A Nation in Denial

Here's a curious little fact.

In Obama's 2010 budget, he's showing mandatory expenses at $2.184 trillion. (Mandatory includes things like social security, medicare, and interest on the national debt.) He's projecting revenues of $2.381 trillion. So, $197 billion is left for all discretionary spending. Unless, of course, we want a 1.2 trillion deficit.

Let's say that we balance the budget without adding taxes. We'd have to cut all discretionary spending by more than 85%. This would mean, for instance, that defense spending would drop from $664 billion to $95 billion, a level we haven't been at since before World War 2. The National Science Foundation - the investment our $13 trillion economy makes into basic research - would be a mere $1 billion, or about what Exxon makes in an hour.

People like to talk about the good old days before the time of so many taxes. Of course, they forget that in those good old days life expectancy was about 47 years, income was a fraction of what it is now, and people had yellow teeth. Assuming they had teeth.

George Bush took us to war and gave us a tax cut. We bought it.

Barack Obama got elected by promising universal health care and a tax cut. We bought it.

We're the ones in denial here, not the politicians. They know that they have to give us our programs and tax cuts or we boot them out.

If a politician promised to raise taxes and cut programs by enough to balance the budget he or she would lose the election. (And anyone who thinks you could balance the budget with just raising taxes or cutting programs is obviously a beneficiary of the new medical marijuana laws.) It's that simple.

Obama has appointed a commission tasked with creating recommendations for moving towards a balanced budget. Elected officials can't talk honestly about what needs to be done, so the bitter truth is left for appointed officials to say. Because you can't stay in office and talk honestly about the deficit. Not if you want to be elected by a polity in denial.

Sacred Cow Sausage

Hopefully we won't take our deficit problem too seriously this year but once the recession is clearly behind us, it will be important to address. Very important.

Right now, the problem seems intractable. When a problem can't be solved, it is time to look in new places for solutions.

Currently, there are three places that are considered sacred for budget cuts, three places we don't even consider as sources for potential savings.

1. Defense. We still spend money as if preparing for a large-scale conventional war. We fund weapon systems long past their "not feasible" expiration date. We don't know the difference between war and occupation. But if you want to lose an election, simply mention the possibility that we might want to decrease - rather than increase - defense spending. We will not get to a balanced budget without changing the assumption that defense spending is sacred. We don't have to spend more on defense than the rest of the world combined and it makes up about a trillion of our three trillion budget. I don't know how you ignore this if you are serious about balancing a budget that is off by about a trillion.

2. Social security. Technically off-budget and its own category, but still leaves a large carbon, I mean fiscal, footprint. When it was introduced, social security kicked in around the time that the average person died: life expectancy and retirement age weren't so very different. Today? Very different. This is simple. For my generation, we have got to raise retirement age by 1 to 5 years. This will make a huge difference in the money collected by and paid out from social security. We can't pretend that the rules for when people retire remain unchanged as life expectancies increase.

3. Medicare and all health care. People are bankrupt by medical costs and this is wrong. Millions are not covered and this, too, is wrong. What else is wrong? Covering expenses that are, say, under $1,000 or even $2,500. This creates overhead for billing, adding costs to health care. It makes us less price sensitive (imagine that filling up your gas tank had a set co-pay of $5 whether you were buying it at $2.50 a gallon or $5.20 a gallon) for services whose price would be lower if subject to price competition. And it makes us feel entitled rather than careful about casually using health care. If we did not cover services under some threshold, we could greatly reduce the cost of administration and coverage. Health care - like defense and security - should be a right. That ought not to be construed to mean that every piddling service we need is something we should pay for through the roundabout means of taxation and government reimbursement.

Right now, we can't seem to reduce the deficit, much less balance the budget. When your current set of assumptions preclude your goal, it is time to challenge the assumptions.

Oh, and one other thing. Even challenging spending on these sacred cows will not be enough. We will have to raise taxes. We may as well make the slaughter wholesale.

Changing the Rules of War

I'd like to propose a new rule for war. Why not limit battle to those who are over 75?

This would have at least three benefits. One, it would mean no longer cutting short the lives of the young. Two, it would create a new kind of arms race: rather than just spend on defense, countries would be motivated to spend on health care, doing all they could to keep the 75 and older crowd vibrant, strong and healthy. And it would mean that when you spent more on war you would almost automatically spend less on retirement, helping with deficit reduction.

Of course, that would mean that the world's toughest job would be the new job of carding heavily armed soldiers to confirm that they really are over 75.

[And thanks to Sarah for posting a picture of her son in uniform, thereby provoking this thought.]

Institutions, Not Ammo, Says Defense Secretary

Secretary Gates says the U.S. government needs "new institutions for the 21st Century with a 21st Century mind-set." He told an audience at Kansas State University recent conflicts, including the wars in Iraq and Afghanistan, have proved that military power alone can not prevail in this century's challenges. He said that means devoting "considerably more resources" to other parts of the U.S. government.

Because we take war seriously, our defense department often leads in the new frontiers of science. The Internet you're using right now has evolved from an early DARPA program to connect computers.

How odd, then, if it is a pronouncement of the Secretary of Defense that helps to trigger thinking about new institutions for a new century. (I think that ultimately, these kinds of social constructs, in order to be effective, will have to be transnational rather than American, but that's a separate issue.)

We spend too much on defense. Our department of defense could be called a department of offense now that we've adopted a policy of preemptive wars. I'd join the chorus on all these complaints and more. But Gates' speech today is a reminder that defense issues have drawn some of the best minds and ideas of civilization.

It's quaint to laud a comment that development might be helped by something other than dropping bombs or kicking in doors. But Gates should be applauded for saying this. By virtue of his position, he has the attention of people the rest of us don't. How wonderful that he seems to be using that privilege wisely.

Odd Numbers in Defense of Oil

"In Vegas, I got into a long argument with the man at the roulette wheel over what I considered to be an odd number."
- Steven Wright

Congress has approved a new Pentagon spending bill. It's for $460 billion and does not include provision for Iraq.(Basically, including Iraq would make it about $550 billion.) Isn't that like paying tuition for your kid and learning that it does not include classes? Meanwhile, Iraq's GDP is about $40 billion. Add in Iran ($194 billion), North Korea ($40 billion), and Libya ($34 billion) and you have GDP totals of just over $300 billion. I say that we use our defense budget to simply buy our enemies instead, price equal to annual GDP. We save 44% and they no longer constitute a threat.

Today, General Motors announced that they LOST $39 billion in the third QUARTER of this year. Exxon also reported a drop in profits for the 3rd quarter - they made only $9.4 billion, down from the $10.5 billion they made in the third quarter of last year. Their revenue for the quarter was $102 billion.

So, put this in perspective. Exxon's annual profits are about equal to Iraq's total GDP. And as Greenspan said, we wouldn't be in Iraq if not for oil. So, wouldn't it be cheaper all around just to get out of Iraq and then give Exxon 10% of our defense budget? And then we'd have enough money left over to directly subsidize our auto industry as well.

Or, we could put some money into alternative energy, treating that like a urgent priority given how expensive it is to protect oil resources and to recover from climate change. Then we could .... nah. That would be too expensive. Better to just keep spending the half trillion a year.

Finally, a barrell of oil is soon to cost $100. I should be a little discomfited by this, but I'm not. Dick Cheney has promised that once oil hits $100 a barrel he's going to declare the day a new national holiday.

Virtual Budgets - A Proposal for 2008 Presidential Candidates

This is the second in a series of proposals I'd like to hear from presidential candidates.

Today, George W. sent Congress his latest budget proposal, nearly $3 trillion for federal spending.

One subset of his budget is the defense spending - a tidy $717 billion. According to The World Bank listing of 183 counties, ranked by GDP, http://siteresources.worldbank.org/DATASTATISTICS/Resources/GDP.pdf
a country with a GDP of $717 billion would have ranked 15th globally - just between Russia and Australia. $717 billion is twice the size of Sweden or Saudi Arabia's entire GDP! Put another way, it is nearly 3X the total GDP of the Axis of Evil combined. (That's Iraq, Iran, and North Korea. We could lease those countries for one third of what it takes to defend ourselves from them.)

So, with that bit of rant behind me, let me propose this. When Americans file their taxes each year, they indicate where they would like to see their money spent. What percentage to housing, to basic research, to health insurance, to defense, to education, etc.? We have the technology to make this feasible. At a minimum, it could be the starting point for DC's plans about how to spend our money.