The Award Goes to Martin Feldstein

mashimaro_ml0002Ludwig von Mises wrote, “Facts per se can neither prove nor refute anything. Everything is decided by the interpretation and explanation of the facts, by the ideas and the theories.”
As I wrote this morning, Martin Feldstein has demonstrated to me once and for all that, before analysis ever begins, facts are first made to fit philosophy, especially by economists. This why economics is not a real science, no matter how much math they put into their papers. We need facts in order to make effective decisions.
LISTEN TO HIS COMMENTS made on April 29 in an interview with Bloomberg’s Tom Keene and Ken Prewitt.
Feldstein said, “Reagan … cut non-defense discretionary spending substantially … the so-called tax cuts for lower and middle income, particularly lower income individuals which are part of the Obama [budget] proposal … have to be reined in. We just cannot afford them.”
What? This is not the 1980s when Boomers were young and America benefited from the peace dividend. He implies tax cuts must only go to the rich, presumably because of his belief in the trickle down philosophy (not theory, because a theory must actually work, you know, like Einstein’s theory).
Budget of the United States, Outlays by Superfunction and Function: 1940–2014
What are the facts? The chart above are the facts. Anyone can get the Budget of the United States, Table 3.1 — Outlays by Superfunction and Function: 1940–2014 online.
The functions are defined as follows:

  • Function 050: National Defense 19.90%
    The National Defense function includes the military activities of the Department of Defense (DoD), the nuclear-weapons related activities of the Department of Energy (DoE) and the National Nuclear Security Administration, the national security activities of several other agencies such as the Selective Service Agency, and portions of the activities of the Coast Guard and the Federal Bureau of Investigation. The programs in this function include: the pay and benefits of active, Guard, and reserve military personnel; DoD operations including training, maintenance of equipment, and facilities; health care for military personnel and dependents; procurement of weapons; research and development; construction of military facilities, including housing; research on nuclear weapons; and the cleanup of nuclear weapons production facilities.
  • Function 150: International Affairs 1.40%
    Function 150 contains funding for all U.S. international activities, including: operating U.S. embassies and consulates throughout the world; providing military assistance to allies; aiding developing nations; dispensing economic assistance to fledgling democracies; promoting U.S. exports abroad; making U.S. payments to international organizations; and contributing to international peacekeeping efforts. Funding for all of these activities constitutes about one percent of the federal budget. The major agencies in this function include the Departments of Agriculture, State, and the Treasury; the United States Agency for International Development; and the Millennium Challenge Corporation.
  • Function 550: Health 10.83%
    Function 550 includes most direct health care services programs. Other health programs in this function fund anti-bioterrorism activities, national biomedical research, protecting the health of the general population and workers in their places of employment, providing health services for under-served populations, and promoting training for the health care workforce. Some of the agencies funded in this function include the National Institutes of Health (NIH), Centers for Disease Control and Prevention, Health Resources and Services Administration, and the Food and Drug Administration. The major mandatory programs in this function are Medicaid, the State Children’s Health Insurance Program (SCHIP), federal and retirees’ health benefits, and health care for Medicare-eligible military retirees.
  • Function 570: Medicare 12.75%
    Function 570 includes only the Medicare program, which provides health insurance to senior citizens and persons with disabilities. Congress provides an annual appropriation for the costs of administering and monitoring the Medicare program. Nearly 99 percent of spending in this function occurs on the mandatory side of the budget, and almost all of the mandatory spending consists of payments for Medicare benefits.
  • Function 600: Income Security 15.24%
    Function 600 consists of a range of income security programs that provide cash or near-cash assistance (e.g., housing, nutrition, and energy assistance) to low-income persons, and benefits to certain retirees, persons with disabilities, and the unemployed. Housing assistance programs account for the largest share of discretionary funding in this function. Major federal entitlement programs in this function include unemployment insurance, trade adjustment assistance income support, food stamps, Temporary Assistance to Needy Families, foster care, and Supplemental Security Income. Federal and other retirement and disability programs comprise approximately one third of the funds in this function.
  • Function 650: Social Security 19.56%
    Function 650 consists of the two payroll tax-financed programs that are collectively known as Social Security: Old-Age and Survivors Insurance and Disability Insurance (OASDI). This function includes Social Security benefit payments and funds to administer the program. Under provisions of the Congressional Budget Act and the Budget Enforcement Act, Social Security trust funds are off-budget and do not appear in the budget resolution totals. However, a small portion of spending in Function 650 – the general fund transfer of income taxes on Social Security benefits – is considered on-budget and appears in the budget resolution totals. The table and discussion below contain information pertaining to both the on-budget and off-budget components.
  • Function 700: Veterans Benefits and Services 3.03%
    Function 700 covers the programs of the Department of Veterans Affairs (VA), including veterans’ medical care, compensation and pensions, education and rehabilitation benefits, and housing programs. It also includes the Department of Labor’s Veterans’ Employment and Training Service, the United States Court of Appeals for Veterans Claims, and the American Battle Monuments Commission. Almost 90 percent of appropriated funding in Function 700 goes to veterans’ health care.
  • Function 900: Net Interest 3.80%
    Function 900 consists primarily of the interest paid by the federal government to private and foreign government holders of U.S. Treasury securities. This amount is slightly offset by interest income received by the federal government on loans and cash balances and by earnings of the National Railroad Retirement Investment Trust.

Anyone can whip out their calculator and figure out the real deal for themselves: Net interest to service the debt accounts for 3.80% while international affairs costs 1.40%. National defense (19.90%), health (10.83%), medicare (12.75%), income security (15.24%), social security (19.56%) along with veterans benefits and services (3.03%) account for over 80% of the annual budget.
With the facts in hand, voters can decide what they would like to give up. While we’re on the subject, Michael Pettis just published The RMB and the magic of accounting identities and shows readers that all of that hot air has to add up. Members should review How to Spot a Bogus Economic Forecast. The numbers MUST add up.
MORE: Martin Feldstein, Wikipedia entry


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  1. will somebody please drive a stake thru the heart of reagonomics. tinkle down economics is bogus. and while they’re at, throw grover norquist out with the bathwater.

    • I guess someone has to be out there to balance off Paul Krugman, eh? 😉

  2. “With the [ US budget ] facts in hand, voters can decide what they would like to give up.”
    I’d punt the special accommodations for transgender crew members aboard ballistic missile submarines.

  3. I think congress should spend more money and in doing so they would drive that stake thru the heart of reagonomics for ya Dan

  4. Hopefully, Obama will be a one-trick pony.
    I believe a healthy dose of “Reagonomics” and a Presedential Candidate that has the vision of Ronald Reagan will serve you all so much better than the apologistic and “Bigger Government is so much better” ideologue that the “Bill Ayres, Van Jones” Chicago Pol Obama is implementating.
    God bless you all…Just a Canadian Observer.

    • what part of failed conservative governance don’t you understand?
      – reagan and the bushes have left us with trillions of dollars of debt
      – deregulation is a disaster of biblical proportions
      – there is been a massive transfer of wealth from the middle class to the uber rich effectively turning the united states into a third world country.
      – the engineering and manufacturing have been shipped overseas.
      and finally, conservatives believe that government is the problem not the solution, and by golly, whenever they are in charge, they prove it.

      • Oh! National Defense spending is…how much??? No wonder we need to get rid of those pesky Entitlements.
        Just curious: How many here have lived (not visited, but really lived) in a developing country? And by living I mean ‘making a living’, not retiring to a place where one’s dollars get more…

  5. Reagan and the small govt meme is tiring. The numbers don’t lie. Total outlays of the federal govt rose 69% under Reagan’s 8 years from $678 billion to $1.143 trillion. (pages 22-24). The venerable Mr. Feldstein was Reagan’s adviser.
    George HW Bush’s budgets went from $1.143 trillion to $1.41 trillion, a 23% rise over 4 years.
    Under Clinton’s budgets, the govt outlays grew 32% over 8 years from $1.41 trillion to $1.86 trillion.
    Of course George W Bush’s budgets are staggering, growing 114% over 8 years from $1.863 trillion to $3.99 trillion in fiscal 2009 (remember the previous Prez writes the budget for the incoming President’s first year.)
    Here are the number the conservatives never want you to know>> under Obama, govt growth is projected to actually be FLAT: from $3.99 trillion to $4.02 trillion. This takes into account the increasing outlays for Boomer entitlements.
    Feldstein was creating his own reality long before the Cheney family.

  6. the numbers add up to 86.51 percent so there’s 14% slop in the budget. i’m not sure i agree with putting medicare and social security in the budget since they are supposed to be funded by their own mechanism. when you do that look how big military spending gets.

  7. I’m with Dan, I think we should all pack up and move to a different country.
    Somebody get on line and find the best country in the world, one that people risk their lives to get into, not out of.
    One that is made up of immigrants from all over the world who made the country what it is today.
    Find that place and will all move there.

    • Here, there is a new poll as to where people want to immigrate to: Young, Less Educated Yearn to Migrate to the U.S.. But then again, most of the immigrants that went to the U.S. prior to 1930 fit that mold. I got that information today from an issue of National Geographic that discussed the 1960 census. It was illuminating.

      • See first paragraph of poll analysis, under title Implications (bold added):
        The United States and Canada attract potential migrants for various reasons — personal, political, or economic — but opportunity is the common, overarching theme. People may see moving to these countries as a chance to reunite with family members who have already moved, to find jobs, or to provide better lives for their children. Immigration policy and migrant policy, too, could play a role in the talent each nation attracts. Health and social services available to them as newcomers, and their future benefits as citizens, may be yet another factor.

    • ” .. I think we should all pack up and move to a different country.”
      Been there – Done that.
      And wouldn’t recommend it.
      You’ll be discriminated against as a an immigrant from the U.S.

      • My sister would agree– she emigrated to Costa Rica 7 yrs ago and claims institutionalized discrimination is rampant.

        • I have lived in several places around the world, and I know fear of newcomers is prevalent. Xenophobia and jingoism mask reactions of fear and distrust towards anyone foreign, regardless of place. And if the economic situation is unstable, the worse.

          • I guess that goes to show that all people at really the same.

  8. Dan –
    Are you referrring to Australia? or Canada?

    • its always interesting to see conservatives claim that they are the only ones that work hard and that everyone else is lazy and wants a handout.
      i am a progressive and pretty close to being a bernie sanders socialist democrat but that doesn’t mean i don’t believe in the vision of america. i do happen to think that the free markets and invisible hand are badly broken and that religious fundamentalism, racism, and intolerance are poisoning our world and our future.
      andrew carnegie was an interesting individual. i hardly think he would hold todays ceo’s who outsource production to the cheapest country and avoid paying for externalities or those who are the uberrich in high esteem.

    • To be uneducated is not the same as being dumb. Plenty of well educated people make no sense.
      According to Education in England, a Brief History, “Despite this hostility to universal education, school attendance rose significantly during the 19th century. In 1816, 875,000 of the country’s 1.5m children ‘attended a school of some kind for some period’. By 1835 the figure was 1.45m out of 1.75m. If this sounds fairly impressive, it should be noted that by 1835 the average duration of school attendance was just one year. Some financial assistance to schools from the local rates had been permitted in a few places in the 18th century. Now, from around 1830, national funds began to be made available for school building. By 1851 the average length of school attendance had risen to two years, and in 1861 an estimated 2.5m children out of 2.75m received some form of schooling, ‘though still of very mixed quality and with the majority leaving before they were eleven’ (Williams 1961:137).”
      Wikipedia reports, “His uncle, George Lauder, whom he referred to as “Dod”, introduced him to the writings of Robert Burns and such historical Scottish heroes as Robert the Bruce, William Wallace, and Rob Roy.” By the time he was 15, “Carnegie’s education and passion for reading was given a great boost by Colonel James Anderson, who opened his personal library of 400 volumes to working boys each Saturday night. Carnegie was a consistent borrower and a “self-made man” in both his economic development and his intellectual and cultural development. His capacity, willingness for hard work, his perseverance, and his alertness soon brought forth opportunities. At work, Carnegie quickly taught himself to distinguish the differing sounds the incoming telegraph signals produced and learned to transcribe signals by ear, without having to write them down.”
      By the standards of his day, Carnegie was indeed extremely well educated.
      Now, I conducted a small thought experiment yesterday. If each continent were walled off so nothing could be imported or exported, then each economy would have to become self-sufficient in its own way based on its endowment of natural resources. Some continents would be so rich, people would only have to wake up, eat and fuck, producing a very populous nation quickly before hitting the limit. Others would have to struggle hard in a barren land, and come up with some insane innovations just to survive the winter.
      But for each continent, the basic law of supply and demand is the same. Assuming the least educated have only their labour to sell, they would be the people that do the work that requires the least trading. Most of the population, statistically-speaking, is “uneducated” relative to society as a whole. As we move up the food chain, the level of education/training/specialization required moves up until the top, where presumably a small band of scientists and engineers must spearhead innovation and technology to overcome the continents constraints and problems. But because the continent is closed, every level of the economy is represented on the continent. There is no possibility of outsourcing, importing or exporting. There would be no complaints about “shipping jobs abroad.”
      Now, suddenly the walls come down one day. Because the continents had unequal resources and more people, several are much poorer than the rest. Does it make sense then, on a global scale, the population that performs the service jobs suddenly explode and all the ones that can be exported to the poorest continents (such as manufacturing, but not, say hairdressers or waiters) will be exported, hitting labour in the richest continent the hardest? Scientists and engineers from the top continents will see some decrease but to a lesser extent since the global pool of talent is much smaller.
      Isn’t this what has happened with globalization? If so, we cannot expect the country to be the one in which we grew up in, right? Everyone from the richest continent would have to focus on increasing the level of education/training/specialization in science and engineering. Failure to do would result in a decrease the standard of living.

      • anybody know what language software written in china is expressed in (i.e. software written in united states while written using java or c or whatever typically uses english words and concepts for the objects they refer to).
        my personal theory, barring a global catastrophe, is that when all is said and done that the chinese are going to end up king of the hill. still if immigration were an issue i would probably pick one of canada, switzerland, or some south sea island.

      • Which is why Central and Latin-american countries have specialized in exporting labor and importing the remittances sent by those employed in the wealthier countries.

  9. We COULD afford TARP and stimulus trillions; we HAD to “save the banks” and “re-start the economy”.
    That’s why there’s no money left to help Joe Sixpak with his taxes or his mortgage!
    But Joe is still helping the banks. They take FED “mouseclick” money at 0% and jack Joe’s credit card interest rate to 30%.
    Why don’t the bankers at least thank him?

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