Guest post: Budgets, Budgets, Budgets

Please scroll down below this post for today’s Political SitRep. ~Bob

Budgets, Budgets, Budgets

Colonel Donald J. Myers USMC (Ret)

The president finally produced his budget for 2014 even though it was over two months late. The Senate also produced a budget for the first time in four years even though by law it is required to produce one every year, but then when did Congress think that laws were also meant for them? The House produced its budget as usual so now we normal citizens will watch the circus as all those concerned accuse each other of being the roadblock to producing a realistic end result.

The Senate proposal makes no effort to balance the budget over the next decade. The House says that their proposal will balance the budget while not raising taxes. The president's budget increases spending by a trillion dollars and raising taxes by over a trillion dollars. Each of these proposals looks a decade into the future and yet no congress is responsible for anything other than the first year. Anything other than the year 2014 is a fantasy and make believe, but is supposedly a plan.

Our current debt is closing on 17 trillion dollars and the president's budget will add eight trillion dollars to that debt. Does anyone believe that we can survive with a debt that large? Our credit rating was reduced once by Standard and Poor's because it believed that we were not serious about reducing our deficit. What do you think will happen if we continue to increase our debt? Interest rates are currently low, but if they were to raise one percentage point that would mean an additional 170 billion dollar cost per year. We remain a good investment for other countries, but unless we regain control of our spending that will not continue.

None of these budgets really consider the effects of ObamaCare that comes into being on 1 January. The reports that tend to be issued each day seem to predict that it will be a disaster and cost a fortune. The ceaseless issue of new rules and regulations by the various agencies of the federal government are also unknown; however, if the last several years are any indication they will cost additional billions.

Sadly, I fear that far too many of our fellow citizens pay little attention to what occurs in Washington. The budget is merely an example. Trillions of dollars are nearly beyond comprehension. The late eighties saw the first budget of a trillion dollars and now we are approaching four trillion. Does our government need to be that large? A recent Government Accounting Office (GAO) reported 162 examples of government duplication in 31 different areas. As an example, do we really need three government agencies to inspect catfish? Each of the services has its own organization developing camouflage uniforms. Can anyone tell me why sailors aboard ship need a camouflage uniform especially since it is blue? Why not get rid of the duplication? I suspect that the main reason is that each one is supported by a certain elected official. It's not their money so why should they be concerned. There never was a time that we could afford this, but as the government grows more and more of this occurs. It is time to get serious about this and break out the axe rather than the scalpel.

Now that there are proposed budgets from all concerned, perhaps something positive will be done. Spending is the major problem and that must be addressed honestly. Any time that any of us had to face an unexpected financial problem, the first thing that most of us considered was how to reduce spending that was not essential. It is amazing how much that can be. The government must do the same.

Guest post: Poverty in America

Poverty in America

Samuel L. Skogstad.

Professor Emeritus of Economics and former Chair, Department of Economics at Georgia State University (and a Marine Vet).

I have spent much of the past two years studying income distribution. The Heritage article on poverty in America was incredibly impressive for its thoroughness and the sharpness of its focus. It also saves me much time and effort by assembling in one place so much of the data and source material I would eventually need. It is particularly interesting to note that the bigger the share of GDP we direct to "warring against poverty," the more poverty we have.

I would attribute this to the incentives contained in the dozens of anti-poverty programs and the hundreds of bureaucracies and jobs poverty creates for academics and government employees. And never underestimate the influence of the lobbyists for the huge masses of private sector companies that supply the products and services that the programs consume. They include agricultural product suppliers, condom and other ‘birth-spacing’ product suppliers, ‘affordable housing’ suppliers, ‘household electrical and electronic gadget suppliers,’ inter alia. But I go too far afield.

Here's a riddle for you to ponder and the answer to the riddle, in case pondering it starts to bore you.

Facts:

Total Federal Government Outlays,  FY 2008:              $2.983 trillion, or 21 percent of GDP.

Total Federal Government Spending, FY2008:              $1.085 trillion, or  8 percent of GDP.

Total Federal Government Outlays, FY 2010:                $3.456 trillion, or 24 percent of GDP.

Total Federal Government Spending, FY 2010:             $1.335 trillion, or  9 percent of GDP.

Riddle: What's the difference between "total outlays" and "total spending?"

Answer: Total outlays include total expenditures on goods and services PLUS payments by the government unrelated to current production (Transfer Payments.) Total expenditures represent only the first of the two components above. That is, only purchases by the government of goods and services produced. So only a little under 40 cents of every dollar of government outlays is paid for production, while a little over 60 cents is given to people not involved in current production. Some of the 60 cents goes to veterans, government retirees and social security retirees, and could be considered payment for past production. Another part of it was given by the federal government to state and local governments.

But by my calculation, at least 5 percent of GDP was collected and given to beneficiaries of means-tested welfare programs. And if the Heritage article is right that $714 billion was spent on such programs in 2008, and if we assume the Census Bureau's inflated number of "poor people" (35 million) was correct, these welfare programs were sufficient to deliver over $20,000 to each of the 35 million. Having spent half a career working in countries that have real and massive poverty, I am certain that welfare in the United States is generous enough to attract clients from around the world. But surely that isn't a government objective---is it?

Guest Post: When is a cut not a cut?

There has been very little reporting in the past days and weeks about the real and growing level of federal spending.  All that is discussed is the amount of "cuts", all of which are spread over 10 years.  Wonder why the focus is on 10 years and not this year or next year?  Because there are almost no real reductions to current spending.  The maximum debt level is increased effective immediately but the spending reduction is advertised to occur at some unspecified time over 10 years.

The problem is the federal government employs "baseline budgeting".  This means that the annual budget is first assumed to grow at a rate of inflation plus a few other factors.  Any reduction from this assumed inflated level is then called a "cut".  The current baseline annual budget grows steadily from $3.8 trillion in 2011 to $5.7 trillion in 2020.  (See chart below.)  Total spending over the 10 years would be $47.5 trillion.  Compared to holding spending constant at $3.8 trillion per year (which would be $38 trillion over the 10 years), the baseline increases spending by a total of $9.5 trillion (= 47.5 - 38).  Thus if our esteemed federal politicians somehow voted to hold spending constant for 10 years, this would be considered a $9.5 trillion cut!  There has been no conversation that would actually result in a real cut as most people would define it; only about spending less than the inflated baseline. 

So when Republicans crowed about cutting spending $3 trillion and the Democrats wailed about cutting spending a draconian $1 trillion, remember that Republicans are still voting to increase actual spending by $6.5 trillion and the Democrats by $8.5 trillion spread over 10 years.  The $2 trillion "cut" that has been passed represents less than 5% of the total $47.5 trillion baseline spending (which is itself inflated by much of the 2009 stimulus spending that has become part of the baseline instead of a one time budget bump).  Wow, now that's really going to require some tough decision-making.  Even more misleading, the vast majority of the reduction is to occur in the last five years of the 10 year time period which means that Obama and our current Senate and House leaders won't have to decide what to actually cut until years from now, if ever.
For perspective, compare the 2011 federal spending of $3.8 trillion versus the federal budet in 2007 (Bush's last budget before the TARP and financial crisis spending) of $2.7 trillion, in 1999 (Clinton's last year) of $1.7 trillion and in 1988 (Reagan's last year) of $1.1 trillion.  Annual budget deficits of over $100 billion in the Bush years were considered to be out of control and this now equals Obama's monthly budget deficit!  When Clinton proposed a $16 billion stimulus early in his first presidential term, it was voted down as being too high!  The stimulus package signed by Obama in the first month of his presidency was over $800 billion (50 times greater).  As Mark Steyn says, we now have the first trillionaire spenders in history and still they want more.  How's that hope and change working out for you?

Sosurce:  http://www.usgovernmentspending.com/
This is insanity and I would ask everyone who reads this to have a long discussion with their children or other acquaintances under age 30 to inform them they will be paying the higher taxes to cover the interest and principal of this unconscionable spending if they make the mistake of voting Democratic in the next presidential election in 2012.  The economy will never recover and their job prospects will be poor.
Howard

When will it all go crash?

Our scary fiscal future: 180 degrees wrong
http://www.benningtonbanner.com/opinion/ci_12457385

But the "rich" will pay, right? Unless they go missing.
Millionaires Go Missing
http://online.wsj.com/article/SB124329282377252471.html

Murtha's Nephew Got Defense Contracts

Millions in Work Came Without Competition:

http://www.washingtonpost.com/wp-dyn/content/article/2009/05/04/AR2009050403743.html?wpisrc=newsletter