…sloughing through fractions

By kay.e.strong

 

Ooooh, did I ever tell you just how much I loath arguments premised on fractions, or more precisely, fractions multiplied by 100.  Using fractions to bolster an argument is comparable to pulling a rabbit out of a magician’s hat—awe inspiring, especially given our well-documented math deficiency.  Even the latest international assessment (2009) still places American students behind virtually all developed countries--32^nd place.    

As a case in point, suppose your boss offered you a choice of increasing your salary by 17% of the funds budgeted for national interest or 50% of those budgeted for education--which would you choose?  As a first approximation, I suspect most people’s minds would automatically leap to the fifty percent increase over 17%.  But would that be the best choice?  Well, as it turns out, 0.50 of $64.3 billion budgeted for education is $32 billion, while 0.17 of $196 billion budgeted to cover the interest on our national debt is $33 billion (2010).  Not much difference in dollars but a huge difference in our perceptions. 

                           

So, in highly charged issues the public needs a dollar benchmark for every fraction conjured up.  So here we go:

Year	GDP ($B.)	Tax Revenue ($B.)	Military ($B.)	Net Interest ($B.)		SS ($B.)	Medicare ($B.)
1980	2,788.1	517.1	134.0	52.5		118.5	32.1
1985	4,217.5	734.0	252.7	129.5		188.6	65.8
1990	5,800.5	1,032.0	299.3	184.3		248.6	98.1
1995	7,414.7	1,351.8	272.1	232.1		335.8	159.9
1998	8,793.5	1,721.7	268.2	241.1		237.8	192.8
1999	9,353.5	1,827.5	274.8	229.8		390.0	190.4
2000	9,951.5	2,025.2	294.4	222.9		409.4	197.1
2001	10,286.2	1,991.1	304.7	206.2		433.0	217.4
2002	10,642.3	1,853.1	348.5	170.9		456.0	230.9
2003	11,142.1	1,782.3	404.7	153.1		474.7	249.4
2004	11,867.8	1,880.1	455.8	160.2		495.5	269.4
2005	12,638.4	2,153.6	495.3	184.0		523.3	298.6
2006	13,398.9	2,406.9	521.8	226.6		548.5	329.9
2007	14,061.8	2,568.0	551.3	237.1		582.2	375.4
2008	14,369.1	2,524.0	616.1	252.8		617.0	390.8
2009	14,119.0	2,105.0	661.0	186.9		683.0	430.1

Now on to a discussion about cuts and taxes.  First, I consider it wholly disingenuous to include the Social Security and Medicare programs in any conversation about “spending cuts.”  Why? Two reasons.  First, demographics drive both programs.  Those decisions were made decades ago.  Second, because both Social Security and Medicare are administered as trust funds in which employees and employers pay the taxes directly to the trust fund.  Social Security and Medicare fall into the category of payments known as “transfers” between citizens. Because I work today my wages are garnished, the funds deposited in my federal account and my grandmother, in turn, receives a monthly social security check and health care coverage today.  If anyone is going to cut my grandmother’s check, it won’t be my congressman!  It will be me---when I stop working but, maybe not, if my son and daughter both start working.  So do yourself a favor and get up to speed--read the Board of Trustees’ latest report at http://www.ssa.gov/oact/trsum/index.html.
 
As noted in the previous blog, More on Spending Cuts and Tax Increases, “Notably, Social Security outlays were unchanged as a percentage of GDP (2007)”—as it should be.  The first of 78 million baby boomers born between 1946 and 1964 retired on 1 January 2008.  And current calculations suggest that 10,000 baby boomers retire each day and will continue retiring until the year 2030.  In the near future federal government funding may be needed—barring adjustment to programs directly--to buffer one or both of the programs at least until we pass the peak of this demographic tsunami.  Since that's not happening now, let do a mental deletion.

With those programs off the mental chopping block, let’s talk taxes.  Our top two expenditure items are “security” (a euphemism for the military budget) and debt interest with education coming in a distance third.  The security budget is nearly ten times our investment in the future, our children: Education (64.3 b./ 661.0 b).  Between 2000 and 2009 the security budget grew by 124.5% requiring every man, woman and child to cough up $2,167.21 in 2009.  That was a 106% increase in taxes over 2000 ($1,047.68).  The interest payment on our debt obligation was more than three times the budget for education (64.3 b./186.9b).  Now that I think about it, perhaps, this explains our abysmal showing in international math proficiency assessments.  In 2000 we paid a meager $149.46 per person ($42,000 m./ 281 m.) in taxes to cover education, while in 2009 we were taxed $210.81 per person (64,300 m/ 305 m.).  Seriously, that’s nothing compared to the estimated $600 billion that Americans throw at legalized gambling annually!

I.M.H.O., there are times that warrant talking in fractions like what proportion of that strawberry cheesecake I get. But money talks best in dollars and cents.  Until we get a handle on math, let’s work on narrowing the perception gap by not using fractions without providing benchmark dollar figures, too.  Maybe, John Doe would actually jump into the public discourse along side economists.

P.S.: If you need my calculations, just ask.

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Kay Strong, Ph.D., Southern Illinois University, M.T., University of Houston, M.A., Ohio University; Associate Professor at Baldwin-Wallace College; Areas of expertise: international economics, contemporary social-economic issues, complexity and futures-based perspectives in economics. E-mail: kstrong@bw.edu

More on Spending Cuts and Tax Increases

By Lewis Sage

First off, an apologia: I’m going to have to use numbers – quite a few of them, in fact – but they are absolutely unavoidable when discussing an issue that is, by its very nature, numeric.  The numbers are all calculated from Tables B-1 and B-80 of the 2011 edition of the Economic Report of the President, published every February and available on-line at http://www.gpoaccess.gov/eop/tables11.html.

Here are the questions I want to address.  “Where do federal budget deficits come from?” “Where did the current deficit come from?” and "How might we reduce it?" The answer to the second is an instance of the answer to the first.  The answer to the third is political and unpleasant.

1. Deficits grow when we spend more on programs and wars we like and when we decide to tax ourselves less.  Period.  No exceptions.  An arithmetically obvious solution, then, is to undo the spending increases and the tax cuts.  Trouble is, politics seem to be making that task Augean.

2. Now come the details, first on the spending side of the ledger, then on the tax receipts'.

Year	Military/GDP	Medicare/GDP	SS/GDP	Total/GDP
1980	4.7%	1.2%	4.3%	21.2%
1985	7.0%	1.6%	4.5%	22.4%
1990	5.0%	1.7%	4.3%	21.6%
1995	3.5%	2.2%	4.5%	20.4%
1998	2.9%	2.2%	4.3%	18.8%
1999	2.8%	2.0%	4.2%	18.2%
2000	2.8%	2.0%	4.1%	18.0%
2001	2.8%	2.1%	4.2%	18.1%
2002	3.1%	2.2%	4.3%	18.9%
2003	3.5%	2.2%	4.3%	19.4%
2004	3.7%	2.3%	4.2%	19.3%
2005	3.8%	2.4%	4.1%	19.6%
2006	3.7%	2.5%	4.1%	19.8%
2007	3.8%	2.7%	4.2%	19.4%
2008	4.1%	2.7%	4.3%	20.8%
2009	4.5%	3.0%	4.8%	24.9%

Counting both on- and off-budget items, the federal government has run a surplus only four times since 1969: 1998-2001.  By contrast, the budget deficit for 2002-2007 totaled $1.67 trillion.  Not at all coincidentally, military spending was just over 2.8% of GDP in the surplus years, compared to 3.8% in 2007, the last pre-recession year.  The same can be said for Medicare spending, which averaged just below 2.1% of GDP during the years of budgetary surplus and rose to 2.67% in 2007.  Notably, Social Security outlays were unchanged as a percentage of GDP.  One last comparison: total spending as a fraction of GDP averaged below 18.3% from 1998-2001 and passed 19.4% in 2007.  Increases in military and health spending, then, were only partially offset by exceptional declines in interest payments made possible by loose monetary policy.  Takeaway?  Focus on military and health spending.

To maintain the modest surpluses of a decade ago, tax receipts would have had to rise proportionally.  But they didn’t.  During the surplus years, tax receipts averaged about 19.7% of GDP; because of rate reductions, by 2004, they had fallen below 16% and had only recovered to 18.3% by 2007.  Takeaway? Focus on tax cuts.

3. So if we really want to balance the federal budget – a project we will have to undertake eventually – we could do a lot worse than to check where the deficits came from.  Spending has risen by 1.1% of GDP (largely attributable to military and health) while taxes have fallen by 1.4% (largely attributable to the Bush tax cuts).

I was just thinking out loud…

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Dr. Lewis C. Sage likes intersections. Since 1991, he has taught Law and Economics, Mathematical Economics, and the Economics of Healthcare. A former Fulbright Fellow (Bulgaria 1995-6), he teaches an interdisciplinary Honors seminar, Enduring Questions, and is studying strategy in the NFL draft with faculty and students in Sports Management and Psychology. E-mail: lsage@bw.edu

...pushing civilization over the edge

By kay.e.strong

I picked up Jared Diamond’s tome, Collapse, a few days ago as a distraction from the dog-days of summer.  Diamond treatise identifies twelve environmental triggers that, either singularly or in combinations, set the stage for civilizational collapse.  The historical narrative tracing the collapse of lost civilizations such as the Island peoples (Easter, Henderson), Native Americans societies (Anasazi, Maya) and north Atlantic neighbors (Vikings, Nordic) weaves the trigger’s role into the larger context of societal decision-making and their subsequent implications.  Ultimately, Diamond tackles the question of what pushed once flourishing societies over the edge.  Four categories of failure are posited: failure to anticipate a problem before it actually arrives, failure to perceive the problem once it does materializes, failure to attempt to solve the problem once perceived and failure to succeed once attempts have been made (421).  By my estimation we as a society are deep into the failure territory of category three…attempting… with a firm foothold in four…succeeding. 

                       

Explanatory factors for a category three failure parallel well with today’s hot climate—hot politically, not environmentally…Debt Ceiling Talks Collapse as Boehner Walks Out NYT 22 July.

A small, highly motivated and well-finance group (the decision-making elite) hijacks national well-being, sacrificing the interests of the many to self-interested power clashes. 

…“rank-and-file House Republicans would not agree to raise revenues on wealthy Americans as part of a debt-reduction deal.”

Meanwhile,

…the nation’s unemployment rate remains stuck above 9 percent since May 2009, while applications for unemployment benefits have now topped 400,000 for 15 straight weeks (BLS).

… in June employers took 1,532 mass layoff actions involving 143,444 workers, about the same for May (BLS).

…the employment-to-population ratio hovers at 58 percent, meaning only one out of every two people in the US has job—of any kind.

The most vulnerable are offered up to the god of ideology. 

“If we're going to avoid any type of default and downgrade—if we're going to resume job creation in America—the president and his allies need to listen to the people and work with Republicans to cut up the credit cards once and for all (Hensarling).”

The offering,

…millions of seniors (in 2010 nearly 53 million Americans) not receiving their Social Security checks in the mail…troops not receiving paychecks (Pryor).

…39.6 million aged 65 and older, and 7.9 million disabled people (2010) not covered by Medicare. (Trustees Report)

…42 percent of US children in poverty (2009) (http://www.aecf.org/).

…14.7 percent of US households food … insecure at least some time (2009), essentially unchanged from 14.6 percent in 2008. This remains the highest recorded prevalence rate of food insecurity since 1995 when the first national food security survey was conducted.

It is possible to bypass a category four meltdown.  Crucial in tipping outcomes toward success or failure, according to Diamond, are two types of choices: courage to practice long-term planning and willingness to bend on core values in the interest of survival.

“This debate boils down to a simple choice.  We can come together for the good of the country and reach a compromise; we can strengthen our economy and leave for our children a more secure future.  Or we can …” (Obama)

The power to write future history is within reach.  Do we have the courage and willingness to make our place in the coming sequel, Collapse in 21^st Century Societies, conspicuous by our absence?

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Kay Strong, Ph.D., Southern Illinois University, M.T., University of Houston, M.A., Ohio University; Associate Professor at Baldwin-Wallace College; Areas of expertise: international economics, contemporary social-economic issues, complexity and futures-based perspectives in economics. E-mail: kstrong@bw.edu