McCain’s Economic Agenda
This makes me feel much better about a McCain presidency. Apparently, President McCain would cut the size of the federal government by 25%, mainly through major reforms of entitlement programs. The author of the linked article seems to think that would be a bad thing.
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21 comments
Yeah, I’m pretty sure that I don’t want 25% fewer roads, 25% less military, 25% less unemployment insurance, 25% fewer schools, 25% fewer cops, 25% fewer courts, 25% less social security, etc.
Though perhaps he just means that he wants to cut the military budget in half, which would be a 25% smaller government right there.
And yes, I am conflating “budget” with “size of the government”. Do you wish to use a different metric?
Punning Pundit’s last blog post..The 10 types of Republicans
How about instead we cut “entitlements” like he’s suggesting?
Or would actually listening to him be too much for you?
Not 25% across the board, no, but I could get behind 50% less unemployment insurance, 100% less corporate welfare, 100% less agricultural subsidies, 25% or more less national ponzi scheme, etc. The portion of the police and the courts that is fully occupied with drug prohibition can go too. Education is a bit of red herring when talking about federal policy, as the vast majority of education is funded by state and local government and private citizens — a 25% federal cut would mean about 2-3% less schools if nobody takes up the slack. Roads, the military, and the police and courts who enforce bans on things that actually should be illegal can stay.
Military spending, including combat operations in Iraq and Afghanistan, was about $660 billion in 2007 out of a $2.7 trillion budget. You’d have to cut the military by 101% to get a 25% cut.
Budget is a decent proxy for size of government. My ideal metric would be the cost of government (taxes + increases in the national debt (minus the social security “trust fund” and bonds held by the Federal Reserve) net of inflation + compliance costs of regulations + deadweight losses associated with regulation + deadweight loss due to taxation), but there’s a lot of things in there that are hard or impossible to measure precisely and difficult to even estimate, so I’m fine with using the budget as a proxy.
The problem in the federal budget is health care costs for the poor and elderly. But this is not just a federal government problem. Total health care costs are rising at 2x to 3x the inflation rate and faster than GDP. Total health care costs in US were 13.9% of GDP in 2001. In 2007 they were 16% of GDP. By 2016 they are projected to be 20% of GDP. This is simply not sustainable. Most industrialized countries spend less than 10% of GDP on health care, and they provide health care to everyone. It is not just the federal medicare program that is trouble, it is the entire health care system in the US. Employers are simply not going to be able to provide health insurance much longer. Some way need to be found to bring health care cost under control.
I wouldn’t favor any cut in Unemployment Insurance. But I also think that’s probably a red herring, as I doubt very much that if you eliminated it entirely that it would save that much money; it’s an insurance system all employed persons pay into, after all.
I’m currently on Unemployment. I don’t like it, it’s not enough to live comfortably on, but it’s helping make sure there’s food on my kids’ table and that I have a place to sleep that isn’t in a public park somewhere. And since money for this insurance has been taken out of all my paychecks for years, I feel not the slightest bit of guilt in using it. And I repeat, I don’t see where cutting it by 50% would be more than a drop in the bucket.
Thinking about medical costs…
Export controls on medical technology. If the rest of the world wants top rate medical technology, they can come here and pay our rates for it. Otherwise, they can make do with what their government buys with their money.
That was interesting reading, but it strikes me as not much more than a scare piece.
Its hard to take someone seriously who throws out a line like:
“… deeply cutting the size and obligations of the federal government in order to pay for tax cuts….”
That’s completely back-asswards. Nobody pays for tax cuts. We pay for entitlements and obligations.
jaymaster,
it’s not true that nobody pays for tax cuts. your kids are paying for our current tax cuts.
dishman…”Export controls on medical technology”….so, a hospital in India that wanted a CAT scanner would need to buy it from Siemens in Germany instead of from GE in Milwaukee?
No, zach, they’re paying for Congress’s earmarks. Nobody pays for tax cuts.
And while this should be well known to everyone by now, maybe you missed it: tax receipts went up when the taxes went down. If taxes go up, receipts WILL go down.
“Though perhaps he just means that he wants to cut the military budget in half, which would be a 25% smaller government right there. ”
Punning, care to explain the math you did to arrive at this?
Or did it just sound good at the time?
Zach, what jaymaster’s kids are paying for is not the tax cuts, but for the government spending that’s no longer being fully paid for by today’s taxes because of the tax cuts. It’s a subtle but important difference.
Unemployment insurance turns out to cost about $35 billion a year, fully funded by a dedicated payroll tax. It’s about 1% of the federal budget. Given that it’s self-financed, the only change I’d make to it would be to allow people to opt out and self-insure — I would prefer not to have to pay in because I have enough savings to live off of for several months if I were to lose my job and have trouble finding a new one.
Martin, cutting earmarks is merely a good start — maybe 2-3% of the federal budget if we eliminate them all. The real money is in entitlements (Social Security, Medicare, Medicaid, SCHIP, Welfare, etc), the military, and interest on the debt; together these make up about 80% of the budget. Punning is arguing that the military is the best place to make cuts, and I am arguing that entitlements are.
Revenues did go up after the Bush tax cuts, but because of inflation and economic growth which mostly would have happened anyway. I do tend to favor tax cuts, and I do think tax cuts and tax simplification have a positive effect on economic growth, and tax increases would have a negative effect, but I’m also pretty sure we’re on the upward sloping side of the Laffer Curve.
martin,
i was being glib, i do understand the distinction. and, as maniakes points out, we’re not exactly on the far side of the laffer curve. i basically agree with you and maniakes, but i don’t think entitlements need to be cut to save money. it would be enough, i think, to simply handle them more efficiently. some people really and truly rely on things like social security and medicare, so i can’t support simply eliminating them. i agree with the contention that ag subsidies and corporate welfare are ripe for the chopping block, though.
as you probably know, i am not opposed to earmarks in general. I believe it is a fundamental responsibility of Congress to distribute federal money. However, I do support more stringent ethics oversight to prevent egregious pork-barrel abuse.
Addressing Dishman:
God no.
“Medical Technology” provides a living a many, many people in this country, and “the rest of the world” outside of America is a prime market.
If you cut off the revenue stream that funds the development of these medical technologies… you cut off the technologies.
– DW
I’m with Zach on this one. It may be true that many of these social programs are poorly run. However, it seems drastic and dangerous to just cut them entirely. As much as you might want it to, the market isn’t going to just take up the slack on providing vital services to the poor. People living on welfare now aren’t going to magically find jobs and get on their feet when you eliminate their one source of income.
I think it’s easy, when you live in the middle class or above, and don’t personally have all that much need for these social programs, to underestimate the overall value they have for society. It’s true that they may not be using their funding very efficiently, but I don’t think that draws into question the usefulness of the program, merely the quality of it’s organization and management.
[…] raised some good points in response to my last post, and I think the “it seems drastic and dangerous to just cut [entitlements] entirely” […]
My expression came out badly.
I’m looking at our medical costs versus the rest of the world, per mikeca.
I’m not opposed to recovering research costs. In fact, I’m looking for some way to force other industrialized nations to contribute more.
For example, consider “drug reimportation”. That’s a consideration because other countries have medical monopolies which are willing (and able) to cut off the market entirely if their price isn’t met. The result is setting a price that is closer to unit production than loaded production. We end up paying the bulk of the research costs.
Medical procedures are the same way. Americans demand the best medical procedures, even if they don’t exist yet. That puts a lot of US medicine on the bleeding edge of technology. Other countries just tell the customers they’re out of luck. The end result is that we pay for the research, again.
HeruFeanor,
> I think it’s easy, when you live in the middle class or above,
> and don’t personally have all that much need for these social
> programs, to underestimate the overall value they have for
> society.
And I think you are underestimating the opportunity cost of providing those social programs. The money (and wealth) that be being drained by those programs could be going (via the marketplace) for medical research, for technologicial research, and for improving the lives and lots of a great mass of people in their every day life.
Consider your wealth (not your money) for a moment: you can flip a switch at night and bring light into your home. You can turn a knob and hot water comes out. You can turn another knob and your home gets warmer. If you’re trouble, you can punch some buttons on a device, and men with guns (or with a fire-fighting technology or medical technology) come running.
The great mass of these benefits (and/or the technology that drives them) was provided by the marketplace. High taxes starve that market-place.
I’m not arguing that all taxes are immoral… but I am arguing that when we look at the “benefit” of those taxes, we must also examine the “loss” to society by the confiscation of that money… and of the wealth that money could generate.
– DW
Douglas,
You’re missing the first half of my post. I fully admit that these programs are currently inefficient. The point I was getting at is that the best solution is not to remove the programs, but to reform them. The world is full of first-world, industrialized nations with social programs that cost a fraction of what ours do, per capita, and produce much better results.
Furthermore, there are a lot of things that drive innovation. The free market is one of them. Government research grants are another. They honestly hit different targets. The government grants tend to go toward long-term technologies, things which often won’t bear fruit for 20 or 30 years. Free market research, on the other hand, focuses mostly on things that can be brought to market in 5 years, and as such, it’s mostly incremental improvements on existing technology, making them smaller, cheaper and more economical. Both are extremely valuable, but one of them requires taxpayer money.
Further, the march of innovation requires a well educated population. Extreme poverty severely hampers education. Thus, keeping people out of extreme poverty aids in progress and innovation.
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