Posts tagged ‘Spending’

August 27, 2011

Obsessing Over Entitlements

by Vince

For those who are obsessed over cutting entitlement spending (strictly speaking – Medicare/Medicaid, Social Security, Welfare, et al) and believe that alone will solve our entire budget mess, Byron York has an interesting piece that looks at where our budgetary woes have come from lately:

Was there a steep rise in entitlement spending? Did everyone suddenly turn 65 and begin collecting Social Security and using Medicare? No: The deficits are largely the result not of entitlements but of an explosion in spending related to the economic downturn and the rise of Democrats to power in Washington. While entitlements must be controlled in the long run, Washington’s current spending problem lies elsewhere.

A lot of the higher spending has stemmed directly from the downturn. There is, for example, spending on what is called “income security” — that is, for unemployment compensation, food stamps and related programs. In 2007, the government spent $365 billion on income security. In 2011, it’s estimated to spend $622 billion. That’s an increase of $257 billion.

Then there is Medicaid, the health care program for lower-income Americans. A lot of people had lower incomes due to the economic downturn, and federal expenditures on Medicaid — its costs are shared with the states — went from $190 billion in 2007 to an estimated $276 billion in 2011, an increase of $86 billion. Put that together with the $257 billion increase in income security spending, and you have $343 billion.

Add to that the $338 billion in decreased revenues, and you get $681 billion — which means nearly half of the current deficit can be clearly attributed to the downturn.

That’s a deficit increase that would have happened in an economic crisis whether Republicans or Democrats controlled Washington. But it was the specific spending excesses of President Obama and the Democrats that shot the deficit into the stratosphere.

There is no line in the federal budget that says “stimulus,” but Obama’s massive $814 billion stimulus increased spending in virtually every part of the federal government. “It’s spread all through the budget,” says former Congressional Budget Office chief Douglas Holtz-Eakin. “It was essentially a down payment on the Obama domestic agenda.” Green jobs, infrastructure, health information technology, aid to states — it’s all in there, billions in increased spending.

As for the Troubled Assets Relief Program, or TARP — it has no specific line in the budget, either, but that is because it was anticipated to pay nearly all of its own cost, which it has.

Spending for Social Security and Medicare did go up in this period — $162 billion and $119 billion, respectively — but by incremental and predictable amounts that weren’t big problems in previous years. “We’re getting older one year at a time, and health care costs grow at 7 or 8 percent a year,” says Holtz-Eakin. If Social Security and Medicare were the sole source of the current deficit, it would be a lot smaller than it is.

The bottom line is that with baby boomers aging, entitlements will one day be a major budget problem. But today’s deficit crisis is not one of entitlements. It was created by out-of-control spending on everything other than entitlements. The recent debt-ceiling agreement is supposed to put the brakes on that kind of spending, but leaders have so far been maddeningly vague on how they’ll do it.

More debate on this here.

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July 29, 2011

Are Recessions All That Bad?

by Vince

As I read over Ezra Klein’s post that described the recovery-less recovery (more found here), a few words and phrases stuck out to me.

As Wolfers suggests, these numbers solve the mystery in the labor market. This isn’t about confidence or uncertainty or regulations or any of the other bankshot explanations we’ve been using to explain why unemployment seems stuck even as the economy rebounds. The economy isn’t rebounding. Demand isn’t returning. And without demand, there can’t be jobs.

Emphasis from here on out is from me. In terms of demand, is it all that bad for a country to scale back it’s purchases, it’s expenditures, and possibly live more within their means? Banks, for one, are not giving out loans as easily. I found this out over the past week. With a proposed deal I negotiated with Wells Fargo, I would of been facing a 40% mortgage payment to income ratio. The banks today want that ratio to be between 20% and 30%. Five years ago, I could have easily gotten a loan with a 40% ratio. I speak on this based on friends and family who have in fact received loans before the Great Recession with roughly 40% ratios. Banks are being more careful, people are not selling because the housing bubble has burst, and those willing to make moves have to cross their t’s and dot their i’s to prove that they truly will make x in a given year, not just think or hope they will.

Meanwhile, we’re in an economic crisis in which the main problem is too little spending.

Cutting spending and budgets in a recession does hurt an economy but, again, too little spending is not inherently bad. If anything, this Great Recession has helped us feel the purchases we make (credit cards numb the feeling of purchases. We do not see the actual money come out of our wallets or purses but only flash a piece of plastic. We delay this feeling from hitting us until later on).

I stand by less spending and lower demand as good signs for simplicity and understanding our behaviors. Whether these signals are actually making cognitive connections with fellow Americans, I cannot say for sure.

One final note: yes, over 9% unemployment nationwide (with that 2-3x the case for minorities – cry me a river white America) is bad. I will not deny that reality.

June 11, 2011

Global Military Spending in one graph

by Vince

The Economist captions:

ON JUNE 8th China’s top military brass confirmed that the

country’s first aircraft carrier, a refurbishment of an old Russian carrier, will be ready shortly. Only a handful of nations operate

carriers, which are costly to build and maintain. Indeed, Britain has recently decommissioned its sole carrier because of budget pressures. China’s defence spending has risen by nearly 200% since

2001 to reach an estimated $119 billion in 2010—though it has remained fairly constant in terms of its share of GDP. America’s own budget crisis is prompting tough discussions about its defence spending, which, at nearly $700 billion, is bigger than that of the next 17 countries combined.