Sunday, March 20, 2011

Fixing Government Spending

"I can scarcely contemplate a greater calamity that could befall this country, than to be loaded with a debt exceeding their ability ever to discharge. If this be a just remark, it is unwise and improvident to vest in the general government a power to borrow at discretion, without any limitation or restriction."
(Brutus, Anti-Federalism, 1787-88)

Every year Time names its Man of the Year. No matter the character of the person, Time will choose the person who impacts news coverage more than any other person that year. The "Man" of the Year isn't always a man (Queen Elizabeth II - 1952). It isn't always a single person (Middle Americans - 1969). It isn't even always about it being a "nice" person (Adolf Hitler - 1938). And, sometimes, it's not even a human (The Computer - 1982). By the end of 2011, the federal debt/government spending may just become the first non-physical object to be named Time's Man of the Year.

It seems that a person cannot turn on the news, pick up a paper or magazine, roam through their social networking site or talk to a fellow American without the topic coming up. Everyone has their ideas.

Bring our troops home.

Eliminate Social Security

Socialize medicine

Balanced Budget Amendment

Higher taxes

No more "earmarks"

Line Item Veto

Everyone's pet idea has merit, on the surface. But none of them really address the real issues. To be honest, the "real issue" - Congress spending money in ways it was never authorized to spend it - is never really going to be addressed. At least not right now. But, that being said, the real issue of balancing the budget while limiting the degree to which such would adversely affect both the nation's economy and our individual family budgets is never really addressed by these ideas.

So how DO we balance our country's budget AND limit the "damage", so to speak? Rather than going into explicit details about what *I* would cut if *I* had the power, I'd rather provide what I believe to be some sound, sane advice on how to frame the debate. The problems with most public debates are that they are usually framed by the ones screaming loudest, rather than by the ones speaking wisdom.

1) Let's start at the beginning...the budgeting process. Currently, the federal government's idea of determining a budget is like this: Department X spent all the money we allocated to it last year. Therefore, we'll give them the same amount plus 12% more. There is no justification for the increase. The director of Department X or Agency Y just tells their superiors they spent all their money this year and their superior adds that same number back to the next budget and adds some prescribed increase, typically around 10-12% more. This is pure lunacy. No major corporation in the world would EVER survive with this sort of accounting.

In 1992, Martin Gross wrote, The Government Racket, Washington Waste A to Z. The letter Z in his book was regarding Zero Based Budgeting. To put it simply, ZBB is a method of budgeting in which all expenses must be justified for each new period. Zero-based budgeting starts from a "zero base" and every function within an organization is analyzed for its needs and costs. Budgets are then built around what is needed for the upcoming period, regardless of whether the budget is higher or lower than the previous one.

ZBB allows top-level strategic goals to be implemented into the budgeting process by tying them to specific functional areas of the organization, where costs can be first grouped, then measured against previous results and current expectations.

In the book, Gross estimates that the amount of money that could be saved by the Federal Government would be between $50B and $500B per year. Now, considering that the Federal Budget Deficit in 1992, when the book was published, was $292B, which inflates to $454B in 2010 dollars, it would seem rather safe to estimate that we could save between $500B and $1T per year merely by implementing a Zero Based Budget.

This, alone, could nearly eliminate our federal budget deficit. But I'm not done.

2) Once a ZBB budgeting system is in place, and every government agency and department is required to justify their annual budget requests, the process will begin towards trimming government waste. Above and beyond the savings mentioned above, Lewis Uhler, in his book, Setting Limits, suggests three ways to "test the propriety of federal government activities, with some objectivity, in an effort to set priorities." (pp.135-139)

The first is the "practical necessity test", meaning, what are those functions which by the nature of things only a government with broad national or federal scope can perform? The most obvious examples of this would be defense and foreign affairs. It is just not practical for anyone other than our national government to be responsible for activities such as this.

The second is the "requirements/values test", meaning whether the federal government is constitutionally or contractually obligated to perform a particular function. Article 1 Section 8 of the Constitution enumerates the various functions of government that Congress is authorized to fund from the public treasury. This would represent the Constitutional requirements. But, even as we argue about other programs funded, perhaps in violation of Article 1 Section 8 of the Constitution, we may, perhaps have a contractual obligation. This would be the case with regards to the interest owed on our national debt. And, while some conservatives would argue for the abolishing of certain "entitlement" programs, there is no arguing the "moral" obligation we have to keep the "promises" intrinsically made to millions of Americans currently dependent upon programs like Social Security and Medicare.

And third is the "performance test", meaning, has the function, as performed thus far by the federal government, been performed efficiently and relatively free of waste, fraud and corruption. In 1981, the National Tax Limitation Committee distributed a book to Congress entitled, "Meeting America's Economic Crisis: A 'Road Map' to Emergency Federal Spending Reductions" which espoused eight criteria for determining the efficiency of the Federal Government is running programs that could better be run in other ways.

1. The propensity of the agency to fraud and/or abuse
2. Commonness of error, inefficiency and waste
3. Massive crossovers with other agencies managing the same issues
4. Little or no cost/benefits
5. Massive and unjustified expansion of benefits
6. No real national benefit
7. Poorly defined program goals
8. Programs best performed by state/local governments or private organizations.

At this point, the debates could begin as to what could be cut from our federal budget. But at least we would have some definable criteria from which to judge each idea. It was by this criteria that Martin Gross wrote his book. And from reading Gross' book, there is little question that hundreds of billions of dollars could be saved each year by applying this criteria to our federal budget.

But, for now, let's just apply one element of this criteria to one large aspect of our national budget...Social Security. It is true, that we have a constitutional obligation to PROMOTE the general welfare. However, we are NOT obligated to PROVIDE for it. It is ALSO true that, legally, the Federal Government is not contractually obligated to pay another dime to anyone in Social Security benefits. However, we DO have a "moral" obligation to keep the promises we made to the people who have come to depend upon it. That being said, there is nothing to say we cannot adjust the details of those 'promises'. Knowing, of course, that the Social Security system was implemented at a time when the average American didn't live long enough to collect any benefits. Life expectancy in 1934 was 58 for males and 62 for females. Only those people living longer than expected collected a dime. Today, men are expected to live to age 75 and women to age 80. What harm would it be for us to raise the retirement age for full Social Security benefits to age 70 for those people currently age 55 or under? It would do little harm to most people and would save us half a trillion dollars per year by 2025.

For all the arguing and debating about how to eliminate a $1.6T budget deficit it really wouldn't take all that much work. It WOULD, however, require a certain amount of acceptance of reality...the reality being that we MUST cut waste and restore some constitutional and fiscal sanity to Congress and the Oval Office.

I have little doubt that by instituting a Zero Based Budget and by establishing some well-defined criteria for identifying and eliminating waste, fraud, corruption and inefficiency in federal spending that we could find our way to a balanced budget in very little time.

As I said before, public debates are usually framed by the people screaming the loudest. Its time for the wise in our country be given the microphone and permitted the freedom to guide the debate. The time for folly is over. We have no more time for foolish name-calling and self-serving arguments. We were given a Constitution to guide our decisions and we have a moral obligation to make sound choices for the sake of country's future. economy among the first and most important of republican virtues, and public debt as the greatest of dangers to be feared...And to preserve (our) independence, we must not let our rulers load us with perpetual debt. We must make our election between economy and liberty, or profusion and servitude."
Thomas Jefferson


Pranavam Ravikumar a.k.a. Kochuravi said...

Lovely Post!

Shaunie @ Up the Sunbeam said...

Good job John!

Right Makes Might said...

Excellent John.... You should post this to Mark Levin's FB Wall....