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This Thing Called “The Budget”
It aggravates me greatly when I hear a term used frequently and I don’t fully understand its meaning. Generally, after a while I will hear or read the term so much that at some point I’ll snap and go on an internet self-education spree until I feel like I can discuss the matter intelligently. “Segue,” “infrastructure,” and “habeas corpus,” are all past victims of this treatment. Sometimes it’s a simple definition, and sometimes it’s a concept too broad to fully understand even after years of study. Today, however, was a first. Today I researched a topic that quite literally gave me a feeling of nausea at certain points during my study: the federal budget.
I wanted to find primary sources and not op-ed. Googling led me to the White House’s Office of Management and Budget (OMB) where I found the complete budget of the United States government for fiscal year 2008. Not surprisingly, it’s comprised of many documents. They’re all available in PDFs, and raw data is even available in spreadsheets. However, it would be rather daunting to step through it all from page one, and since the budget document is produced by the president, the executive summaries read more like propaganda than a report. Not to say that I oppose or support the president’s fiscal policies, but I was simply looking for unbiased data.
I then found several sites that neatly summarize the budget data, presumably by feeding from the spreadsheets available from OMB. One of the more informative sites gave me some preliminary budget facts, then presented the budget, allowed me to tinker with it, and then summarized the changes I had made. I made some startling revelations. Here’s some of the crude points I took away from this exercise:
The budget can be divided into five main parts: defense, social security, medicare/medicaid, interest on the national debt, and everything else. The four parts I listed by name make up about 75% of the overall budget. That means that all the other programs we argue about (agricultural assistance, foreign aid, NASA, unnecessary federal bureaus) are but a drop in the bucket of our overall problem. Just for a quick and dirty comparison, NASA costs us about $17 billion annually. Medicare and medicaid cost us about $700 billion annually. Americans argue about going to Mars, but if we could fix these huge financial blisters we might be able to go to Alpha Centauri.
The interest on the national debt is fairly burly as well, weighing in at about $470 billion. That prompted me to execute a self-education tangent on the national debt, since it’s also a term that is difficult for me to grasp. Who do we owe? How do we have a seemingly unlimited line of credit? It turns out the national debt is closely related to the budget. Whenever there is a budget deficit (outlays exceed receipts), the government has to borrow money to pay for its expenditures. This borrowed money gets added to the national debt. The national debt is huge! Depending on how you calculate it, it’s around $5 trillion dollars. If you count future spending obligations then it almost doubles, but right now we owe a cool $5 trillion…that’s 5 million millions.
Well this is looking like a pretty raw deal. We’ve got a huge debt. It’s collecting interest like the mafia. OK, how long until we pay it off? This is where the nausea began to set it: We’re not even trying! We keep running budget deficits! Since 1970 we’ve only had a budget surplus during the four years from 1998-2001. Every year besides those we’ve tacked more debt onto the national debt. That means that every year congress and the president have approved a budget saying “This budget says we’re going to spend $X billion. We’ve only got $X-Y billion. Cool! Who’s pitching for the Yankees tonight?” We can’t begin to pay down our debt until we have a positive net cash flow, and historically the government doesn’t seem to be very concerned about that.
That’s slightly infuriating. I can understand that some years with extreme circumstances might necessitate a deficit, but it’s obvious that deficit is the rule, not the exception. That brought me back to the issue of the national debt. From the wiki on US Public Debt I found that the US sometimes monetizes its debt. Here’s a quote from the wiki on what this means, ” the Federal Reserve creates an entry on its books to credit the US Government for an amount equal to the dollar amount of the bonds the Federal Reserve is acquiring. The money created in this process not only includes the new dollars that came into existence just to purchase the bonds, but much more because this new money is now sitting in the form of checkbook money at the Federal Reserve.” That’s why I’ve heard people say the government “prints” its way out of debt and why government debt increases inflation! All the concepts that I had a loose grasp on are starting to become crystal clear. Every time the government prints more money to cover a budget deficit it makes each of my dollars worth less and less. As long as we run a deficit, there’s no end in sight to inflation or the national debt. If the current debt was divided among every living American it would total $30 k per person. Every working American: $60 k per person.
That’s when the real nausea set in. How do we start running a budget surplus so we can pay down this debt and slow down inflation? Our current budget has a $240 billion deficit. A lot of cuts have to be made to bring that to a surplus…either that or increase taxes (and the effects of tax increases on actual receipts are highly debated). We have to make drastic changes to one or more of the four parts of the budget we can affect (social security, medicare/medicaid, defense, everything else). The first two are looking like the most bang for the buck. How can we cut spending in those areas? Without pissing off half the population…I really don’t know.
We’ve got some tough decisions ahead of us, and any solution that doesn’t piss off a lot of people (possibly myself included) is probably not much of a solution at all. One thing is certain: the way the government is conducting its finances is a fairy tale. It reminds me of a phrase from my old battalion XO, Major Reiley, “We’ve got ten pounds of shit in a five pound sack.”
It certainly gives one a different perspective on whether or not the Bush tax cuts are actually a good idea. The assumption behind those, it seems to me, is that a growing economy is more important than a balanced budget.
I’m not entirely sure that assumption is true, and I’d be curious to know what you think about that shuffling of priorities.