Tuesday, July 26, 2011

…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--32nd 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.


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

2 comments:

  1. Actually, healthcare spending is a relevant place to look for increases relative to GDP, because over-and-above the growth that necessarily accompanies an increase in the 65-and-over population, expensive Medicare Prescription Drug bill went into effect in 2003, only partially covered, I believe, by participants' premiums.

    As to the use of fractions - particularly the percentage of GDP - I prefer to express spending and taxation relative to the size of the economy, or relative to the size of an overall budget because dollar figures per se can be misinterpreted. If,for example, I were to note that the Defense Budget grew 124% in nominal dollars from 2000 to 2009, that would say nothing of its share of the federal budget (it grew from about 15.8% to about 18.2%); neither would it say anything about our ability to pay for that increased expenditure (military spending went from 2.8% of GDP in 2000 to 4.5% in 2009). We doubled the fraction of our national output spent on the military. At the same time, we reduced the fraction of GDP that we pay in taxes from 20.4% to 14.9% and increased total spending from 18% to 24.9%. To put it in homely terms, the size of the military's slice grew twice as fast as the pie, the total government slice grew 39% faster, and the tax bill to pay for the bigger slice of the bigger pie? It was essentially the same size in 2009 as in 2000.

    ReplyDelete
  2. Thanks, Lewis for the reminder about Medicare Part D. To be honest, I'm more concerned with Medicaid...the fall-back program that seniors qualify for once their personal assets are depleted.

    A Medicare Current Beneficiary Survey calculated that "8 percent of health care expenses occurred during childhood (under age 20), 13 percent during young adulthood (20-39 years), 31 percent during middle age (40-64 years), and nearly half (49 percent) occurred after 65 years of age. Among people age 65 and older, three-quarters of expenses (or 37 percent of the lifetime total) occurred among individuals 65-84 and the rest (12 percent of the lifetime total) among people 85 and over. The total per capita lifetime expense was calculated to be $316,600."

    Demographics will be a factor driving health care costs on the demand side of the equation. However, with offsetting growth on the supply side of the market prices need not skyrocket.

    As minds molded in the West, don't we place all bets on technology to save the day? How many are familiar with the potential cost saving advantages of Home Telehealth care as a option waiting in the wings? And just think if we all would just kick four common vices--lack of physical activity, poor nutrition, tobacco use, and excessive alcohol consumption, national health expenditures would drop by over 75%!

    ReplyDelete

Baldwin Wallace University

My Photo
This blog lives under the auspices of the Department of Economics whose mission has been to hold high the lantern beaming an "economic way of thinking" onto the world. Selfishness, rationality and equilibrium have been central to the teaching of an economic way of thinking rooted in the Renaissance. And, in this regard, the department has faithfully stayed the course. The intent of this blog, thinking out loud..., however, is to entertain exchanges which may challenge the centrality of economics as we teach it.