Government Spending

Lots of data, facts, and pictures on government spending in the U.S.  Interesting to look at, and more than a little disturbing.

Here's a good one.  Government pension obligations.  We are either going to spend a whole lot of our annual budgets on pensions, or else we are going to renege and not pay the pensions we promised.  Either way, somebody not happy.

Other People's Money, Spent for Other People

Email from W.H.:

Many times when people discuss Milton Friedman's fourth category of spending they do so in a mistaken vacuum. How so? They forget to point out HOW other people's money came to be. Stated alternatively, other people spending other people's money on other people, the discussion thereof, many, many times leaves out Friedman's first point: coercion.

Hence one ends with an isolated discussion of how Friedman's fourth category of spending points out the careless way or ineffective/inefficient way that occurs by other people [politico]spending other people's money [taxpayer] on other people [recipient class]. True enough but it decouples the coercion and only discusses the single phenomena without discussing [coupling] the ability of such a phenomena to emerge. Think about it, how many times have you heard the discussion, in isolation, of other people [cheese master] spending other people's cheese [cheese payer] on other people [cheese recipient class]??

Meanwhile, twenty six discussions later a separate subject is discussed regarding coercion of forcibly appropriating other people's money. Better yet, this discussion many times appears in isolation from Friedman's total discussion.

Nay, nay! One must correctly discuss both subjects as coercion must occur first and only then can one arrive at other people spending other people's money on other people.

Problem solved! Please go to 11:00 to 11:34 of the youtube link below and hear Friedman himself properly layout the discussion.

Here is the video...

My Guy Bill English Explains the Crisis of Liberalism, In a Nutshell

Gamebill gets a quote in the WSJ. And he's right, of course.

A Silver Lining in Europe; And the political lesson for America. Kaminski, Matthew. Wall Street Journal (Online) [New York, N.Y] 09 Dec 2011

European Union leaders are gathered in Brussels for yet another emergency summit, this time to consider a Franco-German plan for fiscal union. After each previous try to stop the bleeding in the past 18 months, markets saw through the palliative and drove up debt costs.

Yet the fog of crisis obscures what's already changed in Europe. A new social-political bargain has started to form. Though not advertised loudly, the solutions on offer, from Ireland to Italy, all scale back the reach and size of the state. This mental and political shift predates the Greek meltdown. The three Ds-- spiraling debt, unsustainable demographics and looming depression--just hastened the reckoning....

Step back to see a bigger picture. The European model isn't pinched by Greece but rather by two related phenomena. In a world of global competition and free trade, EU countries have failed to keep up. Taxes and regulations needed to cover generous unemployment benefits and pensions have sapped their growth and scared capital away, in turn impairing their ability to meet these costs without huge debts. As Princeton historian Harold James notes, "The redistribution game becomes a lot harder to play in an open economy."

Globalization's other byproduct, immigration, changed the look of Europe. Social safety nets were built in postwar boom years when countries were younger and more homogenous. Relatively few people drew on unemployment benefits or other help, and those who did were the familiar neighbors of those who picked up the tab and considered it their obligation. Political scientists call this "social trust." New arrivals from North Africa and Turkey changed that and put economic strains on the welfare system...

There's a lesson here for America. President Obama insists that the U.S. isn't in similar straits, and he has a point for now. Yet our public debt surpassed the euro zone's in 2008, and now touches 100% of GDP.

In a paper presented at a Witherspoon Institute conference this week, German finance ministry official Ludger Schuknecht, who previously headed fiscal policy surveillance at the ECB, notes that the U.S. increase in its size of government over the past decade was on par with those of Italy, Spain, Portugal, Greece, Ireland and the U.K. All the others have tried to rein it in, he writes, but the U.S. "stands out as the country that seems to be quite oblivious to the need for adjustment over the near future." Americans can't say the Germans didn't warn them...

But the terms of debate have to shift here, as they did in Europe's success stories. American reformers, in the words of Harvard political scientist Bill English, need "to make the moral argument that you should spend federal monies to pay for poor children's meals and not fluff union pension schemes."

Insolvency may be a symptom of many Western democracies, but democracy isn't the problem. Voters, who aren't stupid, are as likely to reward as to punish leaders who take the necessary hard steps.

I had not thought of Angela Merkel as a "fluffer" before, but of course that's right.

Cut cut cut, cut cut defense!

People, the federal government wastes a crap-ton of money. Let's get serious about cutting spending over the next 10 years. Here's a start:

Defense: Cut $200 billion a year. That's two trillion over 10 years. Don't worry, we'll still have a freaking huge military as current spending is north of $700 billion per year.

TSA: Eliminate it. That's $50 billion a year or 1/2 trillion over 10 years.

Agricultural Subsidies: Eliminate them. That's maybe $25 billion a year or 1/4 trillion over 10 years.

Homeland Security: Cut it in half. That's another $25 billion a year or 1/4 trillion over 10 years.

People, that's $3 trillion of REAL cuts. Easy-peasy. No entitlement reforms (which I favor as well), no cutting Obama's choo-choos and windmills, just declining to screw ourselves quite as much as we have been doing.

Anyone have numbers on other low hanging Federal fruit we can harvest?

You can lead kids to lunch, but you can't make them eat healthy

This is quite interesting. Two studies say that government subsidies appear to be associated with increased childhood obesity. Of course, one has to be careful of endogeneity, since it is likely that poor kids are more likely to be obese, and poor kids are more likely to receive subsidies. (May I point out that the fact that poverty goes with obesity would have seemed like a bizarre claim just 50 years ago? Things can't be THAT bad if our poor people are fat, right?)

Does the National School Lunch Program Improve Children’s Dietary Outcomes?

Benjamin Campbell et al.
American Journal of Agricultural Economics, July 2011, Pages 1099-1130

Abstract: The National School Lunch Program’s effect on children’s diets has been
extensively studied. Results have tended to be inconclusive regarding the effectiveness of the program. Utilizing more specific treatment groups, we find that participants in the National School Lunch Program do not consume a higher-quality diet at lunch than children choosing not to participate, even though the program is offered — but rather consume a higher quantity of foods while consuming similar amounts at other meals. Furthermore, children attending schools not participating in the National School Lunch Program have dietary outcomes that are not significantly different from program participants.

Child care subsidies and childhood obesity

Chris Herbst & Erdal Tekin
Review of Economics of the Household, September 2011, Pages 349-378

Abstract: In this paper, we study the impact of child care subsidy receipt on low- income children’s weight outcomes in the fall and spring of kindergarten using data from the Early Childhood Longitudinal Study, Kindergarten Cohort. Our results suggest that subsidy receipt is associated with increases in BMI and a greater likelihood of being overweight and obese. Using quantile regression methods, we find substantial variation in subsidy effects across the BMI distribution. Specifically, child care subsidies have no effect on BMI at the lower end of the distribution, inconsistent effects in the middle of the distribution, and large effects at the top of the distribution. Our results point to the use of non-parental child care, particularly center-based services, as the key mechanism through which subsidies influence children’s weight outcomes.

I am going to go out on a limb here, and guess that the answer from P-Kroog is "The program needs to be bigger! Much BIGGER!"

Infrastructure

The problem is not that we spend too little on infrastructure. The problem is that our very large spending on infrastructure gets diverted to pet projects of members of Congress.

Why anyone would think that government wants to do what is right for the average citizen utterly mystifies me.

Sure, a Senator is no more greedy than a financial services CEO. Folks, the problem is that a Senator is NO LESS greedy than a financial services CEO. And the Senator faces none of the checks on behavior. He gets to bribe voters in his state with money taken from people in other states. It's a foolproof system.

And you are the fool. Here's proof, from David Leonhardt.

Rent-Seeking is the New Profit Center, and DC is its Festering Capital

In the U.S. there have always been centers for frenzied entrepreneurial activity, creating value, wealth, and employment. It's what we do.

New York and Boston were both important trade, financial, and industrial centers. Then Pittsburgh and the Ohio Valley became engines of growth and industrial might. Detroit made iron machines that covered the world with transportation. Silicon Valley, quite recently, produced enormous amounts of hardware and software, and revolutionized the way we think about information.

In all those cases, American entrepreneurs sought out opportunities to create value and collect profits. That's what profits are, the inducement to redirect resources toward higher valued uses.

What does the U.S. produce now? Government contracts, where money is taken from tax-payers at gunpoint and wasted on "information systems," useless consultants and brutal elective wars on faraway and largely innocent populations. A festering hive of rent-seekers has clustered around Washington, D.C.

Rent-seeking and profit-seeking look the same from the perspective of the seeker. Both produce super-normal returns to investment, and create wealth for the winners. The difference is that profits are a sign of value being created. Rent-seeking is a sign of value being destroyed.

(nod to Anonyman, who eats his rents with fava beans and a nice Chianti)

The Hobbesian State of Weddings in Kabul

"The Law on Prevention of Extravagance in Wedding Ceremonies [in Afghanistan] would limit the number of wedding guests to 300 and the amount spent to around $7 per guest...'Why should the government tell people how to spend their money?' said Mohammed Salam Baraki, the owner of Uranuse. 'If they pass this law, it will only facilitate corruption. I’ll have to pay off the inspector to allow more guests in.'" [WaPo]

Interesting prisoner's dilemma. Everyone wants to spend less, AND wants to have the nicest wedding in town.

(Nod to Kevin Lewis)

Waiting For It To Drop

This is a picture of our government, waiting for someone to do something.

Can I have a deal now? Now? How about NOW?

(UPDATE: Not yet! Repubs just blocked a vote in the Senate)

THIS TIME We'll Cut Spending

No, really, this time will be different. The Republicans promise. Gag me.


Nod to Angry Alex, who gets it.

As I said for a McClatchy story, written by my man David Lightman, this is just a religious ceremony, something Repubs do before they start eating. It has nothing to do with the actual meal of piggies at the trough. HuffPo liked it.

Dance band on the Titanic

So President O and the Congressional Republicans have displayed their latest arrangement of the deck chairs on the USS Titanic.

There's something for everyone. No rise in income tax rates, lower payroll taxes, re-extended unemployment benefits, a compromise on the inheritance tax (35% on estates over $5 million) and a bunch of other directed tax breaks.

The two year "cost" is around $900 Billion

Number of spending cuts included in the plan? Around $0.00.

As my co-blogger has so forcefully stated recently: Deficits are future taxes.

Without spending cuts, all we are doing is shuffling the deck on the timing.

As for "stimulus", well the economy will turn around on its own at some point, perhaps soon, so these cuts may be lucky enough to be enacted at an opportunistic point in time whereby they will get the "credit".

And so it continues.

People, the search for grown-ups in government is not going well.