Friday, December 21, 2012


All day, every day, television screens across the nation are filled with talking heads and politicians blathering about the dreaded fiscal cliff.  None of them bother to make the point that a “deal” to avoid the fiscal cliff will do nothing to solve our long term financial problems, and all of them talk generalities, avoiding the unpleasant specifics.

Virtually every politician seems determined to cut non- defense discretionary spending, although none are willing to specify which activities and agencies they want to eliminate or  eviscerate, and none seem to know much about what they are proposing to cut or about what has already been done.

 Thus, a primer on a subject few of us know much about – and a word of warning that cutting such spending any further will likely have extremely unpleasant results.

About two thirds of the federal budget consists of mandatory spending.  The remaining one third is labeled discretionary, and about 60% of that is defense related.  Non-defense discretionary funding thus amounts to less than one half of one third of the federal budget, or about 15% in total.
And that small slice of the budget pie has already been cut to levels well below the CBO baseline estimates that were in place when the 112 Congress took office in January of 2011. Assuming the caps and projections now in place continue, and without considering the additional reductions mandated by the sequestration due to take effect at the end of this year, spending on discretionary non-military spending will decline by $1.5 trillion during the next ten years and will reach – at the end of the ten years -- the lowest level of spending as a percentage of GDP since record keeping began in 1976. 

Well, you say, is that bad?  After all, if this is discretionary spending, maybe we can save the money and no one will notice. Here is a partial list of what’s paid for by discretionary non-military spending.
·        The Veterans Administration, which is already doing a horrible job of caring for our fallen warriors, and needs more money, not less.  
·        All Homeland Security Activities, including the Transportation Safety Administration (TSA), which includes the Coast Guard and everything else in the homeland security system. 
·        The National Institutes of Health, the Department of Energy, the National Aeronautics and Space Administration and the National Science Foundation.
·        The Federal Aviation Administration.
·         The Federal Bureau of Investigation. 
·        The Drug Enforcement Agency. 
·        The entire federal prison system, which is big since we insist on imprisoning a higher percentage of our population than any other advanced country.  
·         Federal aid to local school districts. 
·        The Food and Drug Administration, which already does a very inadequate job.  Do you still feel comfortable buying hamburger knowing that FDA does not inspect meat packers who grind feces along with meat?  
·        The National Parks System.
·        Federal disaster relief.  What will we do about the next hurricane?  Just leave people on their own?
·        Federal low income housing programs
·        Federal assistance to states and cities for clean water projects.
·        And lots else besides.  

These things are clearly important – and essential for many citizens.  But since there are few lobbyists working the halls of power on behalf of projects like this, politicians know they can get away with cutting things we need while protecting things we don’t need – like more overpriced defense systems.
The cuts already made will leave the agencies and programs in this category $650 billion short, during the next 10 years,  of what’s needed to sustain per capita service levels equal to what was provided in 2012. As programs and performance lag, we’ll all notice – but by then, many of the politicians now refusing to raise taxes and advocating these cuts as an alternative  will be drawing their lifetime pensions and laughing at our collective foolishness.
Do you think cutting essential services make sense?  I don’t think so, and I’ve asked my senators and representatives to send me a list of what they think they are cutting when they advocate less money for discretionary non- military spending.  I hope you’ll do the same.         


  1. A basic assumption - that I believe fuels all this nonsense - has to be addressed. And that basic assumption is that the economy is comprised of a) private production (which is all good) and b)public expenditure (which is all bad, or at least simply a necessary evil).

    The truth is, we have both private and public needs, and production of both public and private goods to satisfy them. Both equally valid. Most of our coveted private goods require public goods and services in order for us to enjoy them. No TV without public supervision of the airwaves; no driving of cars without highways, police; no pleasant neighborhood surrounding our bloated mansions without good community planning - and a host of other needs that cannot be supplied by private markets (no tidy seller-buyer arrangements).

    Hell, old J K Galbraith made all this amply clear decades ago, but few seem to have heeded.

  2. Well, hang on to your hat Bob, it's going to get worse. We are already seeing the inflationary effects of QE1-4. Some home markets are experiencing 20+% annual gains now. Interest rates can only go up, and that means higher costs to the Federal Govt. to borrow money. That means less money to spend on discretionary spending. And just wait till Europe goes bust. It's going to happen, they are beyond the point of salvation. It's a matter of when, not if. Crash! The world wide ripple effect will be way bigger than 2008. At least it will bring down rates again, but the costs of bailouts and subsidies will explode the national debt and the demand for more discretionary cuts will be greater yet. The amazing thing is the budget talks. We hear of $800bil. added revenue over 10 years being offered. That's $80bil. per year. With an annual deficit of $1tril. per year, they have another $920bil. per year to figure out. What a joke. The crystal ball is looking kinda scary. Just wait till they cut SS, Medicare and Medicaid. And sorry folks, defense will have to take the hit too. About time. $1bil. for a B-1 bomber. Can you say rip-off? Heck, a 747-400 can be had for $300mil. Don't tell me that anti-radar goo that gets painted on the B-1 wing surface costs $700mil. Anyway, I'll get off my soapbox now. I like your blog Bob, surprised so few ppl comment. How bout a free trade article? It is the root of our economic problems. 10mil. ppl have lost their jobs due to offshoring, and deflation in wages has added up to less consumer demand and a huge loss in tax revenue. Ross Perot was right ya know. That will get my blood pressure up. Merry Xmas, Anonymous in CA.

    1. Was looking for new posts to respond to and noticed my typo. That would be B2 bomber, not B1. Sorry for the confusion.

  3. Merry Christmas, Bob. Wish you would post more often, as yours is a perspective the public rarely hears, even if I don't always agree with you.
    Two points to add to what you said.
    * Mandatory spending is not really mandatory. All Congress has to do is write some legislation and it changes.
    * Our deficits are foolish. We are borrowing from our kids so we do not have any discomforts today. Fed spending on education? They borrow it from our kids. Social Security? Borrowed from the recipients' grandchildren and great-grandchildren. Fed disaster relief? Borrowed from the kids who lost their homes. At some point, the bills will come due and discomfort will result. The only question is this: Will the discomfort be felt by those who are receiving all of this federal spending, or by our kids, who will receive none of those benefits?

    1. The direction of my second comment was that I am more concerned that the deficts are cut significantly than I am with what is cut. WSJ had a 'balance the budget' tool which gave users dozens of options. I played with it and could not come up with anything that did more than cut the budget in half. Then I woke up and realized I was playing the same game as the politicians, and just slashed until it was balanced. As long as kids have dolls, balls, wheels, trees, and friends, they will be happy, so the only ones hurt by my brutal budget would be us adults, who are living at our kids' expense. We should either pay high taxes for our large government, or current taxes for a smaller government.

    2. Bravo ! And the real argument now is, make someone else pay the debt but keep my government pet project fully funded. Dems dont want cuts, and the Repubs dont want higher taxes, but they all spend too much. And of course, they all have their pretentious intellectual argument to state their case. Next stop, debt limit. It's going to get ugly.

    3. Right on mr.Anonymous,Thats right, they all spend to much between all their pet projects and special intrest groups and their shear stubbornness to compromise anything. Come on congress you're all acting like a bunch of selfish Kids. grow up and do what we pay you for! I'm a contractor (construction) if I didn't do what I was paid to do I'ld be replaced.Maybe we as a people should think about doing the same.

  4. Another common assumption (reflected in comments above) is that the big threat - the real boogieman - is debt. How about a considered discussion - with all the bullshit set aside - on the real effects and consequences of increasing debt and unbalanced budgets?

    Debt didn't seem to bother Kennedy era thinkers, nor Reagan for that matter. We forget that the Federal Government has no capital budgeting apparatus (accrual accounting), so some degree of borrowing is very legit (we don't as a rule pay cash for a house, yet don't hand-wring about bankrupting the kids).

    This seems to be a fundmental issue, yet I never can find rational discussion to help clear up the confusion.

    1. Well Joe, if the debt continues to pile up at low % rates, just wait till the rates go up. If rates go back to a normal 5-6%, then we all will be paying a trillion dollars a year in % just to service the debt. Needless to say, the cuts will be so huge in domestic and military expenditures to make up for the debt service. Unemployment will be so sky high, it will make 1929 look like kiddy play, and I hope you can figure out the rest of the story.