Saturday, November 6, 2010

Politics! Politics! Politics! Politics! Politics! (Part One)

"Politics, politics, politics, politics!  Politics! Yes!
The Roman Senate.  The Roman Senate is the best legislature
that money can buy!  Corruption starts in the streets with the
little peddlers.  They bribe an assemblyman, he bribes a councilman,
the councilman bribes a senator, and the senator...
It goes all the way to the Emperor!"
- Comicus "History of the World, Part One" 

Unless you've been living under a rock, you probably know that we've just ended the election season here in the United States, or as I like to call it, the silly season.  You have all sorts of politicians from both sides of the aisle making statements that are not based in any facts, making promises that they can't possibly keep, and generally making a mockery of good sense in order to get themselves a few votes.  The big issue on the mind of voters this time around was the economy.  Specifically, there were two aspects of the economy that were on people's minds:
  1. How do we cut the deficit?
  2. How do we improve the economy and reduce unemployment?
I will attempt (with an emphasis on attempt) to discuss each of these questions in a rational, non-partisan manner.  We already have enough Glenn Beck's and Keith Olbermann's out there spewing verbal diarrhea that I don't want to add to the cesspool.

First, let's talk about deficit reduction...

Let's clear up what is meant by the deficit.  The deficit is simply the amount of spending which exceeds revenue in a single year.  If the Government spends $100 but only takes in $90, the deficit for that year would be $10.  The debt is the accumulation of all of the deficits over time.  If the Government runs a deficit of $10 each year for ten years, the total debt would be $100.  According to the U.S. Treasury web site, the current public debt as of the writing of this article is somewhere between $13 and $14 trillion.  That is $13 followed by 12 zeros, or $13 million million.  Bottom line is that it's a lot of cash!

In order to eliminate this debt, the Government not only has to balance its budget, but it needs to run a surplus that adds up to $14 trillion.  That is a tall order.  However, most people agree that this accumulation of debt cannot continue indefinitely.  At some point, we will have to pay it back, and the longer we keep running deficits, the more we will have to end up paying back.  The $13 trillion question, of course, is how do we pay it back.

In 2010, the U.S. Government expects to take in $2.381 trillion and spend $3.55 trillion.  That means that the Government must cut a total of $1.169 trillion in order to balance the budget.  Obviously, that means that either the Government needs to increase the amount of money it takes in, or reduce the amount of money it spends.  Let's look at the spending side first.

Here is a breakdown of how the Government is spending its money this year:

$677.95 billion – Social Security
$663.7 billion – Department of Defense
$571 billion – Other mandatory programs (welfare, unemployment, veterans' benefits, etc)
$453 billion – Medicare
$290 billion – Medicaid
$164 billion – Interest on National Debt
$78.7 billion – Department of Health and Human Services
$72.5 billion – Department of Transportation
$52.5 billion – Department of Veterans Affairs
$51.7 billion – Department of State and Other International Programs
$47.5 billion – Department of Housing and Urban Development
$46.7 billion – Department of Education
$42.7 billion – Department of Homeland Security
$26.3 billion – Department of Energy
$26.0 billion – Department of Agriculture
$23.9 billion – Department of Justice
$18.7 billion – National Aeronautics and Space Administration
$13.8 billion – Department of Commerce
$13.3 billion – Department of Labor
$13.3 billion – Department of the Treasury
$12.0 billion – Department of the Interior
$11 billion – Potential disaster costs
$10.5 billion – Environmental Protection Agency
$9.7 billion – Social Security Administration
$7.0 billion – National Science Foundation
$5.1 billion – Corps of Engineers
$5.0 billion – National Infrastructure Bank
$1.1 billion – Corporation for National and Community Service
$0.7 billion – Small Business Administration
$0.6 billion – General Services Administration
$19.8 billion – Other Agencies
$105 billion – Other

One thing to note is that even if the Government were to cut everything except Social Security, Medicare, Medicaid, Defense, Interest on the Debt, and other mandatory programs, we would still have about a $400 to $500 billion dollar deficit.  Of course, that would mean that we wouldn't have an FDA making sure our drugs were safe, or a Justice Department to investigate Federal crimes, or a Corps of Engineers to keep another Katrina from devastating New Orleans.  Obviously, if we truly want to reduce spending, we have to take on the heavy hitters (Social Security, Medicare/Medicaid, Defense).  However, with terrorists trying to send us bombs in boxes, cutting Defense is a hard sell.  Cutting health care costs conjures up images of "death panels".  Finally, there is a reason why they call Social Security the "third rail" of politics:  any politician who tries to reform it ends up being a one-term elected official. 

My point here is that it is easy to say that you are going to reduce Government spending, but actually figuring out how to do it is the hard part.

If cutting spending along isn't going to balance the budget, then how about increasing Government revenues.  Of course, that means raising taxes.  If Social Security is the "third rail" of politics, then raising taxes has got to be the lightening rod.  President Bush Senior ended up being a one-term President because he raised taxes.  Besides raising taxes usually isn't a good idea in times of economic malaise.  By taking more money out of the pockets of the American people, they have less money to spend for themselves and less opportunity to "stimulate" the economy with that spending.

The other solution to increasing Government revenues is to improve the economy.  When the economy is going well, people are making more money.  When people are making more money, there is more tax revenue even without raising tax rates.  How does the Government improve the economy?  Well that is a subject for Part Two in this series.

To summarize, balancing the budget is a hard problem.  Cutting spending enough to balance it is going to be difficult.  It would require hard choices with respect to some of the most sacred areas of Government:  Social Security, Medicare/Medicaid, and Defense.  It is doubtful that our elected officials will have the guts to make any cuts to these three programs.  Likewise raising taxes is equally unpalatable.  The only politically feasible way to increase revenues would be to improve the economy so that there is a bigger pool of money subject to tax.

Balancing the budget sounds good in a campaign sound byte, or when you don't have to be accountable like those windbags on the cable new channels.  With all of these hard choices, it makes me glad that I am not a politician!

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