Sunday Morning Budgeting

Save your pennies; the dollars will follow

A favorite saying of my grandfather - a thrifty guy who barely squeaked by the catastrophe of the Great Depression.

Today I want to speak briefly, by means of words and charts, about budgeting, a distracting bump in the road and the gorilla in our living room. 

In 2022 two major federal programs accounted for 49 percent of all of our spending. 

Source: Office of Management and Budget, 09.27.22

 

Beginning this year spending for these programs will exceed that portion of the budget that accounts for everything else.  Folks, these budget items are the proverbial 800 pound budget gorilla.  

On a daily basis I am amused by members of congress talking about balancing the budget.  They make it sound easy.  It is so simple that if we stopped aiding Ukraine, cut the Supplemental Nutrition Assistance Program, or denied the FBI a new building or put an end to the practice of earmarks in budget agreements all of our financial worries would be resolved.

Nonsense.  All of it.  

The sum of all of this wouldn't amount to a hill of beans in the grand scheme of the federal budget.  

It's chump change. 

A handful of forward-looking and seemingly suicidal souls have dared to broach the subject of reforming entitlement spending; albeit inelegantly and without nuance. They have been castigated, browbeaten and cowed by members their own parties as a consequence.  This interests me as I think they are on to something. A subject deserving of serious discussion about taxation and spending.

Our Come To Jesus Moment  is recognition and acceptance of the brutal truth that our federal budget is simply not sustainable in its current form.  Expenditures exceed revenues and the difference is financed.  If spending was high and borrowing low the consequence would be prohibitively high taxes. 

The root of the problem is excessive government spending and insufficient revenue.

This is not a new problem.  Going all the way back to our country's infancy we had a debt problem.  Our war of rebellion against British rule resulted in a large debt load.  We had the same problem after the Second World War.  Our current problem is different in that it is not a consequence of war expenditures.  It is indeed a fairly recent phenomenon - a consequence of the federal response to the economic downturns of the 2008 financial crisis the the 2020 pandemic crisis.

Source: Congressional Budget Office, 10.04.22

It would be unfair to lay all of this at the feet of a couple of modern crises.  Bigger yet is the 800 pound gorilla.  If you were to have a talk with the Congressional Budget Office (CBO), spending on Social Security, Medicare and Medicaid is projected to grow from 10.7 percent of our Gross Domestic Product (GDP) to 15.1 percent in the next thirty years.  That is a big deal.

Let's put this in perspective in a way that is easy to grasp.  Imagine a median-income American family conducting its financial affairs like the US government. 

Source: Congressional Budget Office, 01.14.22

Change of subject.  Kevin McCarthy's caucus is home to a handful of nihilists who most days want to just blow shit up and burn it down.  Their style of politics is not about governing. It is not forward thinking.  None of it is enlightened thought. For them it is about performance, false indignation and sometimes bat-shit craziness like talk of secession.  This level of performative outrage is highly correlated with clicks and cable news coverage.  Which naturally leads to useless drama such as playing chicken with the debt limit.  As someone who has a normal, thoughtful Congressman as my representative I struggle with any tolerance for bat-shittery.

Nevertheless, in my world of normality I know that in the unlikely event the debt ceiling isn't raised the US Treasury would still have sufficient revenue to cover payments to Social Security, Medicare, Medicaid and government bonds as they came due.  Everything else would have to be dramatically cut so as to prioritize these payments.  I take no comfort from this as it doesn't quantify the associated damage this would cause to the global financial markets and our economy.  When you tolerate bat shit crazy you might just get what you ask for.

I do not believe we'll go down that path for reasons previously stated here.  The previous paragraph is a worse-case scenario. 

Reflecting on The Washington drama I've come around to entertaining the notion of the debt ceiling subject being a bright shiny object; a distraction.  I'm not totally convinced of this, yet might it be simply a bump in the road?  The road that takes us on our travels to the bigger problem embedded in the budget picture?

Ultimately we need to focus on the problem that overspending our budget has gotten us into.  That's a big, important deal worthy of critical thought, serious discussion and creative solutions.  Nihilism is a waste of valuable bandwidth.

Your head likely hurts so I'll stop here.  Rant and ramble over for now.  More about the 800 pound gorilla to follow.....