We have, in startup parlance, a high burn, and most of it can’t be considered ‘investment’ but is instead ‘expense’. Spending money on things like infrastructu

We have, in startup parlance, a high burn, and most of it can’t be considered ‘investment’ but is instead ‘expense’. Spending money on things like infrastructure improvement or new technology that are likely to generate more money in the future helps growth; spending money on the so-called entitlement programs, and parts of the military, does not. Of course medical care and defense are important, and we have to have them—this is a tough balancing act. In some cases, the competitive nature of the private sector may provide a better path. Sooner or later, we are going to have an ugly conversation about our national budget—we can delay it for a long time but not forever. The government, when it needs to spend money at all, should aim to invest. If you have a high burn, you either have insufficient revenue or excessive costs. I have gotten so frustrated the past four years at the demagoguery of the national debt as a result of excessive costs. These are the data points I want to point to every time someone suggests our national debt is "unsustainable": - In 2000, the federal government collected tax receipts of 20% of GDP[0]. From 2009-2012, these tax receipts were around 15% of GDP. This is due to, as you'd imagine, the huge private sector deleveraging that happened in 2008 and the fact that, politically, any suggestion at raising taxes gets you called a Kenyan Muslim Communist. Yet we didn't seem to have a problem with growth when taxes collected were much higher than they were now, as a percentage of the economy. - 2/3 of our federal budget is spent on Social Security, Medicare/Medicaid, and defense. Any issues with Social Security being considered unsustainable is that only $113,000 of payroll is eligible for taxation. It would seem to me that if you made all payroll eligible for taxation, you would only be impacting those well into the upper-middle class, and would ensure solvency for at least 75 years. Legislation to do so was recently proposed by some Democrats in the Senate[1]. - We spend a lot on Medicare because we spend a lot on healthcare. We spend a lot on healthcare because we are the only first-world country in the world that doesn't put a ceiling on how much health care providers (hospitals and drug companies) can charge, even for basic services. Yet those that have good insurance are completely price-unconscious. We essentially have the worst of both worlds -- not enough free market forces for health providers to price competitively, and yet not enough price controls either. If you have a free 30 minutes, I highly recommend anyone read Steven Brill's recent writeup in TIME magazine[2]. - It is a complete fallacy that we're living longer, so therefore we have to jack up the age of eligibility of programs like Social Security and Medicare. Most gains in expected life expectancy over the past several decades are due to reducing infant mortality -- in other words, the only change is that we have less people that died before they could even pay anything into SS. Furthermore, most life expectancy gains are concentrated on the wealthy -- those that don't even need Medicare. The life expectancy for working-class Americans is actually shrinking.[3]. I'm not really sure why we need to cut government benefits for janitors because lawyers are living longer. Paul Krugman is constantly trying to explain this on his blog[4]. - If you want GDP growth after a recession caused by massive private sector deleveraging, Keynesian government budgets are exactly what you want. Beyond stimulating spending when everyone is clinging on to whatever money they have because they're living paycheck to paycheck, with US treasury interest rates under 2% for years, this is the perfect time for our government to run deficits at cheap interest rates. The OP says "Borrowing money to get ninety growth cents on the dollar does not count, although that may work for a while." But in current conditions mean we'd be getting much more than ninety growth cents on each deficit dollar. Conversely, cutting each deficit dollar results in much less growth than one dollar. This is known as the "fiscal multiplier," and there is a lot of research showing that in depressed economic conditions, the multiplier is much higher than 1.0. The utter economic clusterfuck in Europe is because too many people in controlling the Euro felt the way the OP does, so you have countries like Greece and Spain cutting their budgets to eliminate deficits, yet resulting in such a harsh economic contraction that their budgets end up with even bigger deficits.[5]. - We obviously have a shitload of waste in the federal government. You can't have a $3 trillion budget and not have some dumb stuff in there. But for the purposes of any macro fiscal impact in terms of GDP or unemployment, it's literally irrelevant. After Social Security and Medicare/Medicaid, you're left with $1.3T in the budget, over half of which is military spending[6]. Yeah, we have too many military bases and we probably have some useless bureaucrats in the Department of Transportation. But for the most part this spending is on core government programs that are helpful and that people like, which is why the only specifics Mitt Romney could give on what programs he would actually cut was Big Bird. I'm sure you could cut $100 billion with nobody really caring, and we should obviously strive to have the least wasteful government possible, but are a few wasteful programs the reason why democracy is going to unravel? - In the early 1990s, it was legitimate to argue the federal deficit was crowding out private sector growth. Deficit spending required the Federal Reserve to keep borrowing rates high to fend of inflation, which meant it was more expensive to borrow money for any sort of investment. As George H. W. Bush and Bill Clinton passed tax increases in 1990 and 1993 to balance the budget, the Federal Reserve was able to lower interest rates in lockstep, thus preventing any fiscal contraction. In other words, counterbalancing public spending with looser monetary policy can be a good receipt for stimulating growth[7]. However, the Federal Reserve rates have been at zero for years now, because the recession of 2008 pales in comparison to 1991. If you make money as cheap as possible the private sector continues to say "meh, I think I'll just hoard profits" and you don't have any inflation even with absurdly cheap money, then there are no more bullets in the monetary policy gun left, but bless Ben Bernanke for still trying (QE, Operation Twist, etc). Yeah, yeah, "OMG HYPERINFLATION WEIMAR ZIMBABWE!" The same people have been yelling this for years. Wake me up when the Bureau of Labor statistics reports a CPI inflation over 3%[8]. - 2% growth isn't great, but it's not going to cause democracy to unravel. It may cause democracy to unravel when 99% of the wealth generated by that modest growth is concentrated in 1% of the population, however[9]. In conclusion: in principle, there's nothing really too controversial about what the OP is saying. We should absolutely be talking about the ways to grow the US economic pie so that our political process doesn't keep grinding to stalemates over who gets what of the pie we already have. Our government isn't perfect. It could do a lot to improve a lot of things to encourage growth, and many of them aren't even fiscal in nature (e.g. patent reform). But if you're just going to point to the national budget, echo popular political talk-show points about "$16 TRILLION IN DEBT OUR GRANDKIDS WILL HAVE TO PAY" and "WE'RE ON THE ROAD TO GREECE" then I'd argue you're completely missing the forest for the trees. [0] http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=200 http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Doc... [1] http://vtdigger.org/2013/03/07/sanders-reid-defazio-introduce-legislation-to-strengthen-social-security/ http://vtdigger.org/2013/03/07/sanders-reid-defazio-introduc... [2] http://healthland.time.com/2013/02/20/bitter-pill-why-medical-bills-are-killing-us/print/ http://healthland.time.com/2013/02/20/bitter-pill-why-medica... [3] http://www.nytimes.com/2012/09/21/us/life-expectancy-for-less-educated-whites-in-us-is-shrinking.html http://www.nytimes.com/2012/09/21/us/life-expectancy-for-les... [4] http://krugman.blogs.nytimes.com/2013/03/05/the-life-expectancy-zombie/ http://krugman.blogs.nytimes.com/2013/03/05/the-life-expecta... [5] http://www.imf.org/external/pubs/ft/wp/2013/wp1301.pdf http://www.imf.org/external/pubs/ft/wp/2013/wp1301.pdf [6] http://www.cbo.gov/sites/default/files/cbofiles/attachments/BS_Discretionary_print.pdf http://www.cbo.gov/sites/default/files/cbofiles/attachments/... [7]http://www.washingtonpost.com/blogs/wonkblog/wp/2012/08/06/what-we-can-learn-from-clintons-1993-tax-hike/ http://www.washingtonpost.com/blogs/wonkblog/wp/2012/08/06/w... [8] http://data.bls.gov/timeseries/CUSR0000SA0?output_view=pct_1mth http://data.bls.gov/timeseries/CUSR0000SA0?output_view=pct_1... [9] http://money.cnn.com/2012/12/03/news/economy/record-corporate-profits/index.html http://money.cnn.com/2012/12/03/news/economy/record-corporat...