Budget Puzzle: You Fix the US Budget
nytimes.com
nytimes.com
Even with all of that said though I like seeing these kinds of exercises brought to the public to raise their awareness of the issues. I really don't envy our gov't leadership trying to solve this problem. The sheer number of variables make it almost impossible to truly predict the result of any action.
That said, it was not difficult to find an acceptable solution. As I started, I thought the moral of the exercise was going to be how hard a problem this is. As it turned out, I had a solution less than 2/3 of the way into the list.
- Developed and focused on a small set of specific goals for the U.S. government.
- Eliminated most of the IRS and replace our current taxes with a graduated sales tax.
- Cut the myriad of handouts to various organizations that our government makes in one form or another every year.
- Developed and supported sustainable agriculture.
- Eliminated the public education system but provided allowances such that every child can get an education tailored to their abilities and desires, and advance at their own speed rather than the speed of their class.
- Eliminated most of the FDA, DEA, and other enforcement agencies, with the exception of the FBI, and allow our judicial system to imprison employees of companies found responsible for knowledgeably harming citizens simply using trial by jury, and replace bail/monetary remedies with prison sentences only.
- Focused efforts on planetary defense and colonization of other worlds via a beefed-up NASA whose purpose is to support private space enterprise.
- Allowed individuals at businesses to be sued rather than the company itself, for which there would exist no legal entity.
Of course, they won't do these things, but since they are asking...
Interesting. What problem would this proposal solve?
You had this legal situation earlier in the US. The problem was, that the consumer could not pinpoint who to sue. That's a horrible incentive to make the structure of who did what in your company totally non-transparent.
We need a different remedy, like the ability for a citizen to sue every citizen belonging to an organization together if the organization was found responsible for the wrong. Then those citizens not responsible in that organization would have to have witnesses and documentation to prove that they were not responsible for the wrong.
And instead of sueing, I think that prison sentences would work better. Putting all responsible persons from a company into prison would get people's attention. Also, citizens and lawyers producing substantial litigation without merit would be imprisoned.
For example, if a scientist knows that a drug caused a side effect that included brain damage, but chose to hide that fact through manipulation of the data to get the drug approved, and two out of four on his small team knew (were accomplices) but two were not in the know, then the two not in the know could claim innocence, and the rest of company as a whole could claim as a whole (a single document that all agree to) that the aforementioned team was responsible.
Assuming that federal investigation (FBI for example) was assisting, they could help prove the innocence of others in the company as well as the innocence of the two on the team that were unaware of cover-up. The three involved would be imprisoned.
No, "orders are orders" is not a sufficient defense. "It was my underling" isn't either.
While I guess that the situation in the US was similar, I can vouch for it.
Why the FDA? It's a minuscule part of the budget and provides a service crucial to public health & safety. I figured it was one of those things almost everyone could agree on. A post-FDA world would almost certainly include "As Seen on TV" cures for cancer. Do we really want that?
This would be a difficult thing to do. What would be an acceptable model for these feedback loops? Given that, at the end of the day, the budget MUST balance.
Let's say we all agreed that cutting taxes X%, would have a Y% chance of increasing tax revenue Z% over W number of years. How do we know that? Or, more precisely, what is the probability ratio that we assign that node in the decision tree? Y, right. Now if Y is not 1, then we do not KNOW that the budget will be balanced at date W. My point is, when modeling economic feedback loops 'Y' is rarely 1.
So I think what they are saying is, given the serious nature of the current economic shortfalls, they will confine the discussion to only those cuts whose savings can be assigned a probability ratio of 1 in the decision tree. I think they would readily concede that this leads to 'non-creative' solutions. But the output of that decision tree is also guaranteed to work if implemented.
Most government services provide a safety net for minimal-income workers. You take that away, the lower class could quickly become insolvent, threatening our entire social structure. Obviously I'm specifically hitting entitlement, but all government services have people who rely on them, and in most cases the government does them more efficiently than private business can.
Military spending secures the US role as world superpower. You take that away and businesses working abroad have a much harder time creating factories with exploitative labor pricing. Prices rise. There is a possible good outcome where factories are forced back into the states, but it's a gamble.
Take that stuff away, there's barely 100 billion worth of cuts with a probability ratio with anything approaching 1.
Sounds very outlandish to me. But then, by that understanding, say, Germany is probably just freeriding on American oppression.
Me I'd like to see it drastically reduced, but I'm not going to pretend it's clear the results will be economically positive.
The difficulty is that, as you refer to, the political climate makes it difficult. The specific difficulty I see is that it's politically impossible to try a policy out and then tweak it quickly if it turns out to be necessary to do so. Accurate and timely data collection to be able to do so is also a big issue, and it's one I'd rather see more budget allocated to.
I am fairly liberal and I am more than willing to gut medicare let alone the minor changes they are suggesting.
Looking at US politics, I strongly feel that members on both side of the aisle look primarily at what is immediately accessible and rarely at long term effects or accountability. Sure, they make drafts, bills laws and propositions that mention things to take effect at some far out date- but that doesn't really mean that they are themselves looking at realistic feedback loops, but rather just what charged issues they can drive against the other side to appease their constituency on their far side.
Take DADT, or Same-Sex Marriage. The feedback loop of realistic long-term consequence of them items against other people are likely close to zero. Facts reported in a (leaked) report due to Obama soon seem to point that the effect on the armed forces would be minimal- in my guess probably similar to integrating minorities into the armed forces. The long term effects would be the increased mental health of valued service members, and an increased pool of people that could serve. Yet, R's rally against it, pointing to odd and unfounded rhetoric that is held firmly in just keeping things frozen culturally and socially. They don't look at the long term effects, or even at the fact that some homosexuals might consider voting for them if they backed the bills. It is possible that this isn't the best example, but do politicians really look at feedback loops and probability? No, I don't think so. They look at the feedback onto the next election and that's about it.
Democracy has relatively little incentive to look at the long term or second-order effects, especially long term benefits that have short term costs. Instead, policies wander back and forth like a pendulum, going too far in each direction, and only changing direction in response to crises. Occasionally the oscillation gets too extreme, and very bad things happen.
The truly big ticket items are extremely unpopular among most voters: cuts in social security, Medicare, and huge tax increases on certain groups of people (the most influential folks). Also, a huge simplification is that we ignore the impact on the economy; one of the central arguments for keeping the tax cuts is that it supposedly creates more jobs, as does government workers and aid to states.
Very cool find, though. Maybe it should be a required exercise before each election season, just to discourage politicians from focusing on the less important topics.
One last eye-opener: this only helps plug up the year-to-year budget deficit. The actual national debt is $13.5 trillion, and should another recession hit us between now and 2030, we'll be in bigger trouble even if you managed to balance the budget in this "simulation."
here's a graph of how the 2010 budget is spent: http://en.wikipedia.org/wiki/File:Fy2010_spending_by_categor...
no one on either side of the aisle wants to touch cutting anything that will actually matter
Go on to choose "Eliminate Loopholes but keep taxes slightly higher", "Reduce Tax Break on Employer-provided Health Insurance", "Payroll tax: Subject some incomes above $106,000 to tax" and the 3 largest cut-military-spending options and you are done. Sure, these things aren't as side-effect-free as they sound, but it almost sounds feasible and does not require flour sacks and cat food.
This kind of reasoning was the seed for the European Union: by joining the coal and steel industries of France and Germany into a single entity, the European Coal and Steel Community was thought to make further wars in West Europe practically impossible.
I would say the farm subsidies are one of the worst government programs in place today, in terms of the well being of the US populace and economy.
Biofuels are another example of a disastrous subsidy program, but not on quite the same level.
I agree though. Corn syrup is probably worse than cane sugar.
Biofuels from corn are very wasteful. Biofuels from, say, Brazilian sugar cane, again, are much better energy for money.
For example, take the gasoline subsidies in Iran. The group the subsidy purportedly helps is the poor. Yet, if you look at the demographic and vehicle usage data, the middle class and rich have more cars and drive more, hence claiming most of the benefit from the subsidy. If the government of Iran really wanted to help ameliorate the cost of fuel for their poor, they'd hand out coupons for free gasoline/diesel directly to the poor.
This also applies to American farm subsidies. The only reason they're in place is because politicians claim to be protecting "family farmers". Yet, if you look at the statistics, family farms haven't been the primary form of American agriculture for almost three generations now. The vast majority of the subsidy goes to helping corporate farms, simply because the vast majority of all farms in America are owned by corporations. If the government really wanted to protect family farmers it would simply write them a check for the amount of the subsidy every year.
No, I'm with the parent. These subsidies do nothing but distort the market in favor of entities that don't need the help in the first place. Let them go.
But there's enough waste you can cut, without impacting on the worse off too hard.
1. What state decided the 2000 election?
2. What state has a huge retiree population?
3. What state, which was once a safe Republican state, was a swing state in 2004 and 2008 and will likely be a swing state in 2012?
Hint: the answer to all three is "Florida".
How's that work? How do you "cap" it? Obamacare was a huge process just to limit future growth, and it involved talk about "death panels" in order to make incremental reform happen. What's a straight "cap" look like?
I think its a good idea, but its so politically infeasible, it may as well not be considered. I mean, anyone who tries to defend a hard limit like that is going to get totally mauled by the other party, who will demagogue it as, "You're going to kill seniors by taking away their health care."
This. The political reality is that people scream bloody murder when even the "small ticket items" are changed. There is no possible way the people and the politicians they elect will face and solve this budget crisis in time to avert a crisis. The NYT "game" should have had one check box at the bottom labeled "continue to borrow until the dollar is destroyed". But people dismiss this danger as just abstract theory and rationalize it on the Russian Roulette Principle (we got away with it in the past).
As an aside, there are all sorts of unidentified or implicit errors and bad theories built into this game which makes it a pointless exercise and impossible to actually judge. For example, If you reduce the tax break for employer-provided health insurance it shows up as a spending cut but that is actually a tax increase on imputed income. Another example is that if you cap Medicare growth the economic implication (especially if inflation takes off) is price-fixing or rationing of services. This is Econ 101 (it won't work) but the average person probably does not have the analytic skills to see the cap for what it is.
Medical science is wonderful, but it's moving faster than the overall economy - the things we can do are advancing faster than our ability to pay. There will simply be too many old people, with too many health problems, to provide top-flight treatment to everyone. Someone will have to tell them "sorry, you don't get that procedure." The only remaining question is: will that decision maker be a health insurance company, a government official, or the health provider refusing to work without payment.
Seniors, and their children, will loudly demand that the government pay their health bills, no matter what the economic wreckage. That's why we need to lay the political groundwork now. Pundits, economists, and anyone else who can understand the situation should be repeating loudly and repeatedly: Health care is not a right, because it can't be. All of us will die, eventually. Most of us will die even though a treatment exists that could have extended our lives a bit. We need to get used to that fact.
Also there are important historical questions like how did we get to this point -- something traditional MSM like the NYT has been horrible at explaining. These political issues are raised mid-stream (e.g. how do we cut spending or raise taxes to balance the budget) without any context or question of causes. For example, the other issue I mentioned, income tax exemption for employer-provided health insurance, arose from a prior policy of wage and price controls during WWII. Employers were banned from offering higher wages so they offered non-taxable benefits as a substitute as a means to circumvent the controls and effectively raise wages. The point here being that capping Medicare will be a failure like capping prices and wages during WWII and lead to all kinds of unwanted effects, including further increasing the complexity of the tax code and the government intrusion into our lives.
I also agree that irrational and impossible demands on the government will continue until "economic wreckage" puts an end to it. If we somehow "solve" the budget crisis through some combination of tax increases and spending decreases, but people continue to believe that the government is Santa Claus, then any such solution will be temporary at best. Given these socio-political realities, the end point, in my judgment, is hyperinflation and the destruction of the dollar. I sincerely hope that I am wrong.
Edit: Spelling
If that's meant to be justified by what went before it, then I think you've overstated it. As long as many effective treatments are very expensive, health care that includes every treatment a person might reasonably want can't be a right.
It's perfectly possible for some health care to be a right. And if by some miracle (and it would have to be a miracle, or something very like one) all the costs came way down, it would be possible for all the health care one could reasonably want to be a right.
The second of these points is, at least for the foreseeable future, merely a quibble. The first is not. It is entirely possible to make some health care -- quite a lot of health care, in fact -- into a right. That's how things are in the UK, for instance, and despite the attempts of some in the US to portray our health system as a disaster, I don't think I know anyone in the UK who doesn't strongly prefer the UK system to the US one.
(I'm taking "right" to mean "thing guaranteed by law" rather than "thing to which one is morally entitled". I take it that was your meaning too.)
"I am for doing good to the poor, but I differ in opinion of the means. I think the best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it." - Ben Franklin, 1766
* Both parties priorities listed in order of lobbying dollars.
With enough hype, the NYT is doing a good job in taking things away from K street. It's what journalism is all about.
Total spending in the economy = total savings in the economy. Consumers have overextended themselves and now have to save, to avoid a depression (when EVERYBODY saves at the same time and nothing gets done) the government (whom the market is clamoring to give money to) must spend.
It's simple, really. Why people have such a hard time understanding it is beyond me.
the problem with a lot of governments, including the US, appears to be the other half of the equation, which is that when the private sector is doing well, the public sector should contract, in order to mitigate the effects of inflation.
What seemed to me to have happened in the last decade is that government costs expanded in the "good times" causing a deficit, and meaning that when the bad times came with the financial crash it's a lot more difficult for them to expand spending.
The other problem (although it doesn't apply as much to the US as other countries) is sovereign debt risk. Countries like the republic of Ireland absolutely have to cut expenditure as otherwise the bond markets see them as a real default risk and hike up the cost of their borrowing, so they have no real choice but to decrease government spending.
American economic historian Charles Kindleberger used to argue that ultimately the Great Depression happened because of this failure of economic leadership on the world stage. He believed that a well-functioning global economy required one country to act as the leader, in effect to do more than its fair share of keeping the global economy moving, fully recognizing that smaller countries will freeload off of its efforts. If we are at a similar transition point in world leadership, if the United States has indeed been knocked off its pedestal in much the same way as was Britain in the early twentieth century, it does not bode well for the ability of the global economy to navigate its next storm.
Through much of the nineteenth century Britain was the linchpin of the world financial system. It was the capital supplier of last resort during crises and acted countercyclically as the economic locomotive for the world. But, almost bankrupted by the First World War, it was no longer able to fulfill that function after 1919. The mantle of leadership should have passed to the United States. But American leaders were too parochial and insular to seize the opportunity. Thus, during the 1920s and 1930s, the United States was unwilling to lead and Britain unable.
Same analogy applies to individual people. Imagine a friend of yours who has a bunch of debt, is having trouble earning enough money, and just took on a bunch more debt for some new ventures which he hopes will pay it all back.
Most people would tell their friend the prudent thing to do is spend less money for a bit, pay down your debt until you get back on your feet. Not open up some new credit cards.
This is probably why people have trouble understanding the "go into more debt to get out of debt" approach.
This is why we have a field called macroeconomics. Unfortunately, the hard-won insights of macroeconomics are being rejected right now in favor of visceral feelings. And we’ll all pay the price.
In any event, it's not really fair to claim all of macroeconomics is on your side here. Economists seem pretty divided on this one.
Now, "stuff" (advertising, equipment, factories, employees) is cheap.
Now, borrowing is cheap.
Now is the time for a business to spend.
The US government is more like a business than an individual. Both are interested in generating wealth rather than consuming it.
But in the case of "my friend"...if he were looking to borrow in order to generate wealth, say buy a house for rental income, I would completely support him.
If we went with your analogy, the best thing for everyone is for that company to fail and fail fast because it is a burden on the economy. I would assume neither you nor anyone in the world is willing to accept this scenario. Therefore, you have no choice but to try to save the company. The only question is how.
The fact is that due to the housing bubble $8 trillion is gone from the economy. You can either choose to tighten the belt, save money and wait for the Americans that still have jobs to re-earn the cash, or you could try to borrow in order to invest and grow your way out of this. The reason I favor the latter approach is that the human cost of not spending money is too high in my opinion.
In short, return taxes to Clinton era levels. Cut defense spending massively. Cut some gov't contractors. Cap medicare growth. Eliminate tax loopholes. National sales tax, carbon tax, bank tax.
Results? 56% savings from tax increase, 44% savings from spending cuts. Gives us a pretty clear surplus that we could invest in education, real healthcare improvements, infrastructure (trains), etc. With this plan, we could actually make the US #1 for many things in the world instead of just military spending.
It honestly wouldn't hurt me that much if my taxes overall went up by 10%. My income is probably low/average for the HN crowd.
(They should probably index the retirement age to life expectancy. That way you wouldn't need to fight huge political battles every decade.)
Age discrimination, unfortunately. Though that might decrease in an increasingly aging U.S.
Stock prices from 1992 to 2000 (approx numbers):
Microsoft: $2 to $58 Apple: $15 to $28 Cisco: $.50 to $50
Add in hundreds of companies going public, innovation moving faster than ever up to that point, thousands of jobs created. Small businesses (startups) were not killed by higher taxes.
And I have no idea why our defense spending needs to be so high.
disclaimer, I agree with you, Clinton was great, I'm just not sure the tech market is what to focus on
53% Tax Increases 47% Spending cuts
But as someone else posted, this doesn't take into account the feedback loops some of the changes have on the other measures, also with the current political climate I doubt these measures would pass.
Tried to take on the challenge of solving it without needing to let the Bush tax cuts expire. No national sales tax, no closing of tax breaks on mortgage interest payments (saying it's a loophole is bullshit, it's a tax deduction, not some shady offshore money funnel), lots of military cuts except for compensation & benefits.
US is also #1 in primary school spending per capita, most years. That's something to be proud of. If you measure outcome in expenditure, then we are the most educated, healthy, and defended country on the planet.
Those are the talk radio/cable news responses to your proposals...
This web tool is cool, but there should be a way to incorporate the political realities of these actions, like cutting defense spending.
If you cut defense spending you also shrink a massive section of the economy, this will have a large ripple effect and you will end up with less tax receipts, and unemployment.
If you add a carbon tax you are taxing literally every single thing in the economy, this will reduce growth by exactly the amount of the tax, making the whole business a wash in terms of budget. (You'll convert some energy to other sources, but not much, if it was so easy we would do it already.)
Adding a sales tax would do about the same, and would also end up as a wash.
This doesn't even make sense. If defense spending pays my salary and my salary pays my taxes, my taxes can't be any higher than 100%, and if my taxes are 100% then me losing my job due to cuts in defense spending can't cost the government more in tax receipts than it's gaining back by paying my salary.
"You'll convert some energy to other sources, but not much, if it was so easy we would do it already."
Why? People respond to incentives. (First rule of economics.) Carbon tax is an incentive.
Not exactly true. Your salary doesn't disappear once it's been paid to you. You spend it, someone else gets it, they spend it, and so on. At each step, taxes get paid, which the government spends, following the same pattern. Over the course of the average year, each dollar changes hands some number of times between about 6 and 12 (google for "velocity of money" for more info.) As a result, the aggregate taxes on your salary and its "inheritors", as it works through the economy, can (in some circumstances) actually end up being more than your salary itself.
Note this is not an argument either for or against any particular bit of government spending. I'm merely noting that both tax increases and spending cuts can have counter-intuitive effects, and that those effects need to be accounted for when trying to understand how a change in government policy will affect the economy.
It's not possible to switch from hydrocarbon fuels to other types in any large amounts (every type we can do we already are).
Say you want more windmills - sounds easy, make non-windmill energy more expensive (tax it). One problem, making windmills costs energy. But now energy is more expensive, so windmills are also more expensive. Since windmills are more expensive windmill energy is also more expensive, making the increase in non-windmill energy prices meaningless since windmill energy ends up being just as expensive.
All you did was make ALL energy more expensive, but you did not switch people to other types.
So now what will you do with all this extra carbon tax money? You'll either give it back to people as a rebate, or you'll reduce income taxes. End result? Nothing. It's a total wash.
I know each of these are controversial, but I find it interesting that there are lot of perhaps equally controversial things that aren't necessary. No need to cut government employees, salaries, contractors, etc. No need to reduce military research or benefits. No need to have any special taxes on the very wealthy. The only change needed to social security is to raise the age.
It's really almost all in health care.
You could properly do even better if you could withdraw all the troops from Europe and the middle-east, instead of leaving 30k in Afghanistan.
However returning taxes rate to Clinton era levels + some more taxes (not much really) + a severe miltary spending cut would solve the deficit according to this game. That's the way I'd go, but I don't hold my breath :)
1) Not just cut financial aid to the states by 5%, but cut it by 5% every year for 15 years in a row.
2) Cutting number troops in Iraq and Afghanistan to 30000 by 2013? Of course, but that's not enough. How about cutting the number to 20000 by the end of this year, to 10000 by the end of 2011, and finally to 5000 by the end of 2012.
3) Cap Medicare spending growth? Of course. However not in 2013, but right now. And not at budget growth + 1%, but at budget growth - 1%.
Etc.
Why exactly does the US want to cut the deficit when the unemployment rate is 9%, inflation is 1% and the federal interest rate is 0.25%?
(I do understand the problem that the cost of future health care may cause, but it seems to me that problem is structural rather than just financial, and it seems odd to try and tackle that problem when the economy is doing so badly)
If I "reduce military to pre-Iraq war size" and "reduce the number of troops in Iraq and Afghanistan to 30,000," can I really save the sum of $49 billion and $169 billion, or am I counting some reductions twice?
If I increase the medicare age to 70 and cap medicare growth, can I really save the sum of $104 billion and $562 billion?
Even assuming the revenues from taxes takes into account reduced economic activity / moving investments outside of the USA, etc., are there effects from combining them that would further reduce revenue?
But, I didn't touch military budgets at all, except for cutting civilian overhead.
http://www.nytimes.com/interactive/2010/11/13/weekinreview/d...
The biggest shock for me was how little 'cutting earmarks' actually accomplishes, at merely $14 billion. I'm shocked because of how much political hot air is exhaled on it.
Maybe there should be some sort of public voting on issues such as this to see what the majority thinks should be cut.
I wouldn't be opposed to letting the Bush tax cuts expire (maybe in 2012 for >$250k, and in 2014 for everyone) if it were necessary, but it would impair some economic activity. I also would go for a higher estate tax, except that high estate taxes encourage crazy tax avoidance strategies; dynastic wealth is a bad thing on its own, but maybe that could be addressed by encouraging people to donate >50% of their estates to charity on death. (If there weren't crazy tax avoidance strategies, a 95+% estate tax would be fine with me; there should be no deadweight losses, only accelerated consumption by dying people.)
Defense should be cut by 50-75% over the next 10 years, however, which would also go a long way to paying off the debt as well.
Seems optimistic. The fiscal year 2010 budget deficit was $1.3 trillion, and the consensus estimate for the hole in fiscal 2011 is another $1.3 trillion...
Lets balance the budget and keep it that way, then we can let the national debt die a slow inflationary death.
Medicaid: $290 billion HUD Programs: $47.5 billion Unemployment: $106 billion Any part of the giant 'Other mandatory' block (~$600 billion) which makes up Food Stamps, WIC, Welfare, etc.
Historically when taxes are raised, revenues tend to never get close to projections. Why you might ask? Well, because an increase in taxes usually leads to less investment (startups, expanding existing business, etc). In the extreme case an increase an taxes could even lead to companies moving to other locations to shelter themselves from the added tax burden. Something we are seeing happen in the US now, because of fear of increased taxes. Many large corporations are making structural changes and moving assets out of the country.
We need to cut spending and cut taxes. Reduce, simplify, eliminate.
That needs a citation (projections vs reality). I've never heard the claim you've made before. I suspect it is no different than the inaccuracy of projections on tax revenue from conservatives that cutting taxes to the wealthy will provide.
It's absolute-positioned, and they're updating its 'top' when you scroll. WebKit has a fast enough JS engine that this sort of thing is seamless, but not every browser does / not on every computer.
edit: tried Firefox (4 beta), it's a handful of pixels off the top, and bobs. You'd think people would know about position: fixed by now.