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Friday, November 5, 2010

Budget Mice

Squeak, squeak.

So, we’ve made it through another election. Obama euphoria is gone, and control of the House of Representatives has gone to the opposition wing of the uniparty. The deficit-spenders and high taxers have been partly displaced by the cutters.

Or that’s what we’re supposed to believe. What can we expect?

To listen to the generalities of those who will take over one half the legislative branch in January, you might expect attempts at massive spending cuts — massive enough that the deficit will shrink dramatically despite the big tax cuts they also say they have in mind.

We should be so fortunate. But there’s reason for skepticism. When pressed for details, the opposition’s message is underwhelming. In interviews election night several members of the opposition did little more than pledge an across-the-board cut in discretionary spending.

Let’s unpack this. To oversimplify somewhat, government spending comes in two flavors: discretionary and mandatory. Discretionary spending is the kind for which Congress each year appropriates a specific amount of money. For example, Congress has decided to the dollar how much will be spent on the national parks in FY 2011.

Mandatory spending is the kind for which the total amount depends on how many people are eligible for the programs that fall in this category. Congress does not set a dollar amount for how much will be paid out in Social Security or Medicare or food stamps. The appropriation process is on autopilot. This kind of spending applies to so-called entitlement programs. To change the amount spent, Congress would have to change the rules of eligibility. Mandatory spending also include interest payments on the national debt.

The opposition’s promised spending cuts will not come from mandatory spending. This is not to say that some members of Congress would not like to change the rules so entitlement programs cost less. Some indeed have proposals  to “reform” coercive Social Security and Medicare, which are headed toward bankruptcy and have trillions of dollars in unfunded liabilities.  But those changes would not cut the budget in the short run. Any savings would be some time off in the future. For now, the self-proclaimed budget hawks have little stomach for touching Social Security and Medicare. Some of them even campaigned on saving Medicare from the ruling party’s ax. Retirees vote in high numbers — enough said.

Discretionary Spending

With mandatory spending off-limits to the cutters, that leaves only discretionary spending left to be sliced. By my calculations, total discretionary spending is 37 percent of the FY 2011 budget of $3.834 trillion, or $1.415 trillion. This is a good time to point out that the projected FY 2011 budget deficit is $1.267 trillion. (Don’t be surprised if in the end it’s more.) So to balance the budget without touching mandatory spending, Congress would have to eliminate 90 percent of discretionary spending.

Well, go to it, budget-hawk party. Slash that discretionary spending and balance the budget.

No, they won’t do that. Why not? Because the budget “hawks” have declared much discretionary spending untouchable also. Specifically, the military and homeland-security budgets are off-limits.

That casts a new light on our subject and, in my view, tarnishes the bona fides of the budget, well, mice. Out of a total $1.415 trillion in discretionary spending, fully $895 billion is labeled “discretionary security” for the Pentagon and Department of Homeland Security. (Robert Higgs calculates actual total military/security-related spending at over $1 trillion. But let’s take the government’s numbers.) That’s 63 percent of total discretionary spending and nearly a quarter of the entire budget.

That makes discretionary nonsecurity spending – at $520 billion — only a little more than one-third of total discretionary spending and only one-seventh of the entire budget.

That’s not a very big portion.

If the deficit is projected to be $1.267 trillion and if the opposition wing of the uniparty managed to cut all discretionary nonsecurity spending – which of course it does not promise to do — the deficit would still be a whopping $747 billion.

Some Revolution

I don’t know about you, but I wouldn’t call that a revolution. Getting started on the task of dramatically shrinking government’s spending — that is, control of resources — will require much bigger thinking than that. Entitlements and “security” (which is far more likely to create insecurity) must be on the chopping block. (See my “Can America Afford an Empire?” and “Deficit Hawks or War Hawks?”)

If they are not on the block, then the opposition is just performing a vacuous pantomime aimed at only one thing: procuring political power.

  • Sheldon Richman is the former editor of The Freeman and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families and thousands of articles.