
Deficit Reduction - malte
http://www.avc.com/a_vc/2011/01/deficit-reduction.html
======
ck2
Military and "defense" costs far more than "just" $1 trillion every year.

There are many many hidden costs and the massive expenses for the thousands of
severely wounded soldiers from Iraq and Afghanistan that survived instead of
dying because of modern medical technology.

[http://en.wikipedia.org/wiki/Military_budget_of_the_United_S...](http://en.wikipedia.org/wiki/Military_budget_of_the_United_States#Other_defense-
related_expenditures) _This does not include many military-related items that
are outside of the Defense Department budget, such as nuclear weapons
research, maintenance, cleanup, and production, which is in the Department of
Energy budget, Veterans Affairs, the Treasury Department's payments in
pensions to military retirees and widows and their families, interest on debt
incurred in past wars, or State Department financing of foreign arms sales and
militarily-related development assistance. Neither does it include defense
spending that is not military in nature, such as the Department of Homeland
Security, counter-terrorism spending by the FBI, and intelligence-gathering
spending by NASA._

Military expense is a MONSTER that just grows and grows and grows.

ps. The costs for the Iraq and Afghanistan war are technically done outside
the budget and through borrowed money. The INTEREST on them alone is over $500
Billion

[http://www.usatoday.com/news/military/2007-10-23-wacosts_N.h...](http://www.usatoday.com/news/military/2007-10-23-wacosts_N.htm)

~~~
jemfinch
"Now this conjunction of an immense military establishment and a large arms
industry is new in the American experience. The total influence — economic,
political, even spiritual — is felt in every city, every Statehouse, every
office of the Federal government. We recognize the imperative need for this
development. Yet we must not fail to comprehend its grave implications. Our
toil, resources, and livelihood are all involved. So is the very structure of
our society. In the councils of government, we must guard against the
acquisition of unwarranted influence, whether sought or unsought, by the
military-industrial complex. The potential for the disastrous rise of
misplaced power exists and will persist. We must never let the weight of this
combination endanger our liberties or democratic processes." (Eisenhower's
farewell address, 1961)

~~~
mixmax
The documentary "Why we fight" opens with Eisenhovers farewell speech and
addresses this very problem. It'a available on Google video here:
<http://video.google.com/videoplay?docid=9219858826421983682#> and is worth
watching.

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bluedevil2k
Fixing Social Security - it's always up for discussion and nothing ever gets
done about it. The frustrating part is that the solution is somewhat simple,
but politically it's untouchable. Here's my quick & simple solution for the
problem:

1) Phase out Social Security benefits if your income level hits $50k that
year. \- This aspect of Social Security is perhaps most baffling - why does
someone who is making $250k a year on their pension and 401k distributions
getting the same amount of Social Security as someone who's destitute and
barely getting by? "But I paid into it, I should get something out of it!"
goes the argument by rich people. Really? I pay into my car insurance every 6
months, never been in an accident, and I don't get a refund check when I'm
done driving! Social Security is insurance, it's not a deferred savings plan.
Social Security is really called FICA, and the "I" stands for insurance. It's
insurance in case you don't have enough money to survive in old age, and the
benefit payouts should reflect that. Someone making over 100k a year doesn't
need another 25k a year in Social Security benefits to survive.

2) Take away the cap on contributions. Last year any dollar you made above
$106k wasn't taxed at the 6.2% FICA rate. Why?

3) Make the Social Security Administration an independent entity free from
Congress's whims, and more importantly, free from Congress's hands dipping
into its pockets every time they need cash. Social Security _should_ have a
huge surplus right now in cash, as over the years they've always had more pay-
in than pay-outs. Too bad Congress took all that money and spent it. Social
Security is full of government bonds right now, essentially IOU's from
Congress that "we promise to pay you back".

Combine #1 and #2 and you have a simple solution to both decrease payouts and
increase pay-ins. Add #3 and you're assured that this institution (which isn't
some evil socialist creation but really should be thought of as "poverty
insurance") can be a self-sustaining, solvent part of our country forever.

~~~
nickpinkston
1.) FYI - Your car insurance analogy falls apart in aggregate because some
people do use it, but the element of luck is what you can't account for, so we
use risk tables. There's no refund for you because other people got unlucky -
you're paying for them to absorb your risk. Social Security isn't insurance -
it's a progressive tax for the purpose of generating a small pention for
everyone.

~~~
yummyfajitas
Quite right - if SS were insurance, you would pay into it directly in
proportion to your probability of receiving it. Good drivers pay less for car
insurance, and people who can provide for their own retirement would pay less
for retirement insurance.

For example, consider a very rich person, with P(income < $50k/year) = 0.01.
If SS were really insurance, he should only pay $50k x 0.01 = $500 +
administrative costs. If bluedevil truly believes SS is insurance, and if we
implemented his 1), then 2) would be utterly unnecessary.

~~~
Joeri
Insurance is still insurance even if everyone pays equally into the system.
The underlying principle of insurance is spreading risk to lower average cost.
You can bill everyone the same amount and still have such a model. What you
must mean is that social insurance isn't priced like commercial insurance, and
that is true, but it makes sense to do it that way.

Commercial insurance tries to give least protection to those most at risk, to
produce a higher profit margin. Social insurance tries to give maximum
protection to those most at risk, to achieve some sort of ethical goal. Or in
other words, commercial insurance is a form of business, social insurance is a
form of charity. That's why social insurance costs least for those with the
highest risk, and why commercial insurance is priced the other way around.
They're still both insurance, just priced based on a different theory.

This difference is also why a commercial model of insurance can never be used
efficiently for a social system (such as pensions or healthcare). Competition
forces insurers to lower their prices, but the only way to do that and
maintain profit is to lower pay-outs. How do you lower pay-outs? (1) provide
less service to those that need it more, or (2) raise prices on those that
need it more (risk-based billing, as you propose). The logical conclusion of
that is that many of those that need protection are unable to afford it.
That's not a "social" system. Social insurance is a charity, not a business.

~~~
yummyfajitas
Insurance is about pooling risk to allow people to reduce the variance/value
at risk/etc of their costs, while holding the expected value of their costs
constant.

You are describing a forced redistribution scheme, which perhaps devotes a
slim minority of it's revenues to insurance. It's deceptive to describe such a
scheme as insurance - you might as well describe the mafia as a pizza
business, since a small amount of their revenues are laundered through a pizza
shop.

You are also utterly mistaken about what charity is. Charity is the practice
of benevolent giving. You are describing taking money from people by force and
giving it to other people.

------
gahahaha
Please note: Romer writes about "dealing with the LONG-RUN budget deficit".
The short-run deficit MUST be high right now.

In the current policy debate, debt is often invoked as a reason to dismiss
calls for expansionary fiscal policy as a response to unemployment; you can’t
solve a problem created by debt by running up even more debt.

It assumes, implicitly, that debt is debt -- that it doesn't matter who owes
the money. Yet that can't be right; if it were, debt wouldn't be a problem in
the first place. After all, to a first approximation debt is money we owe to
ourselves. The overall level of debt makes no difference to aggregate net
worth -- one person's liability is another person's asset.

The level of debt matters only because the distribution of that debt matters.
Borrowing by some actors now can help cure problems created by excess
borrowing by other actors in the past. Deficit-financed government spending
can allow the economy to avoid unemployment and deflation while highly
indebted private-sector agents repair their balance sheets, and the government
can pay down its debts once the deleveraging crisis is past.

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Ratufa
To a large extent, the focus on Social Security budget shortfalls in these
pieces is like the punchline in the joke about why the drunk guy is looking
under the lamp post for his keys when he lost them in the alley: "Because the
light is better here." Rising Medicare/Medicaid costs are a much bigger long-
term budget issue than Social Security, but coming up with realistic-sounding
proposals to improve Social Security's fiscal status is relatively easy (and
less politically radioactive) compared to controlling medical costs.

Still, I think that blog post really drops the ball by not even mentioning
Medicare/Medicaid as budget problems.

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billjings
Some numbers in this analysis are a bit misleading - if you view the budget as
"social security, defense, and everything else", the huge portion of the
budget taken up by Medicare and Medicaid is papered over. Medicare+Medicaid is
$788b, more than Social Security, and is similarly "untouchable". (source:
<http://useconomy.about.com/od/fiscalpolicy/p/Mandatory.htm>)

Not to say that I think Social Security shouldn't be touched. I do think that
as a matter of purpose, Social Security needs to be a defined benefit plan,
even if we have to cut those benefits to some degree or another to make ends
meet.

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100k
On the whole, this is a ridiculous article. No one except rich elites cares
about the deficit (including the bond market: 30 year treasury notes are
yielding 4.5% right now). Republicans may have made noises about it in the
last election, but one of their major planks was that the Affordable Care Act
cut Medicare benefits!

We are in the middle of a global economic contraction, it is not the time to
be reducing spending (redirecting spending to useful infrastructure, sure).

The calls to cut Social Security are especially irritating. Thirty years ago,
Reagan increased Social Security taxes to save the system. It worked, and the
Social Security benefits are fully funded until 2037.

For 30 years, workers have paid extra into Social Security to keep it solvent
long-term. Now a bunch of rich elites demands that benefits -- that they don't
need, but millions depend upon -- be cut. That is a bait-and-switch of the
highest order.

He doesn't even talk about Medicare, which is the real budget problem. You can
tell if someone is serious about reducing the budget deficit if they have a
real plan for Medicare.

Despite my disagreement on entitlement spending, I appreciate that he thinks
military spending could be cut and tax rates on the wealthy need to be raised.
Since he's wealthy, I appreciate that he is willing to make a personal
sacrifice.

~~~
jerf
"We are in the middle of a global economic contraction, it is not the time to
be reducing spending"

I disagree. It's time to put Keynesianism to bed again. The only reason it
came back to life was because it told politicians what they wanted to hear a
couple of years ago. What it's time to stop doing is pretending that the
solution to the problem is for the government to suck a dollar out of the
economy to generate 75 cents of wealth and 50 cents of debt. In the real
world, the Keynesian government multiplier is less than 1, and that cracks the
entire theory wide open. And once you plug that number into the theory, it'll
tell you the same thing.[1]

We absolutely need to cut government spending. Government can _move dollars_
but it has proved incapable of _generating wealth_. It boggles my mind that
after the past couple of years we're even talking about this. The final test
of a theory is that it makes correct predictions, and the predictions based on
Keynesianism have been repeatedly and continuously wrong. It's time to stop
pretending it's because we're still not doing it hard enough.

[1] (Also, the multiplier is not a static universal constant. Like pretty much
everything else economic, it reacts to conditions; if government were actually
too small it might indeed be over 1 to grow it some more. So it's not that the
optimal answer is to cut spending to 0, that's typical first-order thinking.
It's just that today, the multiplier is way less than 1, and we've got a lot
of shrinking to do before that's even close to changing.)

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spenrose
This is a terrible article. The heart of the projected deficit is increased
medical spending -- if you don't deal with that, nothing else matters much,
and vice-versa. Social Security is projected to be in balance for decades,
then modestly out of balance for some time -- there is no rush to adjust it,
and when we do the adjustment will not have to be dramatic, because although
the expenditures are huge, so is the dedicated revenue stream. Finally, the
"bipartisan" commission was bipartisan between rich centrist Democrats and
conservative Republicans, and it foisted a deficit-increasing preference for
reducing taxes on rich people into its report.

Fred Wilson, Paul Graham, Bill Gates, Larry Page, etc. ... these people are
extraordinarily rich, in important ways the richest people the world has ever
seen. Their perspective and interests do not and should not stand for the tech
community, let alone the country or the world. The HN community could stand to
be a little more skeptical of their pronouncements, and a little less slavish
about enforcing the existing status hierarchy which upvotes every blog post
they see fit to publish.

~~~
lukeschlather
The heart of the deficit for the past 10 years has been increased military
spending.

------
ianl
I can't read the comments for this article. It makes my brain hurt. Everything
from 9/11 being an inside job to increase the national security net to the
concept that the USA exists as a totalitarian empire.

~~~
garply
I live in China, which I wouldn't even call totalitarian but rather
authoritarian
([http://en.wikipedia.org/wiki/Totalitarianism#Difference_betw...](http://en.wikipedia.org/wiki/Totalitarianism#Difference_between_authoritarian_and_totalitarian_states)),
so I can't find much sympathy for the 'totalitarian' part.

But I think a decent knowledge of history would reveal that the US functions
in many ways that are similar to how historical empires functioned.

[http://upload.wikimedia.org/wikipedia/commons/f/ff/US_milita...](http://upload.wikimedia.org/wikipedia/commons/f/ff/US_military_bases_in_the_world.svg)

I wouldn't go so far as to say that we still have many colonies, but a huge
amount of spheres of influence across the planet? Yes.

When we are studied 500 years in the future, I suspect the US' historical role
during this past century or so will be likened to the role of Britain at the
peak of the British empire.

~~~
jleyank
Agree. Read Paul Kennedy and think of Britain in 1914.

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john_horton
_Our country continues to operate a defined benefits plan while most
businesses have moved to a defined contribution plan._

A government-run defined contribution plan would almost certainly have to have
some kind of guaranteed payment floor to be politically viable, which would
encourage serious moral hazard in investing.

I also wonder how many companies can offer defined contribution plans because
their employees are also automatically part of a defined benefit plan (i.e.,
social security).

------
tomjen3
He is wrong on the second count, nyt had an info thing some time ago where you
could come up with a plan to balance the federal budget.

It was easy to do without raising taxes.

~~~
jnovek
It might be easy to do in a spreadsheet, but that doesn't mean it's easy to do
in a politically realistic way.

~~~
tomjen3
True but besides the point - it isn't possible to reduce the federal budget at
all, politically.

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mark_l_watson
Right on.

As Fred Wilson points out this is partially a political problem: getting most
people to agree to necessary changes.

It is tough to cut defense spending however. Throughout history the rich and
powerful have become richer and more powerful through wars. The chances of the
government acting in the best interest of our country is about zero.

Another way that the rich get richer is on the "war on X" where X can be
terror, drugs, etc. I just heard a good lecture on how much illegal drug money
gets money-laundered through Wall Street by the drug cartels. Good luck
changing that.

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borism
Yes, the issues deficit hawks are raising are worth addressing in and out of
themselves. But not because of deficits they generate!

What majority fails to understand and minority who understands it is too
afraid to acknowledge is that for countries like US or Japan with independent
monetary policy deficits truly don't matter. It's just another variable
central bank deals with when executing monetary policy algorithm.

US public debt seems unsustainable to you? Go check Japan's debt (in reality
it is japanese people savings)!

Japan's real problem is aging population, not its' World record public debt.

P.S. some good reading on WHY deficits don't matter:

[http://voices.washingtonpost.com/ezra-
klein/2010/05/galbrait...](http://voices.washingtonpost.com/ezra-
klein/2010/05/galbraith_the_danger_posed_by.html)

------
shareme
He is ignoring economic realties..

Basically, to get USA back on its feet we have to encourage industry to invest
in hiring and consumers to reduce their own debt and produce savings.

By having the deficit this high it encourages those groups to make those
economic choice as they are the best option as far as return on investment
compared to other rates of returns..

When the employment, savings, and consumer deficit figures improve then you
reduce the deficit.

That is not to say that parts of the budget do not need fixing, they in fact
do..

