## Monday, October 21, 2013

### Simple Math

Sometimes understanding the numbers tossed around in political debates is like having bees live in your head.  It's noisy and painful and makes thinking fuzzy.  But, sometimes, things are simple. Here's an example:

I found this blog post interesting: http://mercatus.org/publication/how-much-government-actually-shut-down

The Federal budget is \$3.6 trillion. The shutdown only effected 17% of government spending.  That's \$626 billion a year. The rest is on "autopilot".  The "autopilot" part is mostly Social Security, Medicare, Military (these three are about 20% of the budget each) and debt service (interest on existing debt -about \$220B a year, at present), plus stuff like the TSA.

Where does the money come from?  About \$2.7 trillion is from taxes and fees.  The remaining \$900 billion is borrowed.

During the latest Obamacare-debt ceiling-budget deficit bru-ha-ha, there were some suggesting that the debt ceiling issue wasn't all that critical since there was still money coming in and the Treasury could essentially pick and choose which bills to pay, choosing to pay the debt interest first and then pay for other stuff.

(More here: http://mercatus.org/publication/debt-limit-debate-2013-addressing-key-myths  Myth #2, WARNING: this is a "bees in your head" blog post.  Also, more here:  http://jewishworldreview.com/cols/sowell100413.php3#.UmUaBHDkt8E - third from last paragraph)

Can you avoid default by choosing what to pay?  Sure. Here's the simple math that exposes some ugly truth:

If you don't raise the debt ceiling, all you have in your "checkbook" is \$2.7 trillion.  That's what comes in from taxes and fees.  You have bills for \$3.6 trillion, \$220 billion of which is debt service.  You are \$900 billion short.

You can "shut down government" and not pay \$626 billion. But, you are still \$274 billion short.

You could shut some mandatory spending, like the TSA - which would ground everyone - but that only gets you \$6 billion (net - once you subtract off the \$5 fee for TSA screening charged to each ticket that covers about 25% of the cost of screening).  And, perhaps shut down the Coast Guard, Boarder Patrol, ATF, FBI, Pell Grants, ACE operation of locks and dams, US highway repair and construction (but keep the fuel tax), farm subsidies, bureau of printing and engraving, TVA power generation, IRS (but somehow keep the tax revenue coming in) and all the rest, and you might just have just enough in your checkbook to cover the fees.

But, most likely, you'd have to take a chunk out of the "Big Three" - that is Military, Social Security and Medicare.  Each are about 20% of the budget - about \$750 million each in rough numbers.

This rather conservative fellow gets it done.  He chooses some very steep militrary cuts (from \$670B down to \$400B) http://www.forbes.com/sites/jeffreydorfman/2013/10/03/dont-believe-the-debt-ceiling-hype-the-federal-government-can-survive-without-an-increase/

Which would you choose?

BTW, you can see from these numbers that solving the budget deficit is much harder than, say, shutting down the Dept of Energy (\$35 billion), Dept of Education (\$72 billion), NASA (\$18 billion), Amtrak (\$1 billion) or privatizing the TSA and let users pay the whole cost (\$8 billion).

(more here: http://www.cbpp.org/cms/?fa=view&id=1258 and here: http://en.wikipedia.org/wiki/2013_United_States_federal_budget )

The gap is huge!  It's \$900 billion!  The play-at-home version of the "Reduce the Deficit Game" is here: http://www.fixthedebt.org/blog/build-your-own-budget_1#.UmUg9HDkt8E)  The choices here don't balance the budget, but they do reduce the total debt as a percentage of GDP - which is the really important goal. (ask any homeowner with a mortgage about being "house poor"!)

It is obvious that there is no template for closing this gap that is palatable to the left and the right.  "No increase in taxes!"  "Defend the military budget!"  "Defend Social Security!"  "Health insurance for everyone!"  Etc, etc.  So, obviously, all that's left is something equally distasteful for both sides.  This is more than choking down a few Brussels sprouts before you get your apple pie.  Everybody has to "eat a bug" and there may be scant dessert.

Which side is brave enough to go first?