GECON200 (HONORS)-Position Paper 1

The first two chapters of David Wessel’s “Red Ink: Inside the High Stakes Politics of the Federal Budget” covers the background for recent deficits and accumulated debt. Wessel notes, “In fiscal year 2011—from October 1, 2010, to September 30, 2011—the federal government spent $3.6 trillion, $400 million an hour, more than $30,000 per American household (loc. 115).” Wessel also points out, that 2/3 of our budget (both taxing and spending) are on autopilot, and that the majority of discretionary–non autopilot–spending is on the military. Of government outlays, nearly $1 in $5 is spent on the military, and $1 in $4 is spent on health care. At the same time, we are one of the lowest taxed populations in the world in terms of the federal income tax. Americans pay all sorts of taxes: sales, excise, payroll, inheritance, capital gains, corporate, and income taxes, many levied at the state, local, and federal level. However, the largest share of all taxes are from the federal income tax.

Much of our current spending is the legacy of the New Deal–begun under FDR in the 1930s–and the Great Society–started by LBJ in the 1960s. Medicaid, Medicare, Social Security, and other programs were brought about through these landmark changes in policy, and some politicians have sought their undoing ever since. Wessel quotes Rep. Paul Ryan–Romney’s VP nominee–as saying, “I do believe government has a role in making sure we have a safety net to help people who cannot help themselves or are temporarily down on their luck, but I don’t want to see government turn that safety net into a hammock.” So, even a purported deficit hawk like Rep. Paul Ryan is not proposing to completely eliminate the government’s safety net, but he and others are proposing substantial changes. Robert Reischauer, a former director of the Congressional Budget Office is cited by Wessel as saying, “From the mid-1930s to the 1970s, the government made a set of commitments that led to expectations on the part of the American people about what their government owes them, [a]nd they’re totally unprepared to go back to a different world (loc. 347).” Later in the book, this comment is echoed by Doug Elmendorf, the current director of the CBO, “The country faces a fundamental disconnect between the services the people expect the government to provide, particularly in the form of benefits for older Americans, and the tax revenues that people are willing to send to the government to finance those services (loc. 1618).”

So, where do we go from here? Is the U.S. doomed to be an “insurance conglomerate protected by a large, standing army” as Ezra Klein puts it? The problem with that, is that health care spending is rising rapidly for a number of reasons.

“Health care spending is rising faster than any other major part of the federal budget, driven by a costly trio of factors. One, the number of insured is rapidly increasing as Congress expands the pool of those who are eligible, fewer people get health insurance on the job, and the huge baby boom generation turns sixty-five and becomes eligible for Medicare. Two, those insured through government-subsidized insurance are using more health care, undergoing more procedures, and availing themselves of new technologies. Three, the price of that health care is rising faster than the price of other goods and services (Wessel loc. 720).”

Questions you might consider:

  • I want you to find some historical fact in the first two chapters of Wessel’s book that surprised you, and dig deeper on it elsewhere. Find a related article–from a reputable source–that fleshes this information out in more detail. Whether this be a spending or tax “fact” I want you to think about what changes would need to take place in order to help “balance” the federal budget. You will have approximately two to three pages to dissect an argument, so start by stating a fact Wessel points out and then go from there. Try to find competing thoughts on the issue. For example, if you’re looking at the $1 in $5 spent on the military, find someone who supports maintaining or increasing military spending, and compare that to some other source that supports reducing military spending.
  • Wessel’s second chapter lays out the big policies that have led us to our current world. What changes were either short-sighted, or politically convenient at the time? Given the way our country’s demographics have changed over time, justify why we should continue current programs as they stand, reform the programs, or change the way they are funded. You might consider Medicare expenditures as an example of a situation where the government is paying out increasingly more money as the population ages, and lives longer than  the original policymakers could have imagined. What would current proposals do to reform this situation? What have other countries facing the same situation done (if there are any?)? This question doesn’t just have to focus on Medicare, but could extend to Social Security, Medicaid, the military, or any other program.
  • Go through a process of rejustifying, or refuting previous justification, for any government spending program. Politicians routinely do this by either saying a program is a good way of spending money, or is a waste of money. I’d like you to think about a cost-benefit analysis of some large government program. Does it make sense for the government to perform this task? Is this program something that could (or could not) be performed by the free market? Your way of approaching this question, could be either theoretical or empirical.

(Note, the “loc.” references are Kindle location references and not page numbers.)

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