StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between



Why We Still Have A Deficit

16 Dec 2009
Posted by Stan Collender

(Note: I'm tempted to simply say "same old, same old."  In fact, the results shown below don't seem have changed much in the more than three decades since I started working on the federal budget.  Andrew is too young to be able to say that, but I suspect that if they admitted to their real age Pete and Bruce would agree.)

Just in case you have any doubts about why there are deficits, this paper from the American Enterprise Institute with a compilation of polling results about attitudes toward government involvement in the economy and federal spending says it all.  Here are excerpts from the money quotes:

Questions that ask Americans whether they would like a smaller government with fewer services or a larger government with more services usually produce a preference for smaller government. 

***
But when abstractions about government in general become concrete questions about individual programs, Americans don’t want to cut funding for most programs.
 
In the most recent poll (2008) cited in the paper, foreign aid, the Pentagon, "welfare," and "space exploration" were the four areas where respondents said the federal government was spending "too much."  The much longer list of areas where people said the government was spending too little of the correct amount included:
  • Improving & protecting environment
  • Improving & protecting nation’s health
  • Solving problems of big cities
  • Halting rising crime rate
  • Dealing with drug addiction
  • Improving nation’s education system
  • Improving the conditions of blacks
  • Highways and bridges
  • Social Security
  • Mass transportation
  • Parks and recreation

Problem exposed

The two questions (reduce overall government and reduce specific services) expose the problem with reducing government deficits, but not in the way you described.

Governments and government workers lack motivation to become efficient. When faced with cutting a government budget, the government's response is always reducing services. There is rarely (more likely never) any discussion of cutting the costs of government employees, such as their extensive benefits, retirement packages, or union multi-year wage increases.

In this downturn, many private workers saw wage decreases, bonus decreases, benefits decreases, increased work responsibility at the same or lower wage, layoffs, etc. and the businesses continued to provide their product and services. Plus businesses sought ways to become more efficient and less costly.

Where in government has there been anything equivalent to the way private business reacts?

As soon as the public complains about taxes, politicians threaten cuts in services. Service cuts should be the last response. The politicians' first response should be to look for cost savings in the way the service is delivered, and then they should tell workers that some of their benefits and wages will be cut, then layoffs and only then as a last resort tax increases.

Look at the government takeover of the auto companies. It makes great business and economic sense to close some of the dealerships. The auto companies announced that they would close some dealerships to save money. After government involvement in the companies, the government stepped into keep money losing dealerships open.

We have a deficit because government does not respond to economic choices the way private businesses do. It is not the taxpayers fault that government does not ask the right questions, such as do you want to have service A, if we find a way to reduce cost by doing X, or if we have to stop paying all or most of the cost of employee benefits and pensions, etc.

Ask different questions, like those that private businesses ask themselves everyday, and I think you will reach a different conclusion.


The Government has been

The Government has been spending alot with those areas to earn prestige especially to be a part of history. Its not bad but ofcourse people should be the first priority because its their obligation.


Our system resists budget cuts

It seems like a necessary condition for a serious federal budget cut is not angering (too much) the majority of registered voters in 218 Congressional districts and in at least 21 states.

I bet there aren't very many places in the US where the Pentagon couldn't make a budget cut cause pain for a Congressman or a Senator.




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