Category Archives: Domestic

Defense and Entitelments

With every successive administration, spending increases. The vast majority of this spending is centered around Medicare, Medicaid, Social Security, and interest on the debt. Mandatory spending is well over 2 trillion for FY 2012, comprising 57% of the budget. Social Security is the largest share of mandatory spending, at around 750 billion dollars. Medicare and Medicaid come to another 700 billion, while “other” mandatory spending is about 600 billion, bringing the total spent to about $3.7 trillion while only bringing in $2.6 trillion.

Defense spending, including Iraq and Afghanistan, will be at almost 1 trillion dollars, when Veterans Administration expenses, NASA, and various State dept. actions are taken into account. Defense spending is not mandatory, which I take to mean it can be changed through appropriation bills, while mandatory spending needs further legislation.

In Wildavsky’s article, he basically dismissed the armed services committees as nothing more than pork projects attempting to get money for their home districts and not having much say as to what our actual foreign policy is. Is this still the case today? If the defense “policy”  being created in Congress is geared towards dispersing pork, what exactly can the public servants in the bureaucracies do besides figure out the most efficient way to distribute the money that has been appropriated to them?

Gates commented a few years back that the DoD could savebillions over the next few years by focusing on procurement procedures, stating “The Department of Defense must set priorities and consider inescapable tradeoffs and opportunity costs”, reflecting the Wilsonian desire for “efficiency” in the implementation of government. If the Secretary of Defense is advocating this, where is the push-back? Probably in the home districts of Congressman that are able to bring home the bacon to the various military bases. Procurement in FY 2010 is estimated to be about 137 billion, a rather small number compared to entitlements, but given Gates’ rhetoric on the matter, it probably has some redundancies that can be cut.

As far as the entitlements go, social security is expected to take in 660 billion in receipts in FY 2012, a number that would be greatly increased if the Social Security base wage was raised to even 150k/yr. Be that as it may, entitlements comprise a much larger share of the federal budget than Defense ($3.7tr. v. $1tr.), although they do bring in over 2.7 trillion in receipts. Medicare fraud  alone costs the US 50 billion, according to Congressman Charles Boustany, and medical insurance $250 billion. These numbers might be viewed suspiciously in that they are an attack from the legislative branch on the bureaucracy, but they do highlight what a huge amount of money is being wasted in the implementation.

But is this due to incompetence or graft? Or neither? How much of this can be put at the feet of the bureaucrats, and how much originates in the text of the laws? Are the civil servants lazy and complacent, or underfunded and under-appreciated by a political culture that has rarely thought about the fine details of governance and administration?

Expensive Labor, Huge Exports

Some uplifting news:

Last year, for the second year in a row, U.S. companies got more work out of their employees while spending less on overall labor costs.

A two-year decline in labor costs hasn’t happened since 1962 and 1963.

Good news, some would say. Or maybe just desserts. US wages were too high to begin with, especially those lazy public sector employees! However, there is no reason that a nation with high labor costs can’t be globally competitive.

In 2007, Germany’s labor costs were around 40 dollars per hour, whereas the US was around 34. Yet both in gross numbers and as a % of GDP, Germany outperformed the US. In terms of productivity, however, the US is still superior. So what gives?

We have a more productive workforce, lower taxes, lower labor costs, and drastically higher unemployment. Yet we get the same party line about hiring: “We’re Waiting on Obama”. It looks like the “small businesses” of American have had long enough to squeeze the blood out of the American turnip. As Frank said: Something’s missing.