Where Does the Money Go?

I recently read a book called Where Does the Money Go? by Scott Bittle and Jean Johnson. The book talks about the US budget — the different sources of revenue and the various expenditures. And the main message of the book is that we need to do something about the huge and growing US debt.

The book appears to be sincerely non-partisan. It offers a lot of suggestions for what can be done, some that are more right-wing, some more left-wing, and it leaves it up to the reader to decide which way to go.

The book has a Dummies-like sense of humor that sometimes works and sometimes falls flat. It also tends to repeat itself a lot. But in between the fluff there’s a bunch of useful information, some of which really surprised me.

Here’s my quick summary…

THE DEFICIT AND THE DEBT

For 31 out of the last 35 years, the US has run a deficit. The four outstanding years were 1998-2001, at the tail end of the .com bubble (and Clinton presidency) and just prior to 9/11.

The total debt is now roughly $9 trillion dollars. That’s $30,000 for every US citizen.

There’s a clock in Manhattan that counts the national debt. It will need to be upgraded as soon as the national debt reaches $10 trillion because it doesn’t have enough digits to count that high.

To give you an idea of how big these numbers are, consider that if you added the fortunes of the 10 richest people in America (Gates, Buffet, Adelson, Ellison, Allen, the Waltons, and Dell) it would still be less than the Us government’s deficit for the 2006 tax year alone ($248 billion).

SO WHAT?

There’s one view that says that this debt is not that bad. How so? Well, the debt ($9 trillion) is roughly 3.5 times the US government’s annual tax revenue ($2.4 trillion). That’s kind of like a person who makes $50,000 a year having a mortgage on his house for which he still owes $175,000. That doesn’t sound so bad, right? Well, the difference is that people with mortgages follow a very specific plan to pay them off. The government has no such plan, and the accountability mechanisms are far more fuzzy.

If I were to stop paying my mortgage, eventually the bank would reposes my house. Also, my credit rating would be shot, which means that I would have a hard time taking out any kind of loan in the future. What if the US government were to fail to pay its debt? What exactly is there to reposes? And who would do the reposessing?

Of course, there wouldn’t be any kind of reposessing. The government has the nice luxury that it can always deal with its debt by raising taxes (whereas I’m less likely to be successful if I were to turn to my boss and say “you’re going to have to pay me more this year”). The government can also choose to spend less on various things (defense, roads, social security) in order to pay back its debt. All of these alternatives come at a cost to you and I — either we pay more or we get less.

But for now the government hasn’t had to resort to these measures because it has an easy enough time just borrowing more and more money to keep up with its growing expenditures. The trick is that at some point the lenders might decide that the US government is maybe not the same old safe investment vehicle it used to be. If they choose to invest their money elsewhere, the government will either have to entice them back with higher interest rates or simply go without the loans.

More than $2 trillion of the US debt is owed to foreign banks and other international investors. Biggest on the list…not China! It’s actually Japan, at $612 billion. But China is in 2nd place at $420 billion. Then come the UK, various Oil exporters, various Caribbean banking centers, Brazil, Luxembourg, Hong Kong, Korea, and Taiwan. What if you lumped China, Hong Kong, and Taiwan into one group? It would still be second place, but it would be much closer. Also, debt to China is growing faster.

China is in an interesting position. As long as wages in China are so low, they can afford to manufacture goods at a low cost. Consumers in the US are happy to buy these goods as long as the US economy is doing well enough (as long as people have jobs). So, to some degree it’s in China’s best interest to do what’s necessary to keep the US economy healthy, which includes lending the US money.

GOVERNMENT REVENUE

The government collects about $2.5 trillion each year. The majority of the government’s revenue comes from taxes you and I pay:

Some money always goes uncollected — some people don’t pay their taxes. It’s hard to know exactly how much this is, but one rough estimate is $250 billion (10%).

Part of the reason some people get away with not paying all the taxes they owe is that the tax code is huge and horribly complex. We have a progressive tax system, where richer people pay a higher rate. This kind of system is always going to be more complex than some alternatives because you need to keep track of how much each person is making. Our tax code is even more complex because we use it as a tool for social policy — we give tax credits to things that we think are good. For example, I get a nice tax credit on the interest I pay on my home mortgage because as a society we’ve decided that owning a home is a good thing.

The amount of taxes paid by the super-rich has fluctuated with the coming and going of various administrations. This graph shows the percent paid in taxes for every dollar you make beyond the first $200,000 in a given year:

I was pretty surprised to see what a big change Ronald Reagan made, and now I understand why it was such a big deal when Bush Sr promised no new taxes and then renigged.

Social security is considered a regressive tax — you only pay this tax for the first $94,000 (or so) you make in a given year. That means that lower-income people pay social security for every dollar they earn, while rich people only pay it for a small portion of their overall income.

How does our tax rate compare to other countries? It’s relatively low…

GOVERNMENT SPENDING

The majority of the government’s spending goes towards five things: social security, defense, medicare, medicaid, and paying off interest on loans the government took previously.

Lots of other programs you typically think of as government spending don’t really account for very much:
* Science, space, technology (including NASA, NSF, etc.): $23.6 billion (less than 1%)
* Arts & humanities: $124 million (0.009%)
* Foreign aid & international relations: $29.5 billion (1.1%)
* Food stamps and other welfare: $70.9 billion (2.7%)
etc.

And although we all like to criticize pork-barrel spending (and I do sincerely hope we cut it as much as possible), the truth is that it also doesn’t account for very much, relatively speaking. The Pig Book from the Citizens Against Government Waste says that in 2006 there were nearly 10,000 pork projects that totaled $29 billion — about 1%.

What if the war in Iraq never happened? It would help, but not nearly enough. Through mid-2007 the country spent $400 billion on the war. During the same time, we added $2.3 trillion to the debt.

WHAT TO DO?

Bush Jr instituted a bunch of different tax cuts, and most of them are set to expire in 2010 (some a little sooner). If we let them all expire, it would bring the US budget to a surplus by 2012. However…there are issues. First off, this would be a temporary fix at best because the problems with social security and medicare/aid continue to grow (more on that below). Second, not all of these tax cuts are likely to be repealed. Much to my surprise, they are not all tax cuts for the rich. For example, there’s a child tax credit that democrats are likely to want to renew. Expect a big fight in Washington as 2010 closes in.

The areas of biggest concern in the US budget are social security, medicare, and medicaid. Why? Because: 1. they’re already big, and 2. they’re growing faster than any other part of the budget.

Social security is a pay-as-you-go program, which means that taxes I’m paying today are used to pay people who are retired today (the money I pay is not held in my name). The trouble is that the baby boomers are retiring now, which means that a huge part of the population is going from paying money into the system to pulling money out of the system. The workforce is shrinking, which means that the taxes collected are also shrinking. As a result, the government needs to borrow more and more to cover the social security checks it needs to write.

So one thing we could possibly do is cut social security payments. Apparently it’s political suicide for anyone who walks this road, but there are a few ideas that sound reasonable to me: cut payments for ultra-rich retirees (they don’t need it anyways), raise the retirement age to match growing life expectency, etc. Whatever we do, we have to be careful about it because sometimes in the last 30 years Americans stopped saving money for retirement…

I’m not saying this is a good thing. I think it’s totally irresponsible of all these people to not save up for retirement. But if we suddenly cut their social security payments, it would be a huge mess.

Medicare and Medicaid have their own issues, namely that prices for medical care are growing faster than any other costs. There are various suggestions on what we can do to try to lower medical costs, and I won’t go into them here (too much detail to mention). One thing to note is that there is general agreement that Veterans Affairs has been run in a very efficient manner, so perhaps Medicare/Medicaid can steal a page from its book.

AS ELECTIONS CLOSE IN

Part of the issue is that politicians have every incentive to promise new spending and no incentive at all to talk about raising taxes, cutting programs, or balancing the budget. About the only kind of tax raising that is safe enough to talk about (for democrats) is taxes on the rich, but that’s partly because 90% of us consider ourselves to be middle class

In New Zealand, just prior to elections, the government has to report on how campaign promises will affect the budget. It would be great if we had that system, but we don’t. For now, we should all educate ourselves on what kind of spending each candidate has in mind and what it might do for the budget. There are a few websites listed below to help us out.

REFERENCE

Websites and other resources suggested by the book:
www.publicagenda.com – the authors work for this organization
www.concordcoalition.com – information on the “Fiscal Wake-Up Tour”
www.nifi.org – they publish guides, each of which focuses on some public issue and offers 3-4 alternative policies; one of these guides talks about the national debt
www.vote411.org – get yourself registered to vote!
www.taxreformpanel.gov – a short-lived government panel that tried to devise a simpler tax code
www.FairTax.org – group that wants to replace income tax with a national sales tax
www.clubforgrowth.org – group that wants to repeal the estate tax
www.responsiblewealth.org – group that opposes the repeal
www.wyden.senate.gov – Senator Wyden has an idea for a simpler tax code that has just 3 tax brackets and fewer deductions
www.cagw.org – they release an annual book on pork spending (The Pig Book)
www.transparency.org – they rate countries on corruption (in 2006 Haiti was #1, with Guinea, Iraq, and Myanmar close behind; Finland, Iceland, and New Zealand were most honest)
www.expectmore.gov – where the Office of Management and Budget posts its ratings of how well government agencies function
EMILY’s list – funds promising women political candidates
Cook Political Report – forecasts how much of a battle to expect for different seats in congress
www.FactCheck.org – keeps tabs on the tall tales candidates tell when they’re running for office
CQMoneyLine – a website focusing on lobbying
www.taxpayer.net/awards/goldenfleece – Another pork spending website; former Senator William Proxmire from Wisconsin started the Golden Fleece Awards given to congressmen for high achievements in fleecing the taxpayer
www.vote-smart.org – information on candidates running for office
www.opensecrets.org – find out who’s backing various political candidates
www.maplight.org – ties legislation to the people and groups who backed it

Jott

www.jott.com

This service lets you call a number and dictate some notes. You can then have them sent to yourself as an email. There are also options to send to other people.

I tried Jotting myself this note: Remind Pnina to pick up kitty litter from the supermarket.

End result: Remind Meena(?) to pick up City Letter from the supermarket.

I can understand that Jott’s voice recognition software is helpless with a name like Pnina, but what’s a City Letter? And why is it capitalized? Also, there was a significant delay between when I made the call and when the email was delivered (i.e. there was no use to sitting there hitting Refresh in my gmail box).

Anyhow, the service basically works and it’s free. I’ll probably keep using it for reminders.

Food Fight

Various wars from history, as fought by the foods of those countries:

http://www.boingboing.net/2008/02/28/history-of-war-throu.html

When I die I want to be a diamond

http://www.lifegem.com/

For a fee, this company will make a diamond from the carbon in the ashes of your cremated relative.

Pnina learned about this from her recent Physical Chemistry problem set — her professor finds the most random references.

Art about consumerism and waste

Incredible images: http://www.chrisjordan.com/current_set2.php

Which I learned about from Chris Clark’s blog.

Mini-Med on U.S. Health Care System

Pnina and I have been going to a series of lectures at the University of Washington called Mini-Med. Each Tuesday, a few med-school faculty members are invited to do a short presentation to the general public on their area of focus.

Until now, most of the topics were about the science of medicine. For example, last week we heard an interesting lecture about a kind of super-bacteria (MRSA) that has developed resistance to all known kinds of antibiotics. But yesterday the lectures were about the US health care system; they were much more focused on statistics and on the social and political issues surrounding medicine.

There were three speakers: Stephen A. Bezruchka, Benjamin Danielson, and Jeffrey Huebner. They were all great, and they all had a similar message. It’s hard to summarize it all here, but I’ll try to pull out the points that made a big impression on me…

First off, a lot of money is spent on health care in the US. In 2005, it was about $2 trillion, enough to make the US health care system the 6th largest economy in the world (by GDP), ahead of countries like Italy, Canada, and Spain. With so much money spent on health care, you’d expect that we have the best health. We don’t.

There are various measures of health that you can take. Two popular ones are life expectancy and infant mortality rates. In both, the US is far behind other developed countries. Although health care has been getting better in the US over the years (e.g. life expectancy is growing), other countries have far outpaced us. In particular, in countries like Japan, England, Norway, and Sweden, the average person lives 1-3 years longer than in the US. The US is now ranked about 30′th in the world in overall health, or worse, depending on which study you look at.

So, the big question is — why?

One aspect that comes to mind: how well do we take care of ourselves? If Americans have unhealthy habits, it makes sense for us to live shorter lives. This is true when it comes to obesity — Americans are some of the fattest people in the world. It’s also interesting that immigrants quickly pick up this bad habit; the longer they live in the US, the more likely they are to be obese.

However, this is not true when it comes to many other habits. For example, Japan has the highest rate of adult male smokers in the world, and yet Japan has the healthiest population.

The speakers argued that habits only go so far to explain the health differential between the US and other developed countries. For the rest, you need to look at socio-economic issues. The quote that summed it best: “more egalitarian societies (e.g., those with a less steep differential between the richest and the poorest) have better average health”. This came from an Institute of Health publication called The Future of The Public’s Health. There have been lots of studies that prove this point over and over, and we saw various graphs from those studies. We also saw a graph that compared each of the US’ 50 states to one another, as if they were independent countries, and the same point applied again — states that have a smaller gap between the rich and the poor have better overall health. Incidentally, the states that did worst are in the southeast: Louisiana, Alabama, Mississippi. The states that did best are: Utah, the Dakotas, Minnesota, Idaho, Iowa, and others (they tended to cluster in the midwest).

At the same time, the gap between the rich and the poor in the US has broadened since the late 1970’s, largely as a result of lowered taxes on the super-rich. In 1980 the top 0.01% of the US citizens owned 1.3% of all assets. In 2005 they owned 5.1%. At the same time, the bottom 90% of the country went from owning 65% of all assets to owning 51%. Dr. Bezruchka called this “Hood-Robinosis” — taking from the poor and giving to the rich. And the decline in health in the US correlates very closely.

Another problem is that there isn’t enough focus on primary care, and in particular on early-life. Lots of studies have shown that it’s much more cost effective to spend money on preventative care than to try to cure an advanced-stage illness. Studies also show that investments in early life (e.g. pre-birth to age 3 or 5) pay the biggest dividends. There are four countries in the world that do not give guaranteed paid maternity leave: Papua New Guinea, Lesotho, Swaziland, and the United States of America. That means that mothers-to-be are more likely to put their bodies under stress, and less likely to get the care they need, especially in lower-income brackets.

In addition, there are fewer primary care (e.g. family-practice) doctors to be seen. In 1997, about 2300 medical students said they were interested in pursuing a career in family medicine. That number has dropped gradually over the last 10 years, such that in 2007 it was only 1100 students. There’s a stigma against this branch of medicine. Dr. Huebner said that he was told many times “you’re too smart to go into family practice”. Of course, family practice also offers the lowest salaries. “It’s still plenty of money”, said Huebner, “but it’s the lowest-paying kind of medicine.” Incidentally, Dr. Bezruchka said that in Sweden a doctor and a teacher get paid the same amount. He drew a mixed reaction for this comment from an audience that was otherwise very supportive

Dr. Danielson also pointed out that health care in the US is very divided along race lines, that there are differences that can’t be explained simply by economic level. He showed one particularly convincing graph that illustrated infant mortality rate as a function of the mother’s race and education level. The good news is that infant mortality goes down as mothers become more educated, across all races. However, the most educated black mothers (college+) still see a higher rate of infant mortality than even the least educated mothers of all other races (< high school). Native Americans also see much higher rates of illness than most other races.

So, what all these speakers were pointing at is that we need some kind of social health care system.

Next question — how will we afford it? The first assumption people make when you talk about socialized mecidine is that we’ll need to pay a lot more in taxes, and how are we going to convince the public to put up with that? Well, the speakers argued that this is a false assumption, that the cost for most people may end up being the same, or perhaps slightly more. They didn’t get into a lot of specifics, which was disappointing. But they did illustrate ways in which money is not being spent very wisely today. For example, the pharmaceutical industry spends $7 billion a year on drug marketing to MD’s ($13,000 per doctor). This includes salaries for 90,000 sales representatives (about 1 for every 5 doctors).

The speakers all mentioned the upcoming elections and the various solutions that will be talked about, but they didn’t get into details, which again was disappointing — I was hoping to hear them dissect the Obama plan and the Clinton plan and to point out the pros and cons of each. They did indicate that our current health care “non-system” is so broken that any of those solutions would bring us a big step forward.

They also talked about previous attempts to legislate socialized medicine and how they failed, including the famous album: Ronald Reagan speaks out against socialized medicine, which you may have seen mentioned in Michael Moore’s Sicko.

One person from the audience asked: “if we had the political will to create a socialized health care system today, how long would it take us to catch up to other countries?”. Dr. Bezruchka guessed that it would take about 30 years. Why? Because it took Japan about that long to go from being one of the less healthy countries after WWII to being the most healthy country. He argued that Japan can thank the US for taking many steps towards making health care in Japan better, including some non-obvious things like making war constitutionally illegal and breaking up the largest monopolies.

For more info, Dr. Bezruchka recommended a TV series that will air on PBS in late March called Unnatural Causes.

Dr. Huebner recommended looking through the Washington State report on health care and costs from 2006: Blue Ribbon Commission. He also asked for support for HB 2536, which would give money to analyze several health care solutions and make a proposal. Finally, he mentioned that drug companies today have the right to look through records that specify which drugs were prescribed by each doctor, which allows them to do more targeted marketing at the doctors. He argued that this is a conflict of interest that should be disallowed, and in fact there’s a bill that would disallow it, though it’s unclear whether it’ll pass: HB 2664 “The Prescription Privacy Act”.

Update: One counter-argument is found on Free Market Cure.

Update: A comparison of the different candidates’ health care reform plans: http://www.washingtonpost.com/wp-dyn/content/article/2008/02/08/AR2008020803443.html

Toad Sucking Dog

“We couldn’t keep our dog’s addiction a secret any longer,” Laura Mirsch says. “The neighbors all knew that Lady was a drug addict, and soon the other dogs weren’t allowed to play with her.”

http://www.npr.org/templates/story/story.php?storyId=6376594

The transacript is available, but I recommend listening to the story.

Puget Sound Technology Family Tree

My friends Jasmine and Ankush work for a big umbrella company, Danaher.  Danaher is one of the most successful big companies you’ve never heard about.  They have a market cap of something like $9 billion.  Their strategy is to go around buying relatively small companies and to make them efficient by instilling the Danaher Business Process, which involves a lot of ideas borrowed from Toyota.  The particular business where Jasmine and Ankush work is Fluke, a company that makes the Cadillac of digital multimeters.

Not long ago, Danaher made an unusually large acquisition — they bought Tektronix.  I heard about this acquisition a lot because my parents live in Portland, which is where Tektronix is based, and to them Tektronix is a very big deal.  It’s kind of a matriarch for the technology industry in Portland.  Lots of smart people “graduated” from Tektronix and went off to start their own successful businesses.  My dad works at a company called Planar, which spun off of Tektronix years ago, so this issue is pretty close to home for him.  The big question on his mind is whether Danaher will continue to foster the culture of innovation that was a staple at Tek, or whether they will buckle down, kill frivolous projects, and in general turn it into a less inventive but efficient machine.

To illustrate how important Tektronix is to Portland, take a look at this poster that shows a kind of family tree of the Portland technology community.

Now some people at the Washington Technology Industry Association are trying to create a similar poster for the Puget Sound technology community.  The poster is obviously going to include some well known companies like Microsoft, Expedia, Amazon, Boeing, etc.  But they now have a list of some 170 smaller companies that, I’m sure, have roots in the big ones.  I know that most of the engineers at Redfin are either ex-Microsoft or ex-PlumTree.  My friends at JamGlue have roots in Expedia, Microsoft, and Amazon.  It’s all pretty connected.  Can’t wait to see how the poster will look.

BTW, I learned about this on John Cook’s blog, where else.

Gabe & Max’s Internet Thing

http://www.youtube.com/watch?v=PPsUmhqncAg

MySQL to Postgres

I wrote an article on the Redfin devblog about our switch from MySQL to Postgres.  If you’re into databases or contemplating your own switch, you may find this interesting.  If not, you’ll find it very boring (except, perhaps, the pictures).

http://devblog.redfin.com/2008/02/mysql_to_postgres.html