Sequester Spending, Whac-A-Mole Government and Drinking Champagne on a Beer Budget

My Dad, long since deceased, came of age in the Great Depression. He understood tough times. He  had several favorite expressions, some of which I recall frequently, such as too many people wanting to drink champagne while on a beer budget. 

And when I was growing up, a popular radio ad encouraged people in heavy debt to take out a single "bill payer loan," meaning consolidating all the different debts into one, and then making one 'easy payment,' probably until infinity and at a high interest rate. Debt serevice made simple, if not easy, in other words.

Whac-A-Mole is a game where plastic moles pop up and the player uses a soft mallet to drive the mole back into its hole. As one mole is struck, another pops up. Then when the next mole is hit squarely on the head and driven it back into its hole, another pops up and so forth.

Someone asked me yesterday about the effects the sequester will have on our economy. I responded that it was a sideshow to the upcoming main event. A painful experience as it develops for many people perhaps, but nevertheless a sideshow.

You see, my fellow Americans, we've become accustomed to drinking champagne on a beer budget, and something's gotta give. And we need a bill payer loan if we're ever going to stop this Whac-A-Mole going nowhere game we've been playing for far too long now.

The Whac-A-Mole bill payer loan issue is one of consolidation. Local governments, school districts, state governments, unfunded entitlements, post office deficits and the federal government's "official" deficits add up to a humongous amount of money.

And how much is humongous? Well, that reality, to quote Donald Rumsfeld, is one of those 'known unknowns.' We need to add it all up and get to the total owed and promised. Only then can we decide what we're going to do to fix the problem. And it's a humongous one at that.

The Republicans and Democrats are not serious problem solvers. They're serious election winners.

We the People know the score. We're spending money we don't have. That means either we're not paying enough in taxes or we're spending too much and have to seriously cut back. Private sector led growth will lead to more tax receipts, of course, but not nearly enough for the money governments are spending on our behalf.

The problem is a simple if not easy one. Problem solving take leadership and a willingness to seek and tell the truth. Election winning takes getting votes and that takes popularity -- not leadership.

Like many other cities, Detroit is broke. And like several other states, Illinois has approximately $100 billion in unfunded public employee pension liabilities and isn't paying its current bills on time. California is -- well -- it's California.

But the financial mess is everywhere and involves everybody. The financial 'problem' we've created for ourselves over a long period of time is a really BIG one. And it can't be fixed without serious change in how we behave as a people and how we govern as a interconnected group of cities, states, school districts and federal government and agencies combined.

Did you know that schools have 2.5 times more employees than the entire federal civilian workforce, and that the U.S. medical care system is where all the job growth has been the past several years? They are both government controlled and both unaffordable. And not even part of the sequester.

Government Payrolls Shrinking Even Before the Sequester contains some interesting data:

"21.9 million:The number of government workers in the U.S. in January, the lowest total in seven years.

The billions of dollars in federal budget cuts known as the “sequester” began to take effect on Friday after President Barack Obama and Congressional Republicans failed to reach a deal to avoid them. But even before the latest round of cuts, the public sector was getting smaller by at least one critical measure: jobs.

Federal spending is still rising. But that is mostly because of the rising cost of entitlement benefits, primarily Social Security and Medicare, as well as interest on the national debt. Spending on most everything else, from defense to scientific research, is falling as a share of economic output—and in many cases falling outright. . . . setting aside Postal workers, federal employment has fallen by 32,000 since the end of 2011.

Despite its recent decline, federal employment, not counting the Postal Service, is up by about 215,000 since the start of the recession in December, 2007. But it remains low by historical standards. In the early 1950s, federal employees made up about 4% of all workers. That figure dropped to about 3.5% by the mid-1950s and kept falling, hitting 2% in the early 1990s and falling below 1.5% in the mid-2000s. It now stands at 1.6%.

The real declines in government employment, however, have come at the state and local level. Since the end of the recession, state and local governments have together cut nearly 700,000 jobs. More than half the cuts came from local school departments, which as a share of all employment are now the smallest they’ve been since 2001. That is partly a function of scale: For all the focus on the federal government, nearly two thirds of all public employees work for local governments. Local school systems alone are more than two and a half times as large as the entire federal civilian workforce. . . .

How the sequester will affect employment remains unclear. At the federal level, layoffs and furloughs generally won’t start until April, if Congress and the president don’t act to reverse the cuts before then. But the sequester also reduces funding to state and local infrastructure projects, education grants and other programs, which could also lead to job losses. What is nearly certain, however, is that the downward trend in government employment is set to continue."

Summing Up

We are spending twice as much money on an inflation adjusted basis as we spent on K-12 public education several decades ago. Yet outcomes haven't improved at all. Twice as much spent for no productivity gain or improvement in results. That's government work.

We spend twice as money on health care as most countries and life expectancies are similar between us and other developed countries. That's the third party payer non-market at work.

Both public education and health care are largely controlled by government rules and spending. There is no effective market based competition for educating the youngsters or taking care of the oldsters.

Yes, the sequester may cause us to play Whac-A-Mole for awhile. It will certainly involve a lot of name calling, finger pointing and media centered fireworks. If you like that kind of 'entertainment,' get ready. If not, turn off the TV.

But the real game of either producing champagne or agreeing to drink beer while taking out a bill payer consolidated loan as a nation is ahead of us. And it's ahead of our cities, our schools, our health care system, our retirement benefits and our currently dysfunctional and short term focused federal government aristocrats as well.

For example, did you know that our federal budget is two thirds entitlements spending now? It used to one one third. And that the baby boomers aren't getting any younger? And that global competition is real? And that our labor force participation is shrinking? Well, even though the government knows best gang appears oblivious to all this, it isn't going away and will have to be dealt with soon.

Meanwhile, Democrats want to raise the minimum wage and don't want to tackle entitlements. They want to solve the problem by growing government spending and taxing the rich more. Well, we don't have enough rich people to pay for all that champagne.

Republicans don't want to increase tax rates. They want to reduce federal spending, but how much and exactly where they won't say. Well, we don't have enough government money to even be able to afford to buy beer right now, let alone champagne.

But neither Democrats not Republicans are willing to stand up and tell the following simple truth.

If we're going to drink champagne, we're going to have to tax everybody a whole lot more.

And if we're going to not raise taxes on everybody a whole lot more, we're going to have to tackle entitlements.

And we're going to have to downsize education spending and improve educational outcomes at the same time, too.

It's just math, as our president likes to say.

That's my take.

Thanks. Bob.