Monday, September 10, 2012

The business of the federal government is redistribution

This post builds on an excellent post by Mark Perry. Money quote: "... the federal government has become an entitlements machine. As a day-to-day operation, it devotes more attention and resources to the public transfer of money, goods and services to individual citizens than to any other objective, spending more than for all other ends combined."

Mark's charts show the composition of federal spending and taxes as a share of total spending and total taxes; mine show them as a % of GDP. Note the relatively low level of defense spending today, even though it includes all the costs of foreign wars. Defense spending is dwarfed by transfer payments.




26 comments:

PerformanceSpeaksForItself said...

Believe it or not, the transfer payments prevent civil unrest. Globalization (for the benefit of Wall Street) has hollowed out the blue-collar jobs sector - not everyone is college material! Asset price inflation by our central planners (for the benefit of Wall Street) keeps housing more expensive than it should be (even after the bubble burst). An outrageous school funding system (based on property taxes) provides for lopsided opportunities between the upper-middle+, and everyone else. Even two full-time jobs at a retail store won't make ends meet in an average sized family; without food stamps, child tax credits, unemployment compensation and (excessive) elderly care payments, the whole system would unravel, hurting both transferors and transferees. Don't bite your nose to spite your face.

Fleximon said...

I deserve it and somebody has to pay.

Fleximon said...

Seriously Performance, why would you want to set up a system where you are dependent on somebody else’s budget.

Say you depend on the budget for your healthcare and the money is running out, meaning the budget can’t borrow enough money any longer. The bad news is the teachers union wants the same money you want. You think you are a better crony than the teachers union?

You sound naive. Everybody knows that if you cut the welfare there would be civil unrest, not so different from Southern Europe but probably a lot worse. The problem is that Liberals think the main role of government is to make as many people dependent on government as possible. It elevates them to My Brother’s Keeper and they get to wear a halo. I wouldn’t know but I suspect that there is nothing more ego gratify to a Liberal than being one of the elite. Everybody lobbies the elite to get their “fair share”. What an ego trip. Everybody is at you for your favor.

Government supremacy always ends badly.

Dr William J McKibbin said...

PerformanceSpeaksForItself is right -- transfer payments avert civil unrest, which is (or should be) the greatest fear of the elites -- unfortunately, the beneficiaries in the public sector have become a new problem -- and the problem is that the US can no longer afford to pay for everything that the big government Democrats and military-industrial Republicans want to buy -- my vote is still for a balanced budget amendment -- that way, the politicians would have to make real choices based on real revenues, not borrowing -- however, a balanced budget amendment is unlikely as long as the US is run by the alliance between big government Democrats and military-industrial Republicans -- the only way to win in the US is become an elite by acquiring world-class skills that sell for premium wages around the world, and then to invest those premium wages into global equities, including real estate -- the world is never going to figure out how to resolve the global economy, and certainly not in time to avert bigger and bigger catastrophes -- becoming an accredited investor should be the goal of every citizen who want to avoid periodic unemployment and undesired displacements -- but again, I do think some transfer payments should be made to ensure that no one is starving or freezing to death in the streets, both of which can be accomplished with no more than half of what the government spends today -- I am always puzzled by people who are looking to live grand lives based on government incomes and/or entitlements, including public pensions -- perhaps therein is the root of our society's problems -- well, we can't solve all the world's problems, so I stand by my mantra of acquiring world-class skills that pay premium wages and investing in equities over a lifetime -- luck is not the way to live one's life...

Benjamin said...

Still, as of this year, federal agency and debt spending are still larger than entitlement spending.

Moreover, while entitlements are loathsome, they essentially take money out of one pocket in the private sector, and transfer the money to another pocket in the private sector.

When you are taxed and your money goes into a federal agency, it goes into a black hole of waste and corruption.

The reason the right-wing and GOP are frothing at the mouth about entitlement spending is that they love agency spending.

The largest federal agencies are Defense, VA and Homeland Security---GOP scared cows and money pits for GOP backers.

BTW, I am not an Obama supporter, and might vote for Romney (I might just write in Ron Paul). I am just calling like I see it.

Dr William J McKibbin said...

@Benjamin, a write-in vote for Ron Paul might must be what I do as well -- the choice between big government Democrats and military-industrial Republicans is nauseating...

Cabodog said...

Unfortunately at this time, a vote for Ron Paul is a vote for Obama.

I agree with making a statement, but the internet's a much better venue for that than the ballot box?

Things definitely need to change.



Gloeschi said...

Yep, we should spend more on defense, since the track record is so great.

Donny Baseball said...

Yes, we have to keep all the geezers and infirm from rioting in the streets! Obviously, that is why Social Security and Medicare, despite driving the USA into a fiscal danger zone, are sound investments in social harmony!!

On the state level, I totally agree with you - gov't spending is a jobs program, employing the vast swaths of unemployables that spew out of our subpar public education system, who would otherwise be robbing our houses. Better to have them work at the DMV.

Joseph Constable said...

Dr. William McKibbin? Why does one need to be an accredited investor? Why can’t the young retail clerk at say Whole Foods Market who has $5,000 in his 401K program invest and profit.

My friends! With Obama there is no improvement. I will never be happy with Romney because I am in favor of massive radical reform and that won’t happen but there will be improvement. Obama and the Democrat Party are status quo.

Dr William J McKibbin said...

Hi Joseph Constable -- I agree completely that anyone with excess cash can win big by investing those dollars into equities now -- absolutely -- on the other hand, ceteris parabus, most cashiers do not have $5,000 laying around to invest -- I advocate investing whatever one has, but I also advocate increasing one's disposable income in order to have more to invest with larger gross results at the other end -- my experience is that those who with high-demand skills that earn premium wages are more likely to join the 1% club than others -- but again, the retail clerk with $5,000 available would be very wise to invest those dollars into bargain priced equities right now -- thanks for the opportunity to respond...

Rob said...

The new iphone is out. Scott will write a blog post about it saying how exquisite it is and how he has already ordered one, since money is no object. Life sure is sweet aint it ?

Scott Grannis said...

Yes, life sure is sweet, especially when you have a blog that offers valuable and free advice. I've been recommending AAPL for almost four years now, and if you'd followed that advice you would be sitting pretty right now.

Donny Baseball said...

Rob-
What a dumb comment. Why would you begrudge Scott spending his money, accumulated over a long career, on something that he values? Clearly Scott was successful through diligent application of brainpower and hard work. He worked and invested smartly. Why be snide over that? I know why. Because you are an ass, a species of envious creature that is currently haunting our nation with your intent on tearing down the successful, ambitious and striving. That is when your ilk is not looking for this class to pay for a work-free life of ease for your self.

Bugger off.

Rob said...

Scott, now its valuable, free advice whereas previously you've said its free so dont expect anything from it. You fluctuate wildly in many ways and havr given plenty of duff advice that would have lost people money. Amd like all bloggers you write this blig as ,uch for yourself as anyone else. You want a platform and to feel connected, relevant, not just a fading retiree. No man is an island, not even an intermittently rabing Republican.

Donny Darko: "the dilligent application of brainpower and hard work." What a simpleton you are to think such qualities are inevitably rewarded. I look forward to your and Scott's article on the obviously dumb and lazy Chinese workers who supply your Apple products.

Scott Grannis said...

Rob: I encourage you to stop visiting this blog. However, I would also encourage you to get serious about working harder, saving, and investing, if your goal is to improve your standard of living. It's not easy, I know, since I was once dirt poor, but it is possible. Your first step along that path will be to stop envying others and coveting what they have. Focus instead on doing it yourself. One thing for sure: the government is never going to do it for you.

Rob said...

Clearly ive hit a nerve Scott. You make wildly inaccurate assumptions about me and my financial status. Im actually quite comfortably off and able to buy Apple products, as Ive mentioned before. I'll make you a deal: i will stop responding to your blog but in return you try to make your concerns a bit wider and stop thinking you've got answers to everything just because you've been lucky financially ?

Dr William J McKibbin said...

@Rob, the good news is that "luck" is all around us these days -- low hanging fruit all over the place -- all we have to do is pick and bag -- now is the time to acquire world-class skills that convert into premium wages for investment into cheap equities -- rents and dividends are rising -- there's no time to look back -- wow, the future looks so bright -- gotta wear shades.

However, I do empathize with those who are suffering economically -- the Main Street depression is destroying families across America, and I weep for those whose luck is down -- the Main Street depression, evidenced by long-term declines in real working wages, home values, and the employment-to-population ratio are severe economic traumas for many Americans, and yes, deserving Americans will need our support in the coming years.

Regretfully, I am anticipating that real working wages, home values, and the employment-to-population ratio will stagnate through the remainder of the 21st century in America -- I also anticipate that most government workers will lose their jobs in the coming decade or so, which will make matters even worse -- we live in dark times for those without means, skills, and ambition.

I hope you are enjoying your life -- sounds like you are -- and yes, we should all empathize for those in America who are now confronted by hard times in the 21st century.

Extreme investing plus extreme empathy is the formula -- I only wish that I could teach Romney to speak to both -- then there is Obama, -- Ifor the record, have given up on big government Democrats and military-industrial Republicans -- I sleep well at night knowing that Libertarianism is my beacon.

Thanks for the opportunity to comment...

Joseph Constable said...

Rob is transparent. He doesn’t think success is from anything but luck. He is anti-republican because they espouse hard work to get ahead.

Rob said...

Scott, please ignore trolls like me and don't be put off. We your regular readers are extremely grateful for your sharing a lifetime of accumulated financial and economic wisdom. You were right on the money with Apple and you were even right with JC Penny, which is up almost 50% from its recent low ! Personally I'm betting that your timing was just a little off with the treasury yields bottoming but that also looks to have happened and I'm now long TBT. So come on, let's all get back to work and value this blog for what it does best: help us all make money !

Daniel said...

REAL LIFE EXPERIENCE: Took Scott's advice and bought AAPL in '08 for $97, sold it at $360, and bought a house.

put that in your pipe and smoke it, Rob.

Rob said...

Like I said Daniel, let's do this !! Let's go !!

Daniel said...

well we got Q3E till infinity today so we should be good to go! god help us all.

Rob said...

"The way a launch of a mobile telephone can bore, thrill, anger, and completely divide people, demonstrates profoundly how engulfed in consumerism we are. Whether Apple has cynically helped create this environment, or simply capitalised on it in masterful fashion, is open to debate. But the speed in which disgust at the latest exposé on working conditions in its factories was shunted from all conscious thought when a shiny product emerged on a podium in California, is remarkable. That’s the power of the iPhone, and these debates will only rumble on. Until the next one of course."

Read more: http://www.itproportal.com/2012/09/13/iphone-5-industry-reaction-and-consumer-opinion/#ixzz26OoI5lml

Rob said...

Come on TBT !! 5% move up, biggest in eons !! Let's show Scott that we also know how to make money, it's just that we never lose sight of those less "lucky". Long from 14.50, next stop 20.50.

Redspect said...

"We support public administration and local governments in driving profitable projects and working with our private partners." B2G