April 13, 2011, 11:30 a.m.; 2:48 p.m. (addition of link to text of President's speech); April 14, 2011, 11:15 a.m.
Suggestions for Washington
Here are some early thoughts about federal fiscal responsibility, and suggestions for Washington, prior to the President's address later today. ["Remarks by the President on Fiscal Policy," George Washington University, Office of the Press Secretary, The White House, April 13, 2011.]
My April 14 take on that speech: appreciated sentiments with which I agree (e.g., "Part of this American belief that we’re all connected also expresses itself in a conviction that each one of us deserves some basic measure of security and dignity. . . . And so we contribute to programs like Medicare and Social Security . . .. We’re a better country because of these commitments. I’ll go further. We would not be a great country without those commitments."), the proposals were neither as detailed nor as bold as I would have liked, but I welcomed his putting all programs (including defense) on the table, along with a seeming willingness to fight for major social programs, eliminate some of the subsidies embedded in the tax code, and raise taxes to pre-President Bush levels.
1. Make sure everyone understands the difference between "deficit" and "debt." The "deficit" is the amount that our expenditures exceed our income for a single budget year; the amount the federal government puts on its credit card with no intention of paying during that year. The "debt" is the total of all past "deficits" that have never been paid off. (The interest on that debt alone is a roughly $300 billion budget item each year, an amount projected to reach $1 trillion annually in a few years.) In other words, we could eliminate the entire "deficit" for every year from now until the next century and we'd still be left with that $14 trillion debt and its mounting interest obligation.
2. Don't hold budgets hostage to policy debates. With $14 trillion of debt (closer to $100 trillion if future, unfunded obligations are included), and a deficit of $1.4 trillion (see, "U.S. National Debt Clock: Real Time"), it was junior high lunacy for our elected representatives to hold up the budget, and threaten closing down government, over $38 billion worth of program cuts.
We should provide that whatever programs (and their budget levels) have been agreed to 60 days before the expiration of the fiscal year will be embedded into the next year's budget along with what's rolled over at the pre-exiting levels. Major program and policy decisions with budget implications will have to be addressed by relevant committees, and the full House and Senate, during that 10-month window. If the decisions are not made by then the funding level remains the same for the following year.
To do this, at least our elected representatives (but really all Americans) need access to data that either does not now exist or is extraordinarily difficult to access. We need a program review, not an agency budget review. The "program" may involve numerous pockets of money scattered throughout a number of agencies. This is not a matter of moving boxes around on organization charts. It requires a micro look at thousands of programs. For each we need to ask: What is this program designed to achieve? Are the reasons it was (or "they were") originally created still applicable today? How do we measure the outputs? In other words, "How would we know if we'd ever been successful?"
Here's but one example, in this instance of a program that had continued beyond its time. As the newly appointed federal Maritime Administrator (1964-65), I tried to inform myself regarding the 100-plus programs of the Maritime Administration (MARAD) by visiting with individual employees. In the last office at the end of a long hallway a fellow was working on a catalog. "Why does MARAD have its own catalog when there is a General Services Administration (GSA) that provides the entire government the equivalent of a catalog listing necessary supplies?" I asked. The need, it seems, originated during World War II when the MARAD catalog had items not needed by other agencies: ships. So why was he still working on the catalog 20 years later? It turned out that I was the first Administrator who had ever wandered down his hall, discussed the matter with him, and told him to stop.
While it's true that most agency heads don't take the time to learn what their employees actually do to that level of detail, neither do I think there are a lot of examples of what's just been described -- only that it takes that micro level of inquiry to figure out what the federal government ought to be doing, and why, how to measure programs' outputs, and what the benefit-cost analyses suggest regarding the programs that need to be revised, eliminated, or created, to better achieve the desired ends.
3. Stop dressing up subsidies as "tax breaks." To the extent possible, get subsidies pretending to be "tax breaks" out of the Internal Revenue Code, and put them on the table as appropriations for subsidies where we can see them. This won't save a dime initially; it's just transparency. But it will ultimately force Congress to construct programs and conduct debates about these giveaways in the bright light of day -- from the "mortgage deduction" to GE's "negative tax" to earmarks.
If it is true, as reported, that all together these so-called "tax breaks" total some one trillion dollars, their elimination would enable us to simultaneously cut everyone's tax rate and still increase the federal government's revenue.
Better yet, change the system.
What we presently have is a mix of fascism (a governing system that intertwines corporate and governmental power) and oligarchy (power vested in a few, normally very wealthy individuals, such as Wall Street's "masters of the universe"). The result is a transfer of taxpayers' money to the bottom line of for-profit enterprises (the executives of which happen to be very, very generous campaign contributors). It is a system of government that is ever so much more expensive for taxpayers than a little purer form of capitalism would be, one in which investors bear losses as well as take profits -- and do it with their own money instead of ours.
4. Campaign finance reform. And speaking of campaign contributors, without major campaign finance reform it is highly unlikely that anything will come out of Congress that favors the 90% poorest Americans over the 10% richest. My rough rule of thumb is that those who contribute in the $100,000-to-$1,000,000 range get back between 1000-to-one and 2000-to-one on their "investment." (For further explanation of the formula, and detailed examples of the forms in which the payback comes, see Nicholas Johnson, "Campaigns: You Pay $4 or $4000," Des Moines [Iowa] Sunday Register, July 21, 1996, p. C2.) There are numerous, tested reforms of our voting systems that would also help by more accurately reflecting the views of the electorate. For examples, see Fair Vote (the Center for Voting and Democracy).
A major reason for the fiscal problems we have is the political system we have. That pay-to-play, special interest-driven, fundamentally anti-democratic, basically corrupt system created these problems. However awful it may be, however much the participants may occasionally grouse about it, so long as it continues to work for them, as long as it continues to drive them toward ever greater wealth and power, I'm betting they'll let America crash and burn (as they did in 2008 and 2009) rather than provide the basic reforms we need.
Nor does it portend much "change we can believe in" to read that President Obama has lined up 400 "bundlers," each of whom is charged with collecting enough checks from individuals to total $700,000 from each bundler. ("President Obama’s campaign machine is telling its chief money raisers to go all out in the big-dollar political art called bundling [named for the practice of avoiding the receipt of checks from institutions by collecting individual, personal checks from the highest paid employees and then "bundling" them for delivery to the candidate]. The goal is to enlist 400 or more bundlers — specialists in packaging contributions from deep-pocketed supporters — to pledge to raise $700,000 each for the 2012 campaign." Editorial, "Cue the Obama Money Bundlers," New York Times, April 9, 2011, p. A20.
And at that, this will be less than one-third of his $1 billion goal for 2012 (compared with the $745 million he raised for his 2007-08 campaign). John McCormick, "Obama's Money Pump for 2012 Re-Election Bid Primed by Chicago," Bloomberg Businesweek, April 14, 2011. (Needless to say, the Republicans will be doing the same -- and with the added benefit of the Citizens United gift from the Supreme Court.)
5. Start with the big items. As Peter Drucker often pointed out, even businesses can make the mistake of focusing 90% of their executives' time on what's producing 10% of their profit. [E.g., "[A] very small number of events -- 10 percent to 20 percent at most -- account for 90 percent of all results, whereas the great majority of events account for 10 percent or less of the results. . . . The largest group of salesmen (and especially the most effective ones) are usually put on the products that are 'hard to sell,' . . . which managerial vanity desperately is trying to make into 'winners.' . . . And the product that has sensational success -- [which] ought to be pushed all-out -- tends to be slighted. 'It is doing all right without extra effort, after all,' is the common conclusion." Peter Drucker, On the Profession of Management (Harvard, 2003), pp. 67, 69.]
But especially in government does the focus need to be on "cost centers," the big bucks. Imagine if the congressional energy that went into debating over that $38 billion had gone into an evaluation of our "defense" policies and spending which are closer to $1 trillion. (It's not just the $500-700 billion "defense budget;" there's the off-budget cost of three wars (another couple hundred billion a year), the Veterans Administration, and what's projected to be as much as an additional $1 trillion for the lifetime of care wounded military personnel will require. Some of "Homeland Security" might go into that discussion as well; e.g., the cost of commercial airline safety once was, and still ought to be, paid for by the airlines (albeit passed along to passengers, the beneficiaries, as a "user fee") as a routine business expense, not added to the non-flying taxpayers' burdens.
There are plenty of suggestions on how we can turn defense policies and budgets from paying more while getting less into paying less and getting more. See, e.g., "New Letter to Deficit Commission on DOD Budget," November 19, 2010, Straus Military Reform Project, Center for Defense Information (signed by eight individuals, former officers and defense advisors, with a combined 300 years of experience).
6. Make Social Security reform a separate undertaking. Social Security funding is a lot better shape than the major contributors to our growing national debt and imbalance of trade. There is no emergency staring us in the face. Moreover, the fixes are kind of obvious. Future beneficiaries pay 6.2% of their income (4.2% in 2011) into the fund -- but only up to a maximum income of $106,800. Making the rich pay the same percentage as the poor (not a "progressive," higher rate, just the same "flat tax" rate) would pretty much solve any Social Security funding problem. [Although, as the comment from billyzelsnack notes, below, that requires a little focus on their potentially increased benefits as well.]
If that's not enough, the retirement age could be raised a bit in response to today's longer life expectancy.
7. Get agreement on "facts." To have a rational and productive public policy discussion among those with strong differences of opinion, it is especially important to acknowledge, as former Senator Daniel Patrick Moynihan put it, "You’re entitled to your own opinions. You’re not entitled to your own facts." "Daniel Patrick Moynihan," wikiquote.org. For example, are our wealthy taxed excessively, compared with the wealthy in other industrialized nations? Or compared with the income tax rates in the 1950s (a period of economic expansion), or 1990s (when President Clinton created a budget surplus)? What data is there to support the assertion that retaining the Bush tax cuts, or cutting taxes for the wealthy even further, will promote economic growth and generate jobs?
A story, or parable, variously attributed as to occasion and source, involves a group of individuals arguing about the number of teeth horses have. Finally (after 13 days according to one account), someone suggests that perhaps they ought to go find a horse and count them. See, e.g., "Searching for source of 'horse's teeth' parable," answers.google.com.
Or as W. Edwards Deming is credited with saying, "In God we trust; all others must bring data." "W. Edwards Deming," wikipedia.org.
I once heard a professor respond to an especially poor recitation by a law student (thankfully not me): "Young man, you have a capacity for subtracting, rather than adding, to the sum total of human knowledge."
Federal officials have access to the statistics of the Office of Management and Budget, Department of the Treasury and Internal Revenue Service, and Congressional Budget Office, among other agencies. For those officials to be spending time spouting supportive, but grossly inaccurate, "facts" is not just a counterproductive and appalling waste of everyone's time, it is "subtracting, rather than adding, to the sum total of human knowledge."
8. Consider the total impact on citizen-taxpayers. The challenge, the impact on citizen-taxpayers, is not limited to "the federal budget." Federal expenditures can be reduced by shifting program responsibilities from the federal government to the states. That doesn't reduce anyone's tax burden. It just means what they used to send to Washington for that program they now have to send to their state capital, in the form of state income, sales, property, or other taxes.
Similarly, shifting tax revenues from Medicare to subsidies for private insurance companies may (or may not) reduce the federal government's payments for "Medicare." But given Medicare's low administrative costs (private insurance companies' costs are multiples more, plus their profits), the "savings" may be more than offset by the increased costs to seniors -- not to mention the additional burdens on doctors' offices in dealing with multiple insurance company forms and procedures, and burdens on seniors who have difficulty understanding their options and costs.
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There will be more ideas to come, and possibly some reactions to President Obama's remarks. But this is at least a start.
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February 9, 2010, 9:30 p.m.
War on the Cheap Is the Most Expensive
(brought to you by FromDC2Iowa.blogspot.com*)
It's highly unlikely I would ever "join" the Tea Party, or know how to go about doing so, or where to find "it" should I change my mind.
But I do share at least one concern with many of those who do so identify themselves, and that is our nation's mounting debt. Any regular reader of this blog already knows that.
When I was in government I recall the year President Lyndon Johnson pulled out all the stops to keep the budget from going over $100 billion dollars. He thought there was something symbolic about that number. That's right, a budget in the "billions" not "trillions." President Obama's budget is 30 to 40 times that amount. The interest alone is multiples of what it took then to run every government agency and program, fund the new "Great Society" social programs, and the Viet Nam War.
Nations are reluctant to go to war when their people see and feel the costs. That's why those who have reasons for wanting war have reasons for wanting to hide the costs.
There's nothing like a draft to bring that cost to every kitchen table in America. Among those who honestly, analytically, and thoughtfully believed the Viet Nam War was a great mistake were those of draft age. But clearly there were young men and women, and their parents, whose objections were intensified by the prospect of family members, friends and neighbors having to travel thousands of miles abroad to fight in a war from which they might never return.
As Country Joe and the Fish put it in the lyrics to "I Feel Like I'm Fixin' to Die Rag,"
And it's one, two, three,
What are we fighting for?
Don't ask me, I don't give a damn,
Next stop is Vietnam;
And it's five, six, seven,
Open up the pearly gates,
Well there ain't no time to wonder why,
Whoopee! we're all gonna die.
I can never forget watching on a military air base as soldiers boarded one plane, headed for Viet Nam, while a couple hundred yards away coffins of the fallen were being unloaded from another plane, and taken into the same hanger from which the solders had emerged.
It's easier for a nation to support a war politically if the military only takes volunteers, and since that's nowhere nearly enough men and women, "outsources" the rest of the tasks to high-priced mercenaries.
It's easier when, instead of rationing gasoline, tires, sugar, and other essential items in the war effort, the president responds to an attack on our country by encouraging everyone to go shopping.
It's easier when, instead of foxholes, trenches, and hand-to-hand combat, wars can be fought from 30,000 feet, where pilots are at relatively less risk -- or better still, with drones over Pakistan that don't even require pilots, and can be controlled like simulated objects in a video game by CIA operatives from thousands of miles away in the U.S..
It's easy for the wealthy to support a war, or be agnostic about it, when the president is simultaneously cutting their taxes -- instead of increasing them for a pay-as-you-go war.
It's hard to pick what's worst about war. But an aspect of those we're now fighting that gets all too little attention in the midst of the media's coverage of individual battles and "collateral damage" is the costs we're putting on our nation's maxed out credit card.
What are we thinking? What are our options? One possibility is a decimated dollar and the resulting wild, raging inflation -- a cruelty that is hard to imagine, and harder still to impose on those with fixed incomes. Another is to declare the nation bankrupt, and default on all our loans. The third is to leave it to multiple future generations to devote their lives to paying off the interest and debt we have run up with our irresponsible and immoral folly and merely left, like trash after a college football game, for someone else to pick up.
Meanwhile, the only folks who benefit from this are the same bankers to whom we gave the trillion-dollar bailouts (who earn the multi-billion-dollar interest on the government's bonds and T-bills), the munitions manufacturers, and the mercenary operations owners.
I usually would not use extensive excerpts from an article, but those that follow are such a useful contribution that I'm going to do so on this occasion.
Here it is.
Eric Margolis, "Wars sending U.S. into ruin; Obama the peace president is fighting battles his country cannot afford," Toronto Sun, February 5, 2010:
More empires have fallen because of reckless finances than invasion. The latest example was the Soviet Union, which spent itself into ruin by buying tanks.
Washington's deficit (the difference between spending and income from taxes) will reach a vertiginous $1.6 trillion US this year. The huge sum will be borrowed, mostly from China and Japan, to which the U.S. already owes $1.5 trillion. Debt service will cost $250 billion.
To spend $1 trillion, one would have had to start spending $1 million daily soon after Rome was founded and continue for 2,738 years until today. [And see, Nicholas Johnson, "A $14 Trillion Opportunity Cost," January 27, 2010.]
Obama's total military budget is nearly $1 trillion. This includes Pentagon spending of $880 billion. Add secret black programs (about $70 billion); military aid to foreign nations like Egypt, Israel and Pakistan; 225,000 military "contractors" (mercenaries and workers); and veterans' costs. Add $75 billion (nearly four times Canada's total defence budget) for 16 intelligence agencies with 200,000 employees.
The Afghanistan and Iraq wars ($1 trillion so far), will cost $200-250 billion more this year, including hidden and indirect expenses. Obama's Afghan "surge" of 30,000 new troops will cost an additional $33 billion - more than Germany's total defence budget.
No wonder U.S. defence stocks rose after Peace Laureate Obama's "austerity" budget.
Military and intelligence spending relentlessly increase as unemployment heads over 10% and the economy bleeds red ink. America has become the Sick Man of the Western Hemisphere, an economic cripple like the defunct Ottoman Empire.
The Pentagon now accounts for half of total world military spending. Add America's rich NATO allies and Japan, and the figure reaches 75%.
China and Russia combined spend only a paltry 10% of what the U.S. spends on defence.
There are 750 U.S. military bases in 50 nations and 255,000 service members stationed abroad, 116,000 in Europe, nearly 100,000 in Japan and South Korea.
Military spending gobbles up 19% of federal spending and at least 44% of tax revenues. During the Bush administration, the Iraq and Afghanistan wars - funded by borrowing - cost each American family more than $25,000.
Like Bush, Obama is paying for America's wars through supplemental authorizations -- putting them on the nation's already maxed-out credit card. Future generations will be stuck with the bill.
This presidential and congressional jiggery-pokery is the height of public dishonesty.
America's wars ought to be paid for through taxes, not bookkeeping fraud.
If U.S. taxpayers actually had to pay for the Afghan and Iraq wars, these conflicts would end in short order.
America needs a fair, honest war tax.
Excerpts from: Eric Margolis, "Wars sending U.S. into ruin; Obama the peace president is fighting battles his country cannot afford," Toronto Sun, February 5, 2010.
Clearly our war policies need more than "a fair, honest war tax," but that sure would be a good start on the return road to reality.
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* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself.
-- Nicholas Johnson
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January 27, 2010, 8:00 a.m.
Understanding Trillions
(brought to you by FromDC2Iowa.blogspot.com*)
When President Obama explains the "State of the Union" to Congress and the rest of us this evening, presumably he'll have something to say about the $1.4 trillion deficit in his budget that will be added onto the national debt.
Even for those who know that, mathematically, a "trillion" is a million million -- a one with 12 trailing zeros -- it's hard to get our heads around any other-than-mathematical meaning.
We need more than counting zeros; we need to know "what does a trillion dollars look like?"
Nomi Prins and Mother Jones magazine have made an effort to help us understand. Prins' book is It Takes a Pillage, Nomi Prins, It Takes a Pillage: Behind the Bailouts, Bonuses and Backroom Deals from Washington to Wall Street (Wiley, 2009).
In the January-February issue of Mother Jones she offers us the graphics that show the relative size of the giveaways from U.S. taxpayers to the banks that total $14.4 trillion dollars -- $7.2 trillion, each, by way of the U.S. Treasury and the Federal Reserve Bank. Nomi Prins, "The Real Size of the Bailout," Mother Jones, January-February 2010. And see, "Behind the Real Size of the Bailout," Mother Jones, January-February 2010.
She's created a very revealing set of numbers, comparisons and totals.
But what really drives the point home is the piece by Mother Jones' Marian Wang. It's a creative effort at researching and revealing what is perhaps the most dramatic example I've ever seen of the meaning of "opportunity cost."
(If you're not yet familiar with that term, it's economists' talk for the experience of having too much month at the end of the money; that money spent on one thing means you have denied yourself the ability, the "opportunity," to acquire something else. Thus, the "cost" of the car may be $15,000; but the "opportunity cost" of the car is that you now cannot afford to drive it anywhere, including that vacation you'd been dreaming about.)
So what has been the "opportunity cost" of handing over $14.4 trillion dollars to impoverished bankers? What else might we have done with that money?
Here's Marian Wang's list. Marian Wang, "12 Better Uses for the Bailout Bucks; Vaccinate kids, fix poverty, buy the world an iPhone. And that's just a start.," Mother Jones, January-February 2010. (If you're not familiar with Mother Jones, but would like to support its work, here's the link.)
10 years of vaccines for kids in 117 countries: $110 billion
10 years of $10,000 bonuses for all US public school teachers: $318 billion
Sending all 2009 US high school grads to private college: $347 billion
Doubling US spending on HIV/AIDS and cancer research for 20 years: $493 billion
10 years of CO2 offsets for all Americans: $559 billion
Meeting UN anti-poverty goals by 2015: $757 billion
20 years of universal preschool in US: $860 billion
Buying a house for every homeless American: $878 billion
10 years of helping developing countries deal with the effects of climate change: $2 trillion
Buying the world an iPhone 3GS: $2 trillion
10 years of private health insurance for uninsured Americans: $2.2 trillion
Paying off 1/3 of US home mortgages: $3.5 trillion
Total: $14 trillion
In case you missed it, that's not a list of things, any one of which we could have done with $14 trillion. That's a list of things all of which we could have done with $14 trillion. That, my friends, is one whopping big "opportunity cost" that comes with handing over taxpayers' money to an Administration's banker friends.
[Credit to Sherman Johnson for bringing to my attention the Johnson County Supervisor Rod Sullivan "Salvos" item about this. Though I'm on the Salvos subscription list, for some reason this one didn't arrive.]
You can do a similar opportunity cost analysis with the projected $1.4 trillion deficit in this year's budget, the $1 trillion already projected for next year, the $14 trillion current federal debt, or the $100 trillion of currently unfunded future federal obligations. (Don't forget the distinction between "deficit" and "debt;" see, “’Debt?’ ‘Deficit?’ What’s the Difference?” Concord Coalition, May 1996.)
And you can also divide any one of these numbers by 300 million to determine each American's share (e.g., for $14 trillion it's $47,000 of additional debt for each of us, every man woman and child -- unless we either declare the United States to be bankrupt and default on all our domestic and global obligations, or so devalue the dollar (and suffer inflation) that the pain is the equivalent of paying off $47,000 in debt).
This is a shell-and-pea game. The State of the Union event, which will get disproportionate play in the media tomorrow, is but a diversion.
The real story for tomorrow's papers? Today's Congressional investigation of the roles of Fed Chairman Ben Bernanke and Treasury Secretary Tim Geithner in creating this unconscionable disaster -- including the pass-through of billions from taxpayers to Treasury to AIG to Goldman Sachs, paying this former employer of so many of President Obama's team (as well as President Bush's Treasury Secretary Henry Paulson) 100 cents on the dollar when previous settlements had been arranged for 14 cents on the dollar, and then keeping the whole thing secret from the American people. Gretchen Morganson and Louise Story, "Two at Fed Had Doubts Over Payout by A.I.G.," New York Times, January 27, 2010, p. B1; Mary Williams Walsh, "Audit Faults New York Fed in A.I.G. Bailout," New York Times, November 17, 2009, p. B1. From the Times report at 3:36 this afternoon, it looks like many of the committee members of the House Committee on oversight and Government Reform shared my sense of outrage. Mary Williams Walsh and Sewell Chan, "Under Fire, Geithner Says A.I.G. Rescue Was Essential," New York Times, January 27, 2010.
And for my predictions a year ago of the problems that would flow from President Obama's capitulations to Wall Street, see "Obama's Potential Wall Street Downfall," April 12, 2009, with its links to 43 additional blog entries on related subjects going back to September 5, 2008.
The President has been lobbying for Bernanke to get another term [Edmund L. Andrews, "Obama to Nominate Bernanke to 2nd Term at Fed," New York Times, August 25, 2009, p. B1] and has said nothing really critical of the insider performance of Treasury Secretary Geithner.
Will he tonight? What do you think?
But at least, my taxpaying friends, you now know "what $14.4 trillion looks like."
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* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source, even if I have to embed it myself. -- Nicholas Johnson
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