Monday, January 17, 2011

What Does the Government Spend Money On? (You).

Many people are under the impression that most of their tax dollars are squandered on "waste"  such as a "bridge to nowhere"  or a "Woodstock Museum."   But in reality, most of our budget goes to pay ourselves, in the form of transfer of wealth.  And yes, that includes Social Security.  Click on image to enlarge.

Government waste.  We hear about it all the time, particularly from opportunistic politicians on the right who want to decry some penny-ante program that costs a million bucks.  "Another example of Government waste!" they scream, as if killing that program would turn around our budget problems.

Of course, the same politician would never dream of killing the stealth submarine program, particularly since it is being built in his home State.  Never mind that the project is far over budget and the resulting submarines will sit idle for ten years before being scrapped.  National Defense is paramount!

The reality of our budget deficit and perpetual crises is that most of the money goes to pay ourselves, in the form of wealth transfer - both from the rich to the poor and from one generation to the next.

The chart above (clink image for more detail) is a from a Wikipedia Entry.  More information can be found on U.S. Government Spending Websites.  The long and the short of it is this:  Nearly 3/4 of our budget is taken up by Social Security, Welfare, Medicare, and Defense.  A very small part of the pie goes to paying for other government programs.  So, even if you could "cut the waste" from Senator Klaghorn's "road to nowhere" the overall savings would be pretty trivial.

And that is the rub with our budget.  Three-quarters of the budget are "sacred cow" items that cannot be cut at all - or cut without howls of protest from powerful special interest groups, including YOU.  Yes YOU.  You are a special interest group, particularly if you are elderly.

Social Security (20%), unfortunately, has promised an entire generation a steady paycheck in retirement.  And the way things are going for my generation, it may be the only paycheck they get.  So the idea of cutting Social Security is not practical, as older people vote regularly and you will be voted out of office for even suggesting such a thing.

And a funny thing, too.  If you ask a "teabagger" about cutting the government budget, they will say they want it cut to the bone, but "Don't touch my Social Security!"  And of course, they want to spend more on defense!

Defense (19%) is the next big slice of the pie and equally as problematic.  Powerful defense contractors have lobbyists and can ruin your political career by claiming you are "soft on defense" if you propose cutting even one weapons system from the budget.  Expensive high-tech weapon systems abound in the budget and many of them never end up being used.  For example, the B-1 and B-2 bombers were built to counter a cold war threat that ended ages ago - and we pay to run them still today.  Strategic nuclear bombing has pretty much been discredited as being feasible.  In the event of nuclear war, these high-tech relics would be shot down in short order.

To be sure, the Pentagon has staged some press-events for these weapons systems, having them perform bombing runs in Iraq or Afghanistan on occasion.  But as a strategic weapon for modern warfare, they are very expensive, in terms of bang for the buck.

What we are learning from Iraq and Afghanistan is that low-tech solutions, such as drones, are far more effective, at far lower risk, than fancy and expensive fighter craft which are designed to fight other fancy and expensive fighter craft.  And yet, we are presently building yet another generation of fighter aircraft, to counter a threat that largely doesn't exist, since the fall of the Soviet Union.

The politics of the defense budget are equally as difficult as Social Security.  Most defense contractors have facilities in nearly every State.  Every Congressman or Senator has a defense project in their home district that "can't be cut" because it "represents jobs" - and thus an "I'll scratch my back, you scratch mine" situation exists in Congress, in which projects end up never getting cut, even when the Joint Chiefs of Staff say they don't want the resultant weapons system.  So good luck with cutting the Defense Budget - that is a monster that has taken on a life of its own!

The next big slice in the pie chart (16%)  is Unemployment and Welfare.  During the Clinton years, there was some success in cutting this slice down (or at least arresting the rate of growth), through bipartisan welfare reform.  However Democrats have jumped on the "let's feel sorry for people" bandwagon and have made extending unemployment benefits a centerpiece of their legislative agenda.   As a result, welfare spending has skyrocketed in recent years - even before the recession started.

Welfare spending, as a percentage of GDP, from 1990 to 2010.  The Amount has escalated in the last two years due to the decline in the GDP and the increased number of people who are unemployed.

Welfare spending in dollars, from 1990 to 2010.  The amount spent on welfare has steadily risen, until recent years, when it has taken off dramatically - almost four times what was spent in 1990.  Even taking into account inflation, this is a lot of money.

Update:  Note that Welfare Spending has dropped off since 2010, and in terms of percentage of GDP, even moreso, as our GDP has increased since then.  This is progress, but of course, we could do more.

 Again, it would appear that this is another "sacred cow" albeit one with a constituency that does not vote as regularly as Seniors.  Cutting unemployment benefits in an era of high unemployment would be seen as cruel or cold-hearted, although Republicans seem to have less of an issue with this than Democrats.  But since Republicans don't run the country, I doubt we will see many cuts in this area. (UPDATE January 2014:  It seems like extended unemployment benefits (99 weeks!) are finally going to be cut, sending many people back to work).

The only thing that will surely bring this number down is an economic recovery, which will at least make this a smaller part of the GDP (as the GDP gets larger), and if more people go back to work, perhaps smaller in real dollar terms as well.  Letting unemployment benefits expire will also cut this budget item.

But frankly, I think we also need to examine welfare reform again, as there are a lot of people in this country who are permanently "on the dole" but are young and capable of working.  While providing a "safety net" is an important part of any civilization, there are people out there - a lot of people who "game the system" and have figured out that collecting welfare is a lot easier than working.  Some States have actually become attractants to Welfare Recipients, as their benefits are so lucrative.  But that will be a subject of another posting.

The next sacred cow, Medicare (13%) is another hot-button issue that smart politicians don't want to touch.  One reason the Democrats lost a lot of seats in the last election was that they lost the elderly vote (according to a recent James Surowiecki piece in the New Yorker) who felt that their Medicare entitlement was at risk.

The medical care debate is charged with emotion - charged mostly by opportunistic politicians or wanna-bes like Sarah Palin, who take simple issues like "End of Life" discussions and call them "Death Panels".

The cost of medical care in the last weeks of life is something that is subject for another posting.  Needless to say the medical industry makes a lot of money out of the last days and weeks of your life, often putting you through severe misery and discomfort, while not prolonging your life by more than days or hours.  And in terms of a rational way to spend medical dollars, it makes little sense.

(My Mother had the right idea.  If you are going to die, get into Hospice Care, stay at home, be comfortable and save everyone a lot of money.  Dying on a stainless steel table in a hospital, under bright lights, while some Intern cracks open your chest cavity to do a "heart massage" is no way to go.  And it won't save your life, in  99% of cases.  We All Die. Get used to that fact!)

For me personally, I do not want to spend my last weeks, days, or hours in a hospital, if I can help it.  But the idea of accepting Death as a part of life is viewed by many so-called Christians (not real Christians, but the hatey kind) as not being "Pro-Life" - and that accepting the inevitability of Death (which is the point of every religion, including Christianity) is somehow going against the will of God.

And of course, the other part of the Medicare budget is for drugs and treatments, of which Americans have no shortage.  Pharmaceutical companies now advertise drugs for things like "restless leg syndrome" or "small bladder syndrome" or whatever, and convince a lot of people that they have illnesses that a magic pill can fix.  And it is not cheap, either.

In other countries, medical care is a lot cheaper mostly because people get less of it.  The solution-in-a-pillbox is not pushed, and not even available.  And if you go to a doctor at age 60 and tell them you have "fibromayalgia" the doctor will shake his head and say "No, you're just 60".

But that is a harsher view of life than Americans want to hear - and Americans are deathly afraid of death, compared to other citizens of the planet.  So I doubt we will cut Medicare spending at all - and in fact, as our nation ages, it will skyrocket.

The only remaining large chunk (8%) is medicare for the State's children's funds.  And you know the drill here - no politician in their right mind wants to be the sponsor of the "Let the Children Die" act.  So that will not be cut, but rather grow exponentially as well.

The rest of the budget?  Less than 25% and it includes everything from NASA to NOAA, from the Federal Highway Administration, to the Consumer Product Safety Commission, from the Smithsonian, to our Federal Parks and Forests, to.... well, you get the idea.  All of these items have a constituency and in all cases, they can argue that, as such a pathetically small part of the budget, cutting them makes little sense.

You could privatize the Smithsonian or at least charge admission so it makes money - but that has yet to happen.  Federal Parks are charging increased user fees, in an effort to be self-supporting.  Cutting the budget for Public Radio and Television might seem like a good idea in this age of Internet Communications (and the commercialization of PBS and NPR) but the savings are trivial.  Other agencies, such as the Post Office and the Patent Office are either self-funded or turn a profit for the government.  You could try cutting crop subsidies (good luck with that!) but again, the overall savings are pretty small.

There is not a lot of meat to cut in this part of the budget - and cutting it isn't easy, as the "fat" is in tiny dribs and drabs, and every program that seems like an unnecessary waste has some Congressman or Senator or Special Interest Group behind it, pushing it and crushing you, if  you stand in their way.

And even if you could cut the discretionary part of the budget in half  it would probably not balance the budget and such cuts would be draconian.

We have met the enemy and he is us - and Pogo would say.  In order to enact significant budgetary reform, we all will have to make sacrifices, and that's the rub right there.  Every party to this dance would like to play it so that the other guy makes the sacrifices, while they get to keep their perks.

In a way, it is how Democracy works - everyone fights and scrabbles for their little piece of the pie and eventually some sort of compromise is reached.  Unfortunately, one person who is never "at the table' in these discussions is the next generation - the young and unborn - who can't vote.  So one way to make everyone at the table happy is to merely put the cost of today's stealth missile and grandma's rheumatism medication onto their tab, by borrowing money to do so.

And that is where a lot of the "teabaggers" and those on the right are justifiably angry - that we can't continue to mortgage our future to pay for what are often luxuries today.  In effect, the entire US of A is leasing a giant car - and it is a bad bargain.

The problem is, of course, that the folks on the right as just using this issue to get elected, without offering any real, concrete, or specific plans to balance the budget.  For example, curtailing medicare spending should be part of any overall budget cut.  Yet it was the far right who stoked the fires of fear by invoking such nonsense as "Death Panels" for Granny.  And many people bought into this Angry Rhetoric and voted for these clowns.

Again, the secret to personal financial success is to look inwardly, not outwardly, and ask yourself the tough questions - are my difficulties and setbacks the fault of others, or at least partially the fault of my own actions?  And in 9 times out of 10, we realize that it is our own actions that cause us grief, not the actions of others.

The same is true of politics.  People want easy answers - lazy thinking - that it is the "other guy's" fault.  The world would be a perfect place, if only Republicans ruled!  (They did, for nearly two decades, what happened?).   All our problems are because of the Democrats!   And of course, Democrats say the same thing - "if only" those "Greedy Republicans" could be thrown out of office, the world would revert to a paradise on Earth!  And yet, when Democrats are in power, not much changes.

Financial maturity and political maturity dictate that you have to accept compromise - both in terms of the candidates you elect, and in the policies that are enacted.  You will never get "everything" you want, and decrying the world because it does not always go your way is just not realistic.

But it seems that today, it is the political norm, and most folks, nurtured by the TeeVee expect only this.