For this post, I’d like to ask readers to put themselves in the position of an LDS family with the following circumstances.
–The husband and wife are in their late-30s. They have four kids.
–The husband and wife have decided that it is better for the husband to stay at home and watch the kids these days because the wife has a law degree and she wants to go back to work. The husband is working on a book but has not yet found a publisher.
–The wife has just been fired by her law firm which is going out of business. She was making $120k a year before. The only job she can find is one making $90k to start.
–The family has $120k of combined student loan debt. It is paying faithfully. There is about $20k of credit card debt, which is being paid down every month. There is a mortgage on the house, but the house is under water (they bought it five years ago for $250k and they have a $220k mortgage, but the house was recently valued at $170k).
–The husband and wife sit down and go over their debts and their income. They see they have a $1000 hole between their new income and their current expenses. They have some difficult choices to make. Let’s look at what responses would be smart and credible and what choices wouldn’t fly.
Remember, there is a $1000 hole that needs to be taken care of every month.
Credible and smart approaches:
1)Change the paradigm. The husband goes back to work. They don’t want to do this because the don’t believe in day care for the kids, but this is a possible solution.
2)Make a lot of cuts. Use less electricity. Sell one of the cars. Cut cell phone usage in half. Cut the HBO and Showtime channels on the cable. Start a garden and can tomatoes and beans for the winter. Cut significantly from the food budget. The wife could take the bus to work rather than drive.
3)Rent out a room in the house.
4)The husband starts working part-time.
5)Responsibly try to renegotiate some of the debt.
All of these are credible, workable solutions. I’m sure if you were in this situation you would come up with other solutions (and I’d bet nearly everybody reading this has faced similar budgeting problems).
Here are some that are not.
1)Pretend the problem doesn’t exist and plan your European tour for the whole family.
2)Stop paying the mortgage because the government will figure out some way to bail you out.
3)Yell and scream that your cell phone can’t be cut because it’s your cell phone and you won’t give it up (without offering something else that can be cut).
4)Run around the neighborhood saying, “they’re hurting the working poor!” (not sure who “they” are, but you get the idea).
This coming week will be crucial for those of us who are interested in the whole budgeting dilemma. There are two federal budgets under discussion. There is the 2011 budget, which has still not been approved yet. The usual procedure is that this budget is approved by September the year before. So, we are six months late in approving the 2011 budget. This is the one Democrats and Republicans have been fighting over the last few months. Remember, the Republicans talked about a $100 billion cut, and then dropped it to $61 billion. The Democrats want a much smaller cut.
To keep things in perspective, even with the draconian, extreme $100 billion cut, the budget would still be $1.5 trillion in deficit. You read that correctly. $1.5 trillion — even with the bigger cut. This is why there is a very, very small group of congressmen who have proposed much bigger cuts, in the range of $500 billion. And keep in mind that even with a $500 billion cut the deficit would still be $1.1 trillion.
The other issue, which you will be hearing a lot about this week, is the Republican proposal for the 2012 budget. As of this writing, the details are not yet available, but the Republicans are proposing much bigger cuts, in the area of hundreds of billions a year.
The interesting thing in all of this is that practically nobody is proposing to actually balance the budget anytime soon. There is only one proposal I know of, and that is by Republican Sen. Rand Paul. Sen. Paul says he can balance the budget in five years. I highly recommend you go to the preceding link and check it out. It is a workable, credible plan.
So, we have a very small group of congressmen who are proposing workable, credible plans with large cuts. The rest of Congress is like the family that faces its $1000 monthly deficit with a new trip to Europe.
So, commenters, here is your chance to show which side you fall on. Do you favor credible, workable plans, or do you favor a solution that involves you pretending the problem doesn’t exist?
It is time to be serious. Balancing the budget means lots of things will be cut. You cannot saying that one program can’t be cut because it is “essential” without proposing another program to be cut that is less essential.
A serious response would be: we cannot cut the NIH but we should cut an additional $50 billion out of the Defense department by immediately pulling troops out of Germany.
Let me address another canard out there. Remember, the budget deficit is $1.6 trillion. What many often say is: well, we need to raise taxes on the rich. Alright, let’s look at the numbers. If you end the Bush tax cuts for the wealthy, you get $70 billion a year. So, if you’re going to raise taxes, how are you going to come up with the other $1.53 trillion?
Let me address another canard out there. We don’t need to act. I hope there is not anybody reading this who believes that. In case you don’t, please see this link (and watch the interview with Veronique de Rugy, which explains thing pretty well). Bottom line: we must act now.
Now’s your time. Bring it on. Let’s see some responsible budget-balancing plans. Or are you going to be the guy who, when his family is facing a $1000 monthly hole, screams and yells that he is not giving up his cell phone?
The budget can be balanced if spending basically is kept at the current levels for the next decade and the economy is allowed to grow, thereby allowing tax revenues to catch up.
The problem? Federal spending is a growth course because of entitlements and project and/or built-in discretionary growth.
Do I understand Paul’s plan correctly that he is willing to raise the tax burden of the middle-class by revoking various credits, but says absolutely nothing about changing the tax burden of the wealthy to Clinton levels? Why?
I like his idea for the Defense budget, it’s the only reason I’m trying to take him seriously instead of just dismissing the whole document.
Steve, exactly correct analysis. The issue is that most people don’t look at the numbers and don’t realize how much the budget will explode because of entitlements.
Jjohnsen, you get $70 billion a year if you go back to Clinton level taxes. See the link above. This does not solve anything.
I’m open to other budget-balancing ideas. Let’s see them. The Defense budget is about $700 billion a year. Let’s see some proposals working with that number.
$70 billion isn’t nothing. It may be a small amount, but it would make a difference. And I’d just like to know why his solution would put more burden on the middle and lower class and doesn’t mention anything in that section that would add any tax burden to the wealthy.
I’m not trying to say that the $70 would solve all of our woes, but why dismiss it totally? There isn’t one place to get a chunk of money that fixes everything. He’s willing to take money from me by changing tax credits, why isn’t he willing to do that to the wealthy?
I don’t really understand the fetish with balanced budgets. In the last 70 years we have had only 12 with balanced budgets, and, while growth over that period could perhaps have been even better, clearly, having 58 years out of 70 with deficits was hardly catastrophic.
The family/individual budget is also a really bad comparison however intuitive it might seem — however satisfying it might be to liken the economic/moral choices of families to those of the government, doing so ignores that the government can tax, borrow at rock bottom rates, and roll over its debts indefinitely.
Or at least it can do so until it begins to lose credibility as has been the case in some countries. But the US is nowhere near that point. What is important is to keep deficits manageable as a percentage of GDP, and the best way to achieve that is to get the GDP increasing. Drastic spending cuts would seem to me to risk putting more people out of work, choking demand, and moving GDP back in the wrong direction.
I do agree though that the longer term obligations are problematic. These are mostly to do with medicare where the cost projections increase at unsustainable rates. Time to bring in rationing and death panels.
Bill, I think most credible economists believe that if you got the budget to a lower percentage of GDP and on a sustainable path you would not actually have to balance it. But we are a long way from even that proposal. There are a couple of huge pot holes coming up too:
1)As you mention, Medicare. Unsustainable.
2)Medicaid. Ditto.
3)Social Security. Unsustainable but actually easy to solve if we raise the retirement age slowly and means test benefits.
4)Defense. Our commitments are increasing rather than contracting. We need a major change in foreign policy.
5)Interest on the debt. Right now we are paying miniscule interest rates. A lot of our debt is short-term. If we are going to continue to finance the debt, we are going to need to pay higher interest rates to future buyers of our debt. This means the interest on the debt increases exponentially as a percentage of total debt.
The picture is not pretty. We need to act now.
“4)Defense. Our commitments are increasing rather than contracting. We need a major change in foreign policy.”
As I stated on the previous thread, I see little point in cutting programs that save money in order to…save money. That’s my first question whenever anyone talks about budget cuts.
I think defense is a good example of an expense that—at the size of our military—costs way more than it protects or earns. Way, way more. “A major change in foreign policy?” You got that right!
Medicare and Medicaid are both sustainable with the right kind of reforms. Paul Ryan has a plan for Medicare that does that. A well functioning Medicaid reform would be similar.
The key principle here is we don’t have an infinite amount of money to spend on medical care, and in the case of the non-poor and non-catastrophic, we shouldn’t. Ryan’s plan is much more conservative (change wise), but ultimately we would be much better off getting out of the middle class welfare business completely.
If we are going to stay in, federal taxes are going have to be much higher, and much more regressive – i.e. actually apply to everyone. That’s how Europe raises money for its welfare state – heavy taxes on everyone. No federal taxation free ride for half the population.
Mark D.,
That’s because people actually make decent wages there. In Norway, the smallest amount people make is around $20/hour. So someone who works at McDonalds in Norway can afford to pay taxes. Not to mention their taxes pay for healthcare…
Here, if I work at McDonalds, I make maybe $8/hour. Let’s say I’m lucky and can work 35 hours per week. I don’t get benefits. I have to provide my own health care (ouch). So I’m living below the poverty level.
If we increase the minimum wage to livable levels, and we provide a minimal level of healthcare for all (maybe provide basic Medicaid services to everyone), then heavily taxing even the poor wouldn’t be such a big deal.
Cutting the budget from $3.8 trillion to the 2008 level of $2.9 trillion saves $900 billion of the deficit, which eliminates the Obama largesse to the unions and Obama buddies, but another $700 billion remains.
Remember that Presidents Harding and Coolidge cut the budget by 50 percent in one year from Wilson’s progressive budget levels.
$700 billion is a lot to cut in one year, but the scalpel can be taken to Agriculture, Education, and foreign aid, foreign military installations. Just publishing the recipients of Medicare spending, as the WSJ tried to do, would reduce a lot of the waste and fraud. A 20 percent deficit would remain. Go on a 4 day work week, and cut every federal employee’s salary (except Defense) by 20 percent to the levels of private industry. Cut SS and Medicare payments by 20 percent.
Pingback: Budgeting 101 The Millennial Star | How to Budget Money
Federal spending is a growth course because of entitlements and project and/or built-in discretionary growth.
Built-in discretionary growth has nothing to do with it–entitlements are the whole story. According to CBO, all we have to do is nothing (meaning let the Bush tax cuts expire, don’t fix the AMT, and provide no doc fix) and the deficit drops to $610 billion in 2018 (or 2.9% of GDP, down from 9.8% this year).
http://www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf
Ryan’s ideas for Medicare (vouchers) and Medicaid (block grants) are a good framework for bringing those programs under control, but the cuts required are not nearly as draconian as what I suspect he will be proposing tomorrow.
LL, you get a gold star for actually proposing something. However, most economists recognize that the CBO projections are incredibly optimistic. The reality is that we cannot count on ever getting more than 20 percent (and probably 19 percent if you look at historical averages) of GDP in tax revenue. The CBO calls for us getting to 22-23 percent, and this will simply never happen.
Your proposal means large tax increases on everybody. You probably know that fixing the AMT every few years means literally millions of people are protected from income tax rates of 50 and sometimes 60 percent. Now, you may take the position that “the rich” should pay 60 percent of their income in taxes. The problem is they won’t. They will stop working or they will hide their income or they will move to other low-tax countries. A tax rate of 60 percent means lots of rich Americans living in the Caymans or Bermuda or Panama. Remember when we had an income tax rate of 90 percent in the 1950s, we only got 18-19 percent of GDP in tax revenue. Higher income tax rates *always* fail to bring in the expected revenue.
But as I say at least you have a plan. It will never be approved by Congress, but it is a plan.
Tim, there is no question that if we made federal taxes significantly more regressive that the wages of the lowest paid workers would rise somewhat to compensate, provided they still had jobs, of course.
The illusion we have going now is that the middle classes can demand European style services without paying European style taxes. We could make the tax rate 100% on the wealthy and it wouldn’t even begin to close the budget gap. There are many situations where the effective tax rate on the wealthy is so high already that it would hardly make a difference.
If there is a case to be made for socialized provision of this and that, it can’t be made under the pretense that ordinary people won’t have to pay for it.
Tim,
Raising minimum wage can only succeed in a vacuum. If labor goes up then so does the cost of goods. And because entrepreneurs want to stay in business in a country where consumers demand the spend next to nothing, labor is exported. And if they don’t export, they go out of business. And those looking to start a business do the math and realize it’s impossible so they get a job rather than create jobs.
Geoff,
Perhaps I’m straining at gnats, but for me the primary reason your metaphor doesn’t work is because my personal budget is my own money. Congressmen are not dealing with their own money and don’t suffer the same consequences for similar choices. And I think that’s actually part of the bigger problem here, is Congress is actually a lot like George Costanza when he described how to look busy in the office (just always act annoyed). It seems that Congress is doing a lot of walking fast around the office with an annoyed look on their face because that’s enough to get them through this without getting any egg on their face. The personal stakes are so low because it’s such a huge issue with so many people involved, that by feigning working on it (and feigning outrage at Obama or whomever) it is enough to get re-elected and move forward.
Rusty, I agree with both your points. The reason I brought up the personal budget comparison is that in these conversations you always get somebody saying, “you can’t cut THAT” and throwing out the whole plan without offering an alternative. That is exactly like the guy saying he is going to keep his $150/month cell phone no matter what. You only get to keep the expensive cell phone if you cut something else. And you only get to keep the expensive govt program if you cut another expensive govt program. I’d love to see specifics.
Rusty,
I wasn’t saying we need to raise minimum wage. I was saying that if we want to increase the tax rate on the poor and lower-middle-class, we first need to make sure they’re making enough so that they can survive such a tax increase.
I think the single biggest thing the U.S. can do to limit spending is to ration healthcare. That means limiting end-of-life care for seniors, and setting limits on how much Medicare will cover. That also means encouraging people to come up with end-of-life plans (known in some circles as “death panels”). Unfortunately, this form of healthcare rationing doesn’t have a chance of success.
“So, commenters, here is your chance to show which side you fall on. Do you favor credible, workable plans, or do you favor a solution that involves you pretending the problem doesn’t exist?”
I’m going to play off Rusty’s nit-picking. He points out a flaw in the analogy: my personal finances are entirely my responsibility; the US budget is not. I was fine with the analogy, but I guess I don’t understand why you insist that everyone who opposes one plan must come up with an alternate proposal. If you’re just doing that for this (and the other) thread then that’s fine—I mean, it’s your blog and I don’t see any problem with setting up rules for a conversation. But I get the impression—please correct me if I’m wrong—that this isn’t just a rule you made for sake of conversation, but rather you really do think that anyone who rejects Paul’s (for example) proposal should have to propose something else. I just don’t see how that makes any sense. If I see a budget that proposes to cut the deficit by selling inmates’ organs or selling babies, I should reject it as “bad” without being held to the desk until I write up budget of my own.
BrianJ, given the size of our national debt, and the fact that it explodes in the coming years, there are only a few logical positions you can take. The purpose of this post is to try to help people see that by analyzing how you would respond to a fiscal problem in your own family.
1)The debt doesn’t matter. We can grow through it. There are some pretty well-known economists and politicians who believe this. I disagree. In my opinion, they are like the family that decides to go to Europe on vacation when facing a financial problem. But if you do believe this, I’d like a logical argument trying to prove this hypothesis. So far, I haven’t seen one.
2)The debt does matter and we should do something about it.
A)Accept either the Paul or Ryan plans that have been put forward.
B)Propose something else.
BrianJ, I think you need to think through the logic a bit. You’re a great commenter, and I like your participation. I’d like to see some alternatives to the Paul and Ryan proposals, if anybody has some. LL proposed basically massively raising taxes on everybody. It won’t work, but it is a proposal.
The debt doesn’t matter. We can grow through it. […] In my opinion, they are like the family that decides to go to Europe on vacation when facing a financial problem.
I think a better analogy would be a business owner who decides to take a trip to Europe to find new clients when facing a financial problem. Sure, there might be better/cheaper ways of accomplishing the same thing, but it’s a calculated risk rather than pure foolhardiness.
Peter LLC, that logical position supposes that all government spending is investment. Do you really believe that? Is firing Tomahawk cruise missiles at Libya an investment? Is every dollar ever spent by a bureaucrat a good thing?
I think if you were to explore this line of thinking you would come around to the position that some things need to be cut and others don’t. That would take you the second logical position, in which case you would need to put forward a proposal on what needs to be cut.
David Brooks, a writer I usually disagree with and who is promoted by the left as the “responsible” conservative, at least understands the point I am making in this thread. To wit:
http://www.nytimes.com/2011/04/05/opinion/05brooks.html?_r=2&ref=opinion
Key excerpt: “It also creates the pivotal moment of truth for President Obama. Will he come up with his own counterproposal, or will he simply demagogue the issue by railing against “savage” Republican cuts and ignoring the long-term fiscal realities? Does he have a sustainable vision for government, or will he just try to rise above the fray while Nancy Pelosi and others attack Ryan?”
Face it folks, you can either be a demagogue with nothing to offer or you can offer a counterproposal (or you can pretend there is not a budget problem). There is no other logical position.
Do any of the proposed budget cuts being discussed in this post risk angering the base upon which the politicians rely? I have a hard time believing that any of the proposals are anything but posturing if they all follow ideological lines.
John C, the Heritage Foundation and many Republicans have criticized both Rand Paul’s and Paul Ryan’s proposals for “slashing” Defense. I think that position is idiotic because we aren’t going to change anything without changing our attitude on Defense.
Don’t underestimate the importance of taking this position: the vast majority of Republicans are wedded to the Big Defense lobby. Mitt Romney has called for a massive increase in defense spending (at a time when we are going broke).
This is why I truly believe in the importance of counter-proposals. I would love the Dems to come back and ask for a bigger cut in Defense and in tax increases. We might actually come to a compromise that would work.
that logical position supposes that all government spending is investment. Do you really believe that? Is firing Tomahawk cruise missiles at Libya an investment?
Not all but certainly some government spending is investment. Firing Tomahawk missiles at Libya could be construed as an investment in regional security or some other public good, but even if it’s nothing but a pure waste the warehouse full of unfired Tomahawk missiles is no different.
But the point of revising the analogy was simply to suggest that “growing through the debt” is not nearly as irresponsible as your original analogy supposes. It might fail and there might be better means to similar ends, but it is a strategy that would at least theoretically address the problem at hand, unlike your family’s European vacation and the hole in their personal finances.
Well, Peter, that was what the Republicans argued during the Reagan years. I wasn’t convinced then, and I’m not convinced now. The best growth rates, and the healthiest recent economy, came in the late-90s when we balanced the budget.
Another interesting period to study: 1946-1948. We massively cut spending after WWII. The economy boomed. Same thing in the 1920s after WWI.
I can agree with the proposition that *some* government spending is an investment (even though as a libertarian type my definition of some is likely to be very different than yours). But I can’t agree that all spending is an investment. To spend money on government, you must in theory either A)take the money from taxpayers, who would spend it or save it in the marketplace or B)print money. Both are problematic.
Geoff,
Tea Party folk hate, hate, hate Defense Spending (because they hate government spending in general). They may not make up Ryan’s base, but they definitely make up Paul’s. I don’t think that Paul is doing anything to alienate his base in making that proposal. Not that it should be the point, of course, but it does indicate (to my twisted mind) the seriousness of the proposal and the person proposing it. So, I have more respect for Ryan than Paul on this particular front (but I think you already knew that).
Just informational: anybody interested in this issue should visit the following page. To sum up, from Cato’s libertarian perspective, Rand Paul gets an A, Paul Ryan gets a C and Obama’s budget gets an F.
http://www.cato-at-liberty.org/federal-spending-ryan-vs-obama/
Geoff,
I bet if you asked the most progressive think tank you could find, Obama would get a B, Ryan a C, and Paul an F.
John C, probably right. But it is worth pointing out that Obama’s plan does nothing to lower debt and in fact increases it significantly. Not much of a plan.
Geoff,
You are correct that he has done relatively little. If I thought that his future entailed more of the same, I’d be more sympathetic to your view. But I don’t, so I’m not.
John C, for the good of the republic I hope you are correct.
Geoff, you said LL proposed “massively” raising taxes. He proposed returning to Clinton era rates, a period you extol in comment 26 as having been an excellent time for growth. Remember, the Bush cuts were intended to be temporary. Now we even have a temporary payroll tax deduction. People are paying fewer taxes than they ever have.
Here’s someone who has alternate solutions to Ryan’s reverse Robin Hood proposals:
http://blogs.forbes.com/erikkain/2011/04/05/an-alternative-to-the-ryan-budget/
I would start by cutting Homeland security – all kinds of waste in that bloated budget, spent on theatrical devices that don’t really make us any safer. Then I would simplify the tax code. Then I would create a single payer health care system. Then stop paying private contractors and mercenaries multiple times the salary of the military to do the same jobs. Of course, these suggestions would destroy a lot of jobs, but maybe the economy would undergo a healthy restructuring as people moved from parasite industries to productive ones. There are still a lot of finance jobs that need to disappear.
The Pentagon Labyrinth is an interesting series of essays on the dysfunctional military budget:
http://chuckspinney.blogspot.com/p/pentagon-labyrinth.html
I found chapter 9 by Pierre Sprey especially interesting, where he describes how the F-22 and F-35 are a waste of money.
Geoff, you might find this post interesting:
http://www.zerohedge.com/article/guest-post-obama-will-lose-2012
I don’t agree with the entire thing, but at least it offers the useful corrective to the view that Obama is a crazy liberal socialist, when in fact he has been the best friend of wall street and the big banks.
“The reason I brought up the personal budget comparison is that in these conversations you always get somebody saying, “you can’t cut THAT” and throwing out the whole plan without offering an alternative.”
I was thinking about this just the other day. I’m not smart enough to have ideas for proposals, but I do think that we’ve gotten to a really frightening point where the government has its finger in too many pies in ways that are too often inefficient, ineffective, and unsustainable.
If I had pie-in-the-sky wishes to throw into the discussion, though, as an org behavior/process consultant type, I would love to see the whole organization streamlined top to bottom, both to reduce waste of time and resources but also to help create an organization that is more agile and able to respond to change and address really hard questions. I’d get rid of special interest anything and expect candidates to stand on their own two feet with their ideas, not with moola from others who happen to like what they happen to support. I’d want a political climate that actually welcomes discussion rather than one that tends to swing from one extreme to the other where people hold to their ideas and political power/position. I crave a climate where people work together to do what makes the most sense and actually listens to others’ ideas in that process. To me, the political climate feels more like a house divided that spends more time pointing fingers than finding real solutions. (And I feel that way about all ‘sides’ of the political spectrum…I’m not a fan of any party right now, to be honest.)
I’d get rid of special interest anything and expect candidates to stand on their own two feet with their ideas, not with moola from others who happen to like what they happen to support.
The role of special interests in the US is a structural issue. Precisely because US politicians stand on their own two feet, i.e., are responsible solely to the diffuse demands of their constituents and not the iron fist of the party, they can vote more or less as they see fit, which makes attempts to influence them one way or the other a potentially rewarding effort. Contrast that with the situation one often finds in Europe’s parliamentary democracies where party discipline rules supreme and you will discover that special interests play a smaller role since invidiual MPs can’t really be picked up to swing a vote.
It’s simple really.
1. Raise the age of eligibility for Social Security and Medicare by 9 months a year for the next forty years.
2. Eliminate the departments of Education, Housing, Commerce, Energy and Agriculture.
3. Eliminate the mortgage interest deduction and all other deductions that aren’t business expenses.
4. End the drug war.
5. Adopt a simple tax system where all income is taxed once at the same low rate. Ten percent should about do it.
6. Reduce spending on defense until the remaining gap is closed.
7. Change the banking system to something that looks more like mutual funds so we don’t feel obligated to bail out the bankers every time their house of cards gets shaky.
Alternatively you could do nothing now and just wait a few more years for the whole system to collapse. Something will arise from the ashes but granny may be lucky to get cat food.
1. yes, although you only need to do it for about 5 years to establish many decades of solvency – also, extending the retirement age way past life expectency sort of defeats the point of a retirement.
2. Agree that Education and Commerce are not especially useful. The other three have important functions, but these departments are not where the main cost savings lie.
3 and 4. Agree – maybe Gary Johnson can do these things for us. I would consider voting for him if he could (only Republican I would give a second thought to, well, maybe Huntsman)
5. It would probably have to be about 15%. I would prefer to keep some degree of brackets (progressivity) but it could be vastly simplified. Really I would prefer to see a turn away from taxes on income altogether and put consumption taxes, carbon taxes, etc., structured in a way that wouldn’t be too regressive (rebate system).
6. No complaint here, there are plenty of savings available – but every congressman wants to protect the unneccesary jobs/industry/bases of their own areas.
7. Reinstate Glass-Steagall, break up the too-big-to-fail, prosecute the criminals (such as the money launderers for the drug war at Wachovia and Bank of America who are getting off scott free), quit recapitalizing the banks by letting them borrow from the fed at 0%, then auctioning fed securities as primary dealers, pocketing the riskless spread day after day.
Incidentally, here is another interesting plan, dealing with the main long-term budget problem, health care:
http://thepurplehealthplan.org/node/2
Geoff: sorry to take so long to respond.
You say that I “need to think through the logic a bit.” That’s what I’m trying to do: viz. avoid answering your question before I consider the logic behind your question. You want me to jump right in and either a) accept Paul or Ryan’s proposal or b) come up with one of my own. I’m questioning the logic of that dichotomy.
You state that “the purpose of this post is to try to help people see [the problem of debt] by analyzing how you would respond to a fiscal problem in your own family.” And that is exactly what I’m doing. I’m just not analyzing according to the rules you laid out.
I’m going to run with your analogy: I’m the indebted homeowner. I need a Plan. My financial advisor (that’s Sen. Paul in my analogy), presents me with a plan of detailed cuts, etc. I notice that Paul cut an expense that I find actually saves me money (e.g., he cut my “bicycle repairs” budget, $10/mo., because “who needs a bike?” But if I don’t have a bike then I will have to ride the bus to work—at $60 dollars a month for a bus pass). I’m now skeptical of Paul’s analytical ability r philosophy, because he proposed something that is clearly foolish—and supported it with an explanation that suggests he didn’t even consider that a bike could be a money-saving expense. I look at his other proposals—IRA this, cafeteria health plan that, etc.—and I’m more than a bit intimidated by the technical jargon, so I don’t feel qualified to criticize those parts of his plan, and I certainly know I can’t come up with an alternate plan of my own. But I am right to be skeptical of the rest of his plan. He was dead wrong—and I know it—on the bicycle issue, and the way he approached it suggests that he neglected to even consider that some expenses are money-saving, and thus I question his judgment in general. I’d send him back to his office to draft another plan, or I’d fire him.
In the real-life scenario, I can’t fire Paul and I haven’t yet found a budget proposal that I can accept. Some attack NIH funding, others won’t touch Defense, etc. So I don’t have some other comprehensive proposal to recommend right now, and I’m not about to do something ridiculous like pretending that I can actually come up with a plan of my own.
Peter, I still think the money element of politics adds to the corruption. I also am not a fan of voting by party platform alone. It bothers me when people check their brains at the door and hold up the party platform as their answer to everything. If we believe there is good in all major parties, that to me means that no one party has the corner on what is best…and what is best, then, can be found through actual, real, open discussion w/o agendas or money influencing decisions.
I told you it was pie in the sky…. 😉
So ksl.com is looking at the national budget as though it was at the personal level:
http://www.ksl.com/?nid=148&sid=15052485