Sunday Stories from the Washington Post

Wow.  I can't believe it's been a week since I visited here.  Well, I should report, so that those few who visit this blog can take note for posterity; tonight's post is induced by a Murphy-Goode Souvignon Blanc ("The Fume").  It was great with dinner, but we'll see.  We have a different standard here.  Here we judge wines by the quality of the blog posts they provide.

There were two items in the Post this morning that deserved a comment, or at least there were two that prodded me on economic grounds.  One was in the Fact Checker, the column by Glen Kessler, and the other---probably the one that will get the most press in the next few months of political fantasy---was in the Dana Milbank column on the Opinion page.  

I have mixed reactions to Kessler.  Sometimes I think the gets things as close to right as he can be expected to be, and other times I think he's just expressing his own politics.  But in this case it wasn't either of those, it was just a throw-away end to a fairly good storyline.  Here's the paragraph from the Kessler column that prodded me: 

“Richard Kogan, a budget expert at the Center on Budget and Policy Priorities, said that while federal outlays in 2011 amounted to 24.1 percent of GDP, transfer payments were 15.7 percent and interest payments were 1.5 percent of GDP, leaving just 6.9 percent of GDP ‘that can reasonably be thought of as federal consumption (purchases of goods and services) in 2011.’”

All of Mr. Kogan’s facts are right.  But the last fact seems incomplete to me, and even misleading.  But it’s misleading by omission, and by that omission it’s misleading people into continuing a belief that is almost universal: that a government, at any level, “consumes” some large part of the economy.

What is omitted is that all spending has two sides.  Always.  No matter who is spending, whether it’s government, households, or businesses, someone else is earning.   When I spend money at the grocery store, the grocer is making a living.  And when the federal government buys something, some good or service, someone else receives the money that the government spends.  The government purchases computers: some computer manufacturer sells and ships them to a retailer, and the retailer sells them to the government.  Without the government’s purchases that business would never have happened; that part of the economy, that part of GDP, would never have happened.  So when Mr. Kogan says that the federal government purchases goods and services, he is saying that the federal government has purchased something from the private sector, on the open market.  Federal civilian salaries are bit over 1% of GDP, as a rough measure, so that part is not payment to a private business.  But even when the federal government employs people directly, it is buying that labor from the civilian workforce, and those same people are available for employment in the private sector; that is, they are members of households who are selling their labor for income, and just as General Dynamics sells ships to the federal government or Oshkosh sells trucks, households sell labor to the federal government.  In return, GD and Oshkosh get money to pay the salaries of their employees and their suppliers, and households get income to pay their bills.  The idea that government expenditures are somehow lost to the economy, that is, that the government “consumes” some share of GDP, and that the act of government consuming is just a drain on the taxpayers, is just wrong. The government’s act of consuming is also income to taxpayers.

Ok.  On to Dana Milbank.  Mr. Milbank says that “Obama has made no serious proposal to fix the runaway entitlement programs that threaten to swamp the government’s finances”.  I don’t want to attack or defend the programs that Obama has proposed.  The issue I have with this statement is the presumption, from the outset, that we must adopt some radical restructuring of Social Security and Medicare, because they will overwhelm the budget if we don’t.  I’ve said before in this blog that Social Security and Medicare are totally different programs, that Social Security is a comparatively easy fix---if it even needs fixing---and that the problem with Medicare is that health care costs are rising in the private sector, and that is what will overwhelm budgets everywhere in the next few decades.   Let me repeat that: it is rising private health care prices that are the problem, not the structure of the government program that has to pay some of them.  If we radically change Medicare to relieve the government of the expense of paying for those health care costs for the elderly, that only means that the elderly themselves will have to pay them---or their children will.  Or the elderly could simply do without health care: they could suffer, or die. 

Caring for our elderly might be a national responsibility; I believe it is.  There are those who disagree with me, and they surely have that right; this is a personal sense, a personal judgment, not a matter that is subject to scientific test or proof.  But whether it is a national responsibility or not, simply abandoning that responsibility by radically restructuring the government program that supports it may solve the government’s budget problem, but it does not solve the national budget problem, the budget problem that includes the budgets of all businesses and households.  If we don’t solve the underlying problem of rising health care costs, the nation will be broke, whether that budgetary catastrophe falls on the government or falls on others.