Posted by: bkivey | 13 July 2010

Real Money

With all the talk of government expenditures and budgets in the billions, tens of billions, hundreds of billions, and now trillion dollar programs, it’s easy to lose sight of just how large those numbers really are and how much money we’re talking about. Astronomers and cosmologists throw numbers like this around and it doesn’t really have an impact because the concept of a light year has no relation to anything in human experience. But we’re not talking distances here, we’re talking about money: something that everyone has direct experience with. For a humorous and slightly depressing graphical representation of just how much a trillion dollars is, check out this site.

As of 2009 in the U.S., about 7% of households had a net worth of more than $1 million, 1% of households had net worths above $10 million, and on the Forbes list the top 371 places are held by folks worth $1 billion or more. Bill Gates is still the wealthiest person in the U.S. and the second wealthiest in the world at $50 billion; only Mexican Carlos Slim Helu is worth more at $70 billion. To put that in perspective, both of those gentleman have a net worth greater than the GDP of countries like Slovenia, Bulgaria, and the Dominican Republic. Most people would agree that’s a lot of money: unless you’re a federal legislator.

Puckishly titled “A New Era of Responsibility: Renewing America’s Promise”, the 2010 U.S. federal budget envisions spending of 3.552 trillion dollars on projected revenues of 2.381 trillion dollars, or spending 32% greater than revenue. This is responsibility? Unless ‘America’s Promise’ is insolvency the name of the budget is the worst sort of wishful thinking.

  • Mandatory spending: $2.184 trillion (+15.6%)
    • $695 billion (+4.9%) – Social Security
    • $453 billion (+6.6%) – Medicare
    • $290 billion (+12.0%) – Medicaid
    • $0 billion (−100%) – Troubled Asset Relief Program (TARP)
    • $0 billion (−100%) – Financial stabilization efforts
    • $11 billion (+275%) – Potential disaster costs
    • $571 billion (−15.2%) – Other mandatory programs
    • $164 billion (+18.0%) – Interest on National Debt

It’s instructive to look at how the money is allocated. Mandatory programs suck up nearly $2.2 trillion, which you will notice comes to 92% of projected revenue. Of that amount Social Security, Medicare, and Medicaid account for $1.4 trillion. So entitlement programs account for nearly 40% of the total budget and 64% of mandatory spending. And we haven’t yet budgeted for Obamacare. Interest on the debt jumped 18% for 2010 to $164 billion, which seems almost reasonable after looking at the other numbers. Keep in mind that as our deficits increase our credit rating will worsen and the interest payments will increase.

After we’ve spent nearly all our money on mandatory budget items, we turn our attention to discretionary spending. Of these items the largest expenditure is for the Department of Defense at $664 billion, but that includes the cost of running two wars; the actual DOD operations budget is about $480 billion. That’s a lot of money, but considering that our allies are getting a free or reduced-price defense ride that allows them to pour money into social programs, this is not so bad. The U.S. military is a great deal, if you’re a citizen in a social democracy. If you’re paying the bill, you would maybe want to see fewer commitments abroad.

Given the sheer magnitude of these numbers, people may want to ask themselves, and more to the point, their elected representatives, what, exactly, are we getting for our money? Keep in mind that government doesn’t have any money of it’s own. Despite what some people think, politician’s don’t have a personal stash of cash to hand out as largesse. Any money a politician touches has to come from somewhere, and that somewhere is a percentage of the profits that accrue from business transactions. The next time you hear a politician demonize business, ask yourself where they think tax money comes from, and given how it’s spent, if maybe there isn’t too much of it.

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