans said that they were going to take their toys and go home…

Oh, wait. No they didn’t. Rather, they released a plan to cut $6.2 trillion out of the budget over the next four years, including reducing the deficit by $4.4 trillion, a number three times the Administration’s (and, consequently, the amount that the Administration has added to the bottom line over the last few years).

Naturally, with Rep.Paul Ryan wonkishly talking policy and throwing around statistics, numbers, and budgets that save money, maintain retirement benefits, decrease our federal deficit, and, well, make sense, an insult was the best the President could come up with on the spur of the moment. After all, the upstart Congressman from Wisconsin is making him look bad.

Ironically, Rep. Ryan’s plan isn’t even considered to be that great. It’s just better than the President’s.

Politics is the realm of the possible, blah blah. Only in a government situation where we’re facing a shutdown on Friday and a debt limit squeeze around the same time – after a decade of completely bipartisan raids on fiscal sanity – can Ryan’s plan be considered the realistic plan.

It’s just better than the alternative.

From there, and by “there” I mean “a plan that cuts the deficit and salvages the future for our children,” the President decided to pull out the big guns: he accused the Republicans of partisanship because they want to include in the budget cuts cutting off funding for a few of the Golden Calves of the political left (Planned Parenthood, EPA, etc).

We can debate abortion and environmental regulation later. Right now, if we don’t get our fiscal house in order, it may not matter whether Planned Parenthood and the EPA keep federal handouts or funding, because entitlements are going to take over the budget completely.

MEANWHILE, in other news, the adults are busy coordinating President Obama’s reelection campaign…

Enhanced by Zemanta

Jack Daniels explains the deficit (a la Politicalmath)

Because it’s been one of those days, I give you a lesson in the federal deficit.

Why the federal budget is like a road trip…at 174 miles per hour.

I had lunch with a fascinating guy today: Matthias Shapiro, or @politicalmath if you’re on Twitter.

Matthias has done a few amazing visualizations on YouTube to demonstrate the realities of America’s budgetary problems. He explained to me that he got started when he heard President Obama offer, early in his term, to cut $100 billion million from the federal budget.

“It struck me as cynical,” he said. And it is. The numbers are so big that cutting $100 million, while a lot to the average guy, really doesn’t amount to much more than a drop in the bucket for the federal government. Shapiro decided to make a video about it, and 1.5 million views later, it remains one of the best visualizations of how little the Obama Administration has done to bring order to the American fiscal house.

A more recent one, seen here below, shows just how fast the current Administration is spending. It might give us a clue as to why so many people are, for lack of a more accurate phrase, freaking out at the speed with which the Obama Administration’s own budget over the next six years is borrowing and spending.

If it’s a roadtrip, we’re now ripping through Arizona. It’s a little scary, and not a bit unsurprising that so many people want the keys back from the guy in the driver seat.

For more great visualizations, check out Shapiro’s videos on YouTube, here.

Enhanced by Zemanta

When is $100 billion not enough?

When it’s non-security discretionary spending cuts from the budget. That’s when.

Then it’s just not solving the problem. It’s pandering for the press and for constituents.

The problem, and all the talk Washington, is the deficit and getting it back to a manageable level.  Republicans in an effort to keep campaign promises and reduce the deficit, are working on cutting $100 billion out of the budget. The problem is, what they are cutting is just non-security discretionary spending. The real cause of deficit growth–and the looming monster on the horizon–is entitlement spending (Social Security, Medicaid, and Medicare) and interest payments on the federal debt. See, those two items will grow, under the Congressional Budget Office‘s projections, dramatically over the next decade. By 2024, tax revenues will not be enough to pay for the costs of entitlements and net interest payments.

Check it:

But isn’t $100 billion in cuts a good start? Yes…but no. It won’t affect the growth of entitlement spending a bit. Nor will it increase tax revenues (except perhaps to depress them) to pay for the growth in spending. Derek Thompson of The Atlantic likens it to a dentist telling you that you need to brush more or your teeth are going to fall out.

So you buy a toothbrush and you brush one tooth really really really hard for six months but leave the others untouched. By the time you return to the dentist, your teeth are all rotting except for one tooth that is so overbrushed, you’ve worn out the enamel.

Instead of helping your whole mouth, you end up hurting it, including the place you were focused so much. I don’t agree that discretionary spending cuts will hurt as much as that (such as, why does the federal government need to fund cowboy poetry?), but I do think they distract from the real problem that needs addressing–the cost our entitlements will levy on our country in the coming decade.

So why not work on entitlements instead of non-security discretionary spending? Why not stop chopping at the leaves and take the ax right to the trunk?

Because it’s hard and politically dangerous. The largest recipients of entitlement spending also tend to be regular and frequent voters. They are those who are in need. While polls tend to show that almost everyone agrees that cuts must be made, they also show that no one really wants to cut what they benefit from nor do they want the alternative of paying higher taxes.  And what rational congressman wants to go back to his district and tell them that he cut benefits to the poor, the elderly, or the sick?

Yeah. That’ll go over like a lead balloon.

Enter the dragon. Or rather, enter Rep. Paul Ryan, a Republican from

Paul Ryan (politician)

Image via Wikipedia

Wisconsin, and his planning to bring the budget back under control. He acknowledges that what he proposes–throttling back entitlement spending– may not necessarily help Republicans in the short-term.

“Is this a political weapon we are handing our adversaries? Of course it is,” Ryan said Thursday. “I think everybody knows that we are walking into I guess what you would call a political trap that arguably we are setting for ourselves … but we can’t wait. This needs leadership.

“If you just follow the polls, you are nothing but a follower,” Ryan said.

His budget is likely to shift the discussion from cutting discretionary spending to entitlement reform, something that President Obama notably left out of his budget when he proposed it to Congress.

While what exactly Ryan will propose is still unclear, and will be until April, it is speculated that the proposal will call for shifting Medicaid to block grants so as to limit how much growth can happen in a single year, as well as potentially a voucher system for Medicare recipients. Social security, the least problematic of the three, will probably remain untouched, for now (though, IMO, it’s still a payment I make every month that I’ll never see).

As long as voters vote for the short-term, we will all pay in the long-term.

Of course, as Keynes put it, rather without vision, “in the long run, we are all dead.”

Federal budget outraces CPI by four times

Did you know that federal spending has increased  faster than consumer prices?

Four times faster?

From 2000 to 2010, federal spending has increased 106% while prices (according to the Consumer Price Index) have only increased 26%. In other words, while the cost of stuff has risen only 26%, the government is spending roughly four times more than if it had increased spending to match increased costs.

To be sure, a few things have happened in the last ten years that have affected the increase in federal spending faster than consumer prices. There was 9/11 and wars in Iraq and Afghanistan. There was a recession, and there still is a recession.  But even so, shouldn’t federal spending increases match consumer price increases, at least somewhat?

Mandatory Spending or Discretionary Spending?

Right now, a lot of the debate over the size of the federal budget  centers around “discretionary” versus “mandatory” spending. As one economist (Arnold Kling) points out, budget items in the later group aren’t so mandatory as they may seem.

The data indicate that it is not very difficult to increase Federal government spending, in spite of the large portion that is mandatory. Why not? Some hypotheses:

1. We tend to see discretionary increases in “mandatory” spending. As in the prescription drug benefit. Note that at the time the prescription drug benefit was enacted, nobody said, “You know, on the whole, the elderly are doing fine. We want to provide prescription drugs as an in-kind benefit, but maybe we should cut back on other transfers to the elderly in order to maintain generational balance.”

2. The government’s “cost of living” goes up much faster than the CPI. For example, with Medicare and Medicaid, outlays are tied to health care costs, and we all know that health care costs are rising faster than inflation.

Check out the rest of his analysis here. Noting that, with the exception of “net interest,” every major category in the federal budget has seen an increase in spending greater than the consumer price index, Kling argues that if we cut spending back to 2000 levels–without touching defense, Medicare, or Social Securitywe could slash $500 billion from the federal budget.

That’s a healthy chunk of change, and a simple idea. Roll spending back to 2000 levels, and then start looking at entitlement reform for other budget constraints and deficit reduction.

Here’s his data:

Spending, in billions, vs. Consumer Price Index

Spending Category 2000 level 2010 level Percentage increase
Consumer Price Index 174 219 26 %
Total Federal Outlays 1789 3721 108 %
Defense 294 719 144 %
International 17 51 197 %
Health 154 372 141 %
Medicare 197 457 132 %
Income Security 254 686 170 %
Social Security 409 721 76 %
Net Interest 223 188 -16 %
Other 240 526 119 %

Get it? Prices have risen only 26%, and federal spending should have risen about the same, even accounting for defense, Social Security, and Medicare. But it hasn’t. Federal spending has increased far faster.

Kling puts in a last word:

Or maybe the answer to the paradox is that when it comes to the Federal Budget, spending is discretionary when somebody proposes an increase in its rate of growth but mandatory when somebody proposes a decrease in its rate of growth.

Are politicians really just “the slaves of some defunct economist“?

The Federal budget is a curious thing. It alone in the world of finance and spending–from individual home budgets, corporate coffers, Wall Street, and state budgets–is controlled by persons whose primary interest is not responsibility, but reelection, and who spend based on good ideas for benefits, not the realities of economics.

Few things secure reelection like bringing home the bacon or signing a revolutionary new program. Yet the law of unintended consequences is stronger than all the political clout or well-meaning programs in the world.

So it is: well-meaning Congressmen (and Congresswomen), Senators, and Presidents head off to the marbled halls of Washington, D.C. to make plans and pass laws that their constituents will love back home, solve society’s problems, and make world a better place.

Then, the plans hit the real world, and little do  politicians know what results will really happen.

As I’ve quoted before, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

The road to hell, or rather, bottomless debt, is paved with good intentions. So, perhaps, is the road to Washington, no matter how little men “really know about what they imagine they can design.”

Recommended reading for more: The Road To Serfdom, by F.A. Hayak.

Cover of "The Road to Serfdom: Fiftieth A...

Cover via Amazon

(h/t Library of Economics and Liberty)