Ludwig 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