<h3>Lecture 20. DEFICIT SPENDING</h3>

Lecture 20. DEFICIT SPENDING
Debt Hysteria 
While other nations are investing in their future, too 
many of our leaders are telling us to retrench, to tighten
our belts.  Deficit hawks are consumed by the fear of 
debt.  They tell us that we need only agree on the taxes 
to be increased and the programs to be cut until our 
budget is balanced and our debt is small enough to hide.
 
The current debt hysteria is pure hype spun by deficit 
hawks shilling for lower tax rates on the top brackets 
and/or a value added tax.  The VAT is a regressive 
national sales tax, an attempt to destroy our progressive 
income tax.  Our sales and gasoline taxes provide 
sufficient means to restrain consumption. Inequality of 
income is bad enough as it is. If the top brackets pay 
less, the other brackets will pay more. We’re OK when
we can spot a shill.
 
There is a semantic confusion about "debt" and a "balanced
budget". The terms are not mutually exclusive. We all live
simultaneously with both. We have debts with scheduled 
payments and we have balanced budgets that include the 
payments.
 
Every home-owner and every business and every nation uses 
credit to finance the future.  When we accept credit, we 
owe a debt.  When we spend, it is deficit spending.
Everybody does it.  Our world could not function without 
deficit spending.  Yet, there are still voters who 
complain: I balance my budget.  Why can’t 
Washington?  But if the voter is paying a home 
mortgage, a car loan, a student loan, or a business loan,
she is balancing her budget by satisfying her creditors. 

That is exactly the way the federal government does it.  
There is no other way to function.  We’re all OK 
when we can pay our bills.
 
We never leave only our debts to our grandchildren.  We 
leave them both our debts and our assets.  We’re OK
when our assets greatly exceed our debts.
 
That is exactly the reason that debt is not our real 
economic problem.  Our real problem is the enduring 
unemployment of our material and human resources that 
should be increasing our assets.
 
Every day of continued recession is a lost opportunity 
to increase and modernize our national wealth - our energy
supply and our transportation and communication systems. 

To keep up with other nations, we should now be repairing,
rebuilding, and renewing our falling bridges, rickety 
railroads, failing education system, and other vital 
infrastructure.

The simple fact is that instead of a deficit problem or
a debt problem, we have an unemployment problem that 
causes a revenue problem. The revenue problem will be 
solved when the Bush tax cuts expire in 2013. The 
unemployment problem will be solved by infrastructure 
investment.
 
We also have a health care cost problem that is not simply
a Medicare problem. Medicare administrative costs are far 
less than private insurance costs. As a later lecture will 
show, the health care problem can be solved with a 
single-payer insurance system. (The UN's World Health 
Organization rated France's system as the best. Their 
per-capita cost is half of ours.)
SPENDING HYSTERIA
When asked to specify a spending cut, the deficit hawk 
will first change the subject back to deficits.  When 
pressured, he will mention either the new health care law 
(which will reduce health care spending according to the 
CBO) or the stimulus (which pays for itself, as a previous
lecture proved) or TARP (which may also return a profit).
 
On examination of 2010 federal spending, we find (by 
googling into Wikipedia):

Mandatory Spending:      $2.184T (67.5%)
(Social Security,
Medicare, Medicaid,
Debt Interest, TARP,
and ARRA)

Discretionary Spending
Security:                 0.833  (25.7%)
(Defense, Homeland,
State. Foreign aid < 2%)

Discretionary Spending
Non-Security, including

Agriculture:              0.026   (0.8%)
(subsidies for
rich farmers)

Energy                    0.026   (0.8%)

Justice:                  0.024   (0.7%)
(Mostly Drug War)

NASA:                     0.019   (0.6%)

All other:
(Commerce, Interior,
Treasury, HUD,
Transportation, etc.)
                          0.105   (3.2%)
                        _______ 
Total Spending           $3.236T  (100%)                    


The current discretionary, non-security spending is barely
more than it was under Bush.
 
On examination of the budget, it is obvious that the major
costs are defense, health care, and Social Security. 
Defense costs can be analyzed only by national defense 
insiders.  Others can only study available information and 
vote accordingly.
   
The other two items will be discussed in later lectures
Considering that we are trying to recover from the worst
economic collapse since the Great Depression, total 
spending is not at all out of line with the Reagan 
administration in the 1980s, as this chart shows:

 
The shaded stripes are periods of recession. Potential GDP
refers to the economy at full capacity. This eliminates 
the effect of declining revenue during a recession. 

Government consumption includes wages and other 
administrative expenses. Transfers refer to funding state 
programs. The recent uptick is due to unemployment 
benefits and ARRA  help to the states.

So Obama's huge spending spree turns out to be TARP {which
may return a profit) and ARRA (which will probably break 
even). When a politician talks about spending cuts, show 
him this list and ask for specific cuts. End of 
discussion.
Proceed to:
Lecture 21. BUDGETS & INFRASTRUCTURE
Thanks for your interest.
  Marvin Sussman, retired engineer

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