Sunday, September 22, 2013

What Exactly is "Wasteful" Government Spending?

In order to detect and eradicate wasteful government spending, we first have to define and identify what exactly is "wasteful". We can suppose it depends on who you ask, and who benefits the most. The billionaire heirs of Walmart might think that spending billions of dollars on defense to protect trade routes from China (instead of just defending our shores) is considered acceptable government spending; whereas, paying for food stamps for their under-paid employees would be "wasteful" government spending.

Is wasteful government spending the use of accounting gimmicks (like charging the government $600 for toilet seats) to fund an annual $50 billion "black budget" to finance our spy agencies? Or is it more wasteful to send billions of dollars in foreign military aide to countries that don't even need it (just to enrich the military contractors)? Wasn't the war in Iraq also "wasteful" --- especially in terms of human life?

Is it less wasteful to use millions of dollars to fund lavish parties for the IRS (instead of investigating tax evasion)? Or is it more wasteful to use tax dollars to pay for the Social Security Administration's conventions in Las Vegas? What about all the swanky galas, such as the annual White House Correspondents Dinner?

Wouldn't paying members of Congress $174,000 a year (just to a work part-time job) be considered wasteful spending? After all, they're always on vacation and spend most of their time fundraising. Or is it only considered "wasteful government spending" if we feed a beach bum named Jason in California?

While most of us might agree that picking up a bar tap at a casino for a convention in Las Vegas might be considered wasteful (because we assume it is paid for from the general fund with federal income taxes), just as most of us would also agree that receiving Social Security and Medicare benefits when we get too old to work is NOT wasteful spending (because most of us will eventually need these benefits, and also because it's paid for by us through our payroll taxes.)

But then there are also those who might consider Social Security disability benefits wasteful (even though an illness or accident can happen to any one of us). And the same can be said for Medicaid or food stamps for the poor (even though hard times can also befall any one of us). But the myth of widespread fraud being perpetuated by the poor has mostly been pushed by the same people who also want to get rid of Social Security retirement and Medicare --- as though getting old doesn't carry the same negative stigma as being poor or becoming disabled.

From Antonio Fatás: Whenever you hear someone talk about “wasteful government spending”, demand that they be specific --- and in particular, that they explain wasteful relative to what. If we’re talking about current federal spending (outside defense, which isn’t part of this discussion) where is all this major waste?

From Paul Krugman: The federal government is basically an insurance company with an army, and the insurance side isn’t bad. Non-defense spending is dominated by Social Security, which is highly efficient; Medicare is more efficient than private insurance and Medicaid is much more cost-effective than private insurance. More broadly, the US spends twice as much on health care as other advanced countries, with no better results --- and that disparity is the result of private-sector, not public-sector, waste.

* Editors Note: And we can also add "corporate greed" into the mix for the CEOs of pharmaceutical companies, medical providers and hospitals that our political leaders have enabled through loopholes in oversight and regulations (with the lack of civil and criminal enforcement of existing laws), "limited liability" clauses in corporate charters (not holding the wrong-doers personally accountable), our very skewed tax code (using tax laws and loopholes that mostly favors the ultra-wealthy --- such as the NFL and other professional sports organizations who pays no federal taxes), and turning a blind eye to offshore banking, tax evasion and dummy corporations (by defunding or under-funding federal agencies that can properly oversee these nefarious and fraudulent activities).

From Antonio Fatás:

We all have our list of anecdotes on how governments waste resources, building bridges to nowhere and how politicians are driven by their own interest, their ambitions or even worse, pure corruption. If only we could bring the private sector to manage these services!

There is something else that matters: we tend to use a framework that starts with the assumption that in the private sector competition will get rid of waste. An inefficient company will be driven out of business by an efficient one. An inefficient and corrupt manager will be replaced by one who can get the work done. And we believe that the same does not apply to governments

But is competition good enough to get rid of all the waste and inefficiencies in the private sector? I am not simply talking about large companies that abuse monopoly power, I am thinking of all the instances where the competitive threat is not enough to eliminate inefficiencies.

I think this applies to financial institutions: the financial crisis has undermined our perception that these institutions were acting in the benefit of their shareholders (even Alan Greenspan said so). Profits and rents going to that sector (and to a reduced group of individuals) did not seem justified by the value they added. Why don't we see entry of new banks? Why don't we see new entrants taking over this market, finding the necessary funding to build scale and attracting the depositors or investors of the current established institutions? Why don't we see new CEOs rising to the leadership of these institutions with a platform that promises to behave in a different way and possibly be much better at maximizing the creation of long-term value? It must be that competition is not strong enough.

If you look through non-defense discretionary spending you’ll find some waste, but no more than in any large organization. (Editor's Note: He didn't mention employee theft in the private sector either.)

Krugman says some people might be talking about possible stimulus spending, who makes the case that the stimulus packages that began in 2009 --- which have consisted mainly of temporary tax cuts and transfer payments --- have significantly raised the public debt, while doing very little to solve the nation's long-term employment and growth problems.

But Krugman also point out that, it’s hard to waste resources more thoroughly than by leaving them idle [such as the $2 trillion that corporations hold in profits in offshore banks]. He also says that hiring the unemployed and putting them to work doing something [such as repairing our infrastructure] is a huge improvement.

Editor's Note: Developing countries, led by China, have devoted billions of dollars to the biggest dams, highways, railways, bridges, canals and energy projects. Increasingly, this group of rising economies have been building showcase projects that once were mainly the pride of the U.S., Western Europe and Japan. China already has the world’s largest building (the New Century Global Center) and soon will have the world's tallest building --- Sky City (at 2,749 feet in the southern Chinese city of Changsha) set to be completed in 2014. The country’s tallest skyscraper (Shanghai Tower) has just been topped out and will be completed in 2015. China also has the world's tallest dams and the world’s fastest bullet train (the Shanghai Maglev). Now the country has the world’s longest cable-stayed bridge as well (the Jiashao Bridge, which just recently opened.)

Believe it or not (counting those who are no longer being counted by the government), the current unemployment rate is higher now than it was at its official peak of 10.2% in October 2009 (when 15.9 million people were once counted as unemployed). Current only 11.3 million jobless Americans are counted as unemployed, for a difference of 4.6 (some say this  number can be as high as 8 million when counting the 99ers. The number of jobs created since June 2009 hasn't kept up with high school and college graduates.

The U.S. Bureau of Labor Statistics reports 3.2 million high school graduates in 2012. There were also 3.4 million in 2013 (a record) --- so assume 3 million for 2010 and 2011 as well for an estimated 12 million high school graduates for 2010, 2011, 2012 and 2013 (and this doesn't include college graduates).

And according to a recent analysis at the Federal Reserve Bank of Atlanta, low-wage jobs usually account for 40 to 50 percent of job gains during recoveries, but it's been much worse since the last Great Recession.

According to another recent study by the Economic Policy Institute, real wages fell for most workers --- between 2007 and 2012 real hourly wages fell for 70 percent of the wage distribution, with larger losses for those holding lower-wage jobs. The economy’s growth rate has been less than half the rate of previous recoveries and the employment losses in the Great Recession were more than twice as large as those in previous recessions.

Also, according to any measure of economic logic, wage growth should reflect productivity growth. This was the case until the late 1970s. Manufacturing and unionization peaked in 1979, and offshoring began escalating. Since then, however, wage growth has fallen far short of productivity growth, and that’s true for all workers regardless of education, occupation, gender or race.

The wage distribution has become considerably more unequal over the last 30 years, with top earners capturing a large share of overall productivity gains. The real median earnings of full-time workers aged 25-64 have stagnated after peaking in the late 1970s.

Thirty Years Late to a Class War:

From the dramatic rise of food insecurity to the rapid decline of well-paid jobs, from the massive incarceration rate to the student debt crisis, economic and cultural tensions of our times are reaching a point of fracture. The passionate pursuit of deregulation, liberalization and privatization from both sides of the aisles of government and across the boardrooms of corporate America did not just create a cadre of Occupy activists, but a much deeper malaise and discontent across our nation that transcends age, race, class and political affiliation.

Paul Krugman notes that despite opposing political rivalries and strong patrician opposition, the United States government has continued to function, and that nobody had ever before considered the possibility that either party might try to achieve its agenda by bypassing the constitutional process, but instead, accomplish their desires through blackmail by threatening to bring down the federal government (and maybe the world economy) unless their demands were met. "True, there was the government shutdown of 1995," he writes," But this was widely recognized after the fact --- as both an outrage and a mistake."

Krugman: "How did we get here?"

First came the southern strategy, in which the Republican elite cynically exploited racial backlash to promote economic goals, mainly low taxes for rich people and deregulation. Over time, this gradually morphed into what we might call the crazy strategy, in which the elite turned to exploiting the paranoia that has always been a factor in American politics — Hillary killed Vince Foster! Obama was born in Kenya! Death panels! — to promote the same goals.

But now we’re in a third stage, where the elite has lost control of the Frankenstein-like monster it created. Now we get to witness the hilarious spectacle of Karl Rove pleading with Republicans to recognize the reality that Obamacare can’t be defunded. Why is this hilarious? Because Mr. Rove and his colleagues have spent decades trying to ensure that the Republican-base lives in an alternate reality defined by Rush Limbaugh and Fox News

Of course, the coming political confrontations (the debt ceiling, defunding Obamacare, food stamps, etc.) are likely to cause even more damage to America as a whole (A pundit on Fox News just said that "it's all just political drama that people in Washington thrive on". But for many average Americans, it could mean the difference between life or death, or at the very least, their extended daily misery.

When using modern, sophisticated means to measure poverty (taking into account government programs such as food stamps, as well as unavoidable expenses like child care and out-of-pocket medical costs) the poverty rate has actually been higher over the last three years than the official statistic suggests (which the government currently reports as 15% of the US population). Without Social Security and disability benefits, food stamps (SNAP), welfare (TANF), unemployment benefits (UI), and a host of other social programs that at one time or another benefit the vast majority of Americans, the poverty rate would be much, much worse.

From the Economic Policy Institute:

Poverty rates in the United States increased over the 2000s, a trend exacerbated by the Great Recession and its aftermath. Despite the relatively high earnings at the very top of the U.S. income scale, inequality in the United States is so severe that low-earning U.S. workers are actually worse off than low-earning workers in all but seven peer countries. The United States ranks 12th out of the 19 peer countries. --- In comparison of poverty rates, the Economic Policy Institute examined the share of the population living below half the median household income in the United States and select OECD countries, a measure known as the relative poverty rate. The U.S. relative poverty rate was nearly three times higher than that of Denmark, which had the lowest rate and about 1.8 times higher than the peer country average. And while the overall relative poverty rate in the United States is higher than that of peer countries, the extent of child poverty is even more severe.

So whenever you hear someone talk about “wasteful government spending”, demand that they be they mean the waste, fraud and abuse that goes on in the defense industry to further enrich CEOs and other military contractors? Or do they mean the use of food stamps to feed poor Americans who had their jobs offshored to China by companies in the defense industry? Whose companies, by the way, got bogus parts in return and threatened out national defense. (Currently there's another pending trade agreement that threatens to harm most American workers even more.)

One of the key dimensions of American Exceptionalism is the idea that America is "the land of opportunity" --- more so than any other country. But our ideology of being the exceptional land of opportunity is only a hangover from a time when once it was really true. Especially not now if it means that feeding the rich is not wasteful government spending, while starving the poor is considered perfectly acceptable

"If a free society cannot help the many who are poor, it cannot save the few who are rich." - John F. Kennedy

1 comment:

  1. The $52.6 billion “black budget” for fiscal 2013