Monday, February 28, 2011

The Military Industrial Complex or a balanced budget?

A recent conversation amongst friends and total strangers recently revealed a couple of interesting points in terms of budget deficit reduction.

Here are the generic, stereotype laden talking points (generally dependent on political leanings):

1) We need to cut spending from the military, the evil empire spends well over every other country in the world combined!

Okay so not everyone is so hyperbolic with their wrongly cited numbers but you get the idea.

2) We need to cut the welfare programs that are a burden to society and doing nothing more than spreading around hard earned wealth and enslaving the working class.

Everyone else talking about budget cuts is really just noise right? I mean, sure, we can cut the endowment for the Arts because they offer little value and promote divisive materials, sometimes. Sure we can cut the Department of Education, because honestly, I dare you to go read their website and tell me in concrete terms what they actually provide. I have read it, and personally I don't get it. As a person that has been formally enrolled in some sort of school for 24 of the last 27 years of my life I get it. Education is important and all that jazz but really how much value does the Dept. of Education really bring to the table when a huge amount of our spending is being done at "for profit" educational institutions?

To be succinct, the current budget of our fine government qualifies about 30 % of our spending as "non-mandatory", or discretionary. To include the FBI and the Army......yes something is wrong with this picture.

So back to the topic at hand, budget cuts. Our current fiscal situation is worsening at an exponential rate. Roughly 10 years ago in order to balance our budget we needed to cut spending by about 10% and we would have been back in good shape. Roughly 4 years ago that number was around 30%. At that point we could have just lopped off the discretionary spending completely and have fixed the problem. Now, since as a country we refuse to demand that our politicians make decisions that fix the problem we are now in need of a 50% budget cut in order to come back into balance. Yes, as noted in the other conversation, Rand Paul was right about the numbers.

So here we are, we need to start skinning the fat rabbit or we'll never make it out of the hole. So what is the fat rabbit, and how do we skin it. Courtesy of Wikipedia, and claiming to be based on CBO data, behold the fat rabbit.

So, where do we start. Clearly we have four sections that need to be put on a diet to balance our budget. So, when making large cuts wouldn't it make sense to just cut 13% across each of the sections and call it good? Seems easy enough right? Sure, except enter political stereotypes.

Republicans can't cut the military industrial complex because of their mired corporate interests.

Democrats can't cut Social Security and Medicare/Medicaid spending because of their personal care of those that are unable to care for themselves.

Enter people like me, who are unaffiliated. I think the budget cuts are a simple solution. Note, I don't believe that because it's a simple solution that it won't be without huge impacts, but I don't think it's hard to look at a pie graph and realize where I need to start making cuts.

Will people have to work longer without collecting their Social Security? Yes. Does that mean people like my father, wouldn't be able to retire from a fairly cushy salary, receive full Social Security benefits, and work at a golf course in order to "stay busy" during his retirement? Yes. Do those sort of cuts hurt in the near term? Yes. Are they insurmountable in the long term? No. People will adjust because they have no other choice. All we need to do is convince them they are sacrificing for the betterment of the country and their progeny and they'll do it. How do we convince them it's for their progeny and not for politicians, lobbyists, greedy corporations and everyone else that is evil in budget talks? Well, you cut their budgets as well.

So, enter cuts to the military industrial complex as well. Do they hurt the average citizens as well? Most definitely. The Department of Defense employs a whole bunch of people, in a whole bunch of locations not called Washington D.C. In fact, in some places the DoD employs up to 15% of the entire state's working population. So will those cuts hurt? Most definitely. Let's not fall into the rhetorical trap of social program cuts hurting the "little people" and defense cuts only hurting the greedy corporatists.

The deal is simple, cuts need to be made. 50% of our budget needs to be cut, there are no two ways around that mathematical truth.

How do you do that and FAIRLY affect all the people in this country that weren't responsible for any of the budget mess to begin with.

Well, my proposal is a 1:1 coupling of cuts from each of the parts of the pie chart. That way, everyone gets cuts from where they think is deserving of being cut. Some will say, "But we need to cut more from the military because we spend a disproportionate amount on military spending compared to other countries." This is true, but when you compare spending as a percentage of GDP we're not even near number one anymore. So, take our spending with a bit of what it's going towards and we'll understand why our spending is so high. How much of the useful things in our country's GDP right now are a direct result of military spending through private contracting vehicles? How about any dollar spent, earned, or otherwise transacted on the Internet?

We spend a lot on research, and a lot of the great scientific and technological advances in our nation's great history have come at the heels of Industrial Complex spending from our military. It's not all evil, nor are we really necessarily spending "too much" in that arena. It's really a matter of perspective on where we should be spending the money.

I don't "lean left" politically so I'm not bound to the stereotype of caring for people, so I'm fine cutting social programs like Social Security and Medicare/Medicaid.

I don't "lean right" politically so I'm not bound to support military spending. I think that defense is the number one priority of our federal government, so I don't see it as much as "over spending", at least not any more proportional than money that is wasted in every other branch of government spending.

So, from where I sit, here in the middle. I say cut them both, and we'll adapt and overcome as a country. 50% of cuts is going to hurt no matter how you slice it. With so many differing opinions about where we should be spending the money, the least we could do is share the burden collectively right?

It's sort of "redistribution of wealth" but in reverse. Everyone loses, which ultimately makes it so everyone wins.


Jacob S. said...

Thanks, Pug. I, of course, because I'm opinionated and wordy (bad combination), have a lot of comments. But I want to start with another option that you didn't consider which I think is absolutely paramount to this discussion: Raise taxes.

Americans seem to work like this: When you give them the big picture of our budget problems we want programs slashed and budgets cut. When you start talking about specifics we recoil in horror and fight to the death to keep our important programs. Programs like SS, Medicare/Medicaid, Dept. of Education (which funnels billions of federal dollars to local schools in exchange for meeting certain higher standards and offers student loans that we couldn't function without), WIC, CHIP, infrastructure, etc. are hugely popular. We Americans like the programs our government runs to help our lives.

But we don't want to pay for them and, furthermore, we haven't really been asked to pay for them for decades. So it's time to offer Americans a real choice. Show us how much our taxes would go up to fully fund all these programs we love and let's have a real discussion from that point.

Americans now have the lowest tax burden since before the Great Depression, corporations in America pay on average less tax than the worldwide average, and studies show that a majority of Americans find their tax burden too light or about right. (Shocking, I know, but read more about it here.)

We could start by raising rates back up to the Reagan levels and go from there.

I have more thoughts on SS, Medicare/Medicaid, and defense spending when I have some more time.

Jacob S. said...

Social Security: SS currently is solvent through about 2040 and therefore does not contribute directly to the national debt. A single tweak - removing the ~$106,000 tax ceiling, would make it solvent indefinitely and you could just take it out of the pie altogether as a self-existing entity. I wouldn't be opposed to other small changes such as means testing and raising the retirement age for white collar workers, but SS really isn't a debt problem.

Discretionary: I think we agree that discretionary spending is pretty out of control and could be slashed (or scalpel-ed might be the more PC term).

Medicare/Medicaid: The single most important way to bring down Medicare/Medicaid costs is to bring down health care costs generally. That is what the Obama Administration said will be result of Obamacare (a name I'm taking a shining to) by creating exchanges, mandatory coverage, lopping off industry excesses and bad acts, and the like. I guess time will tell. I'm not smart enough to know what other cuts could be made to M/M, but the thing to keep in mind is that these programs go to the direct benefit of the most vulnerable in our nation and therefore should be treated very carefully.

Defense: The fact is we outspend every other country by a mile. Per capita we spend the second most to the UAE. I'm not sure what good it does to measure defense spending by GDP, that doesn't seem to tell me much other than that America is extremely wealthy, which I already knew.

Shawn's idea (not that he made it up but he mentioned it previously) of shutting down unneeded overseas bases would save hundreds of billions of dollars and maybe create some goodwill to boot.

There is just more fat to cut out of defense spending than social programs. There is more margin for loss for corporations than those receiving M/M or SS. I think we agree generally that spending needs to come down (or taxes up), but I disagree with the 1:1 idea as hurting those that can least afford it.

Pugs said...

Well, first and foremost. In principle, I'm not opposed to a higher tax rate.

What I am opposed to is increasing taxes in our current tax code, because tax hikes aren't effective. Too many loopholes, too many pages, too many rules to hide behind. It also makes no sense to continue on with an obviously broken system.

I think you're deluded if you don't think there's an equal amount of fat being spend socially than not to be honest.

What is the annual fraud cost to the taxpayers for medicare alone annually?

I also don't believe in the pipe dream that increasing insurance will bring down the actual cost of healthcare. The only thing health insurance reform actually changes is the supply to the market, which decreases competition in the market place which when you take the need to compete for people from a services industry you decrease the likelihood of price decreases.

We've already seen the CBO projections revised on the long run cost of "Obamacare", and what a shock they weren't revised downward.

Our healthcare costs will never go down until the following simple principle actually comes to fruition:

Cash customer's costs are lower than the overhead laden insurance costs.

If currently go to my doctor's office and get a standard annual physical I will pay more than my insurance company will pay, despite the fact that my insurance company is producing much more overhead costs in the entire process. Costs that need to be shifted somewhere, so they are either shifted to lesser coverage in insurance or higher prices.

As long as the highest overhead option remains the cheapest, we're never going to bring down health care costs in this country. That stated, increasing the amount of people in the overhead group can't possibly do anything to control the cost of health care, mathematically it just doesn't make sense.

Jacob S. said...

I agree about the tax system. Simplifying it significantly would close loopholes and also save a huge amount of money in administrative costs. That's why I kicked around an idea for a national sales tax way back when, though I'm not convinced that that is a legitimate answer.

M/M fraud is not fat or waste, it is crime. The government is not purposefully spending money on fraud, they are trying to end it, which would save billions of dollars every year. But don't get me wrong, there is a ton of fat and waste in M/M spending, I just think there is more in defense spending. Even when the military wants to shut down production of a weapons system or fighter jet Congress won't allow them to because defense contractors are too powerful. The military-industrial complex is more often than not a very bad thing.

Architect said...

The first GW Bush budget was bloated, going back to that budget would solve our "crisis."

The "D" party complained of financial Armageddon when President Reagan proposed a one trillion dollar budget. Even back in those days the federal government was too big. The current administration is unable to say "no" and has proposed a budget nearly four times the size!

The federal government collects so much in taxes, that we could eliminate the federal income tax and still fund the government at near Clinton Levels! The government was plenty big then too.

There are plenty of places to cut the military and wealth transfer programs. However it is useful to ELIMINATE the small stuff like foreign aid, fanny/freddy, and presidential libraries. Like the person that joins every club on campus, we are left with no clear focus. Federal spending should be focused on a few essential items and excess taxes should be returned to the people - not with programs, but with checks.

Realistically, the federal government could begin selling assets. We could allow drilling for oil & gas and take royalties. This administration's moratorium on drilling cut off a source of revenue and shipped jobs overseas. We could stop making the business climate uncertain by limiting regulation changes to laws passed in Congress with public debate and signed by the President (no more new regulations emerging from the dark of conference rooms without wider debate). We could have Congress review all new regulation changes before allowing them to take effect. We could force older regulations that did not pass Congress to be suspended until passed by Congress and signed by the President.

Shawn O. said...

Funny Pug, we were talking about the disparity between cash and insurance payments at the physician. I totally agree with you on this one. Someone willing to pay outright for medical services should not have to pay more than the insurance companies have to pay. The famed US capitalism can't exist in such a system. Beyond that I won't comment on healthcare except to say that the US needs to stop being so egocentric and start to look at other countries' success as a model.

Like Jacob S. said, I'm a big fan of shutting down our overseas military bases. Germany is a great example. What are we doing there? Are we worried the Nazi's are coming back?

I also think there is way too much redundancy and overlap in government services. Worst of all is that the hundreds of redundant programs are known:

Get some bright, objective administrative strategists in there and consolidate. Then after all of the above has been addressed, raise taxes to make up the difference.