The economics of budget sequestration

by on February 3, 2013 at 7:49 am in Current Affairs, Economics, Political Science | Permalink

Here is my latest New York Times column, on how we should deal with sequestration.  One theme is that, economically speaking, we really can get away with cutting our defense budget:

 In the short run, lower military spending would lower gross domestic product, because the workers and resources in those areas wouldn’t be immediately re-employed. Still, that wouldn’t mean lower living standards for ordinary Americans, because most military spending does not provide us with direct private consumption.

To be sure, lower military spending might bring future problems, like an erosion of the nation’s long-term global influence. But then we are back to standard foreign policy questions about how much to spend on the military — and the Keynesian argument is effectively off the table.

On a practical note, the military cuts would have to be defined relative to a baseline, which already specifies spending increases. So the “cuts” in the sequestration would still lead to higher nominal military spending and roughly flat inflation-adjusted spending across the next 10 years. That is hardly unilateral disarmament, given that the United States accounts for about half of global military spending. And in a time when some belt-tightening will undoubtedly be required, that seems a manageable degree of restraint.

When you hear talk of Keynesian arguments as applied to sequestration, don’t be so quick to aggregate the “G.”  The Keynesian argument, as well as some supply-side arguments, does apply however to infrastructure and also to the funding of basic scientific research.  The domestic half of the sequester should be redone to focus more tightly on farm subsidies and Medicare reimbursement rates:

 THE Keynesian argument suggests that spending cuts do the least harm in economic sectors where demand is high relative to supply. Thus, the obvious candidate for the domestic economy is health care, and the sequestration would cut many Medicare reimbursement rates by 2 percent. We could go ahead with those cuts or even deepen them, because America has had significant health care cost inflation for decades.

We already have huge demand in our health care system, along with a corresponding shortage of doctors. And the coverage extension in the Affordable Care Act will add to the strain. In this setting, cutting Medicare reimbursement rates wouldn’t result in fewer health care services over all. Yes, doctors might be less keen to serve Medicare patients but might be more available for others, including the poor and the young. In the long run, the improved access for those groups would yield much return on investment, and would move the health care system closer to many of the European models.

Of course that is unlikely to happen.  Here are some related points by Veronique de Rugy, which I found helpful for doing the piece.

I would view the sequestration as a kind of referendum on whether we are ever capable of cutting or restraining spending and I fear not.   When it comes to the defense budget, “gdp fetishism” suddenly makes a comeback.  Or sometimes I read or hear the argument: “let’s not do this, it is only a small nick in the budget deficit.”  That attitude is exactly the problem.  The point remains that the laws of opportunity cost still apply.  As David Brooks has noted, I am willing to live with the price of my house going down.

Ashok Rao February 3, 2013 at 8:10 am

The sequester is a golden opportunity to reform two institutions that are, otherwise, the “third rail” of modern politics – the military and Medicaire. While I would agree with Krugman that there isn’t a short-term deficit crisis, I do think he’s ignoring the politics of it. Today, the ratio of the working to the unemployed (voluntarily or otherwise) is such that entitlement reform might be possible. As the years pass, we’ll be sending more and more representatives who are inherently unwilling to reform social security and Medicaire, which are woefully underfunded by FICA.

Ultimately, the liberals like to scream at those wanting to cut entitlements that the “economy isn’t zero-sum”, that funding education doesn’t require a cut in entitlement spending. We spend $4 on those over 65 for ever $1 for those under 18 – whatever the economy is, zero-sum or not, there will *always* be a ratio.

The conversation has to be what we as a society want that ratio to be. The sequester is a golden opportunity to change it for the better. However, I’m scared to death that arch-liberals and arch-conservatives would rather strike a deal starving CHIP and Medicaid than the lumbering mess that is Social Security and Medicaire.

Ray Lopez February 3, 2013 at 10:16 am

Awesome TC piece. I like this part: “THE Keynesian argument suggests that spending cuts do the least harm in economic sectors where demand is high relative to supply” and how GDP by definition rises when the government hires a bureaucrat that does not produce anything of value, whereas the same worker in the private sector may or may not show up in the statistics. Happy Super Bowl party to the American readers of MR!

Claudia February 3, 2013 at 10:27 am

the second argument is a half-truth…there are many service sectors whose contribution to GDP comes from payroll data. measuring the economic value of government spending is no harder or easier than spending on education, investment in R&D (in the private sector, at universities, or in the military), and spending on social insurance and physical infrastructure. there is less magical about the private sector in the US than comes across here…large bureaucratic organizations prize stability over innovation, price signals are not a cure all.

derek February 3, 2013 at 10:55 am

People losing their job in the private sector is like a tree falling in the forest nobody hears. Cut a government job is like slaughtering a pig, very noisy.

Claudia February 3, 2013 at 11:00 am

while I like to flatter myself…if my job is cut no one would hear it or care either. I am not sure what the right tonal equivalent is but there was ALOT of attention at my work when the unemployment rate soared in the recession…and much, though not all, of that was reductions in private employment.

derek February 3, 2013 at 11:41 am

Give it a bit of time. There hasn’t been any substantial cuts in Washington yet.

Norman Pfyster February 3, 2013 at 11:25 am

I suspect he is referring to a recent post on the EconLog site, where the argument was that GDP, which is supposed to measure income, doesn’t work well with government workers because “income” doesn’t mean much in the government context. The example used was a totally useless worker: in the private sector, the increase in wages to the worker exactly offset the decrease in profit to the employer. The same worker in the government sector would show the same increase in wages, but no decrease in profit. The purpose of the exercise was to point to a problem in measuring GDP, not a larger argument about the relative efficiency of private vs. public sectors.

Claudia February 3, 2013 at 12:48 pm

Even less impressed. National accounting practices seems a poor base for a policy argument. These standards are harmonized across countries and over time, so it’s hard to see how this is useful in the current debate over the appropriate size of the government. That said, I am all for greater understanding of the accounts especially by economists. I regularly get pulled into NIPA details, like my latest puzzler: why are capital gains not in disposable income but capital gains taxes are (by subtraction). I am not basing an argument on that factoid, but I need it when interpreting and reacting to the data. Maybe that’s all EconLog and friends are trying to do but it doesn’t feel that way to me.

Ritwik February 27, 2013 at 8:27 pm

+1

I mentioned this to Garrett Jones as well – many service industries are measured ‘at cost’. The government hiring and paying a bureaucrat for doing ‘nothing’ increases GDP and so does Goldman Sachs. There ARE constraints on both, but in a dynamic sense, the measurement at cost problem exists for more sectors than the government,

john personna February 3, 2013 at 10:21 am

I suspect the liberals would be happy to jump to a lower cost national health system. If you were really interested in costs before ideology, you’d join them. You’d pick a successful model from other developed market economies and jump in with both feet.

Tyler Cowen February 3, 2013 at 10:41 am

Yes, Singapore. But not too many modern liberals I know have shown up for that party.

john personna February 3, 2013 at 10:45 am

As a pragmatic moderate I’ll endorse your Singapore choice without looking it up. Really, any of a half-dozen would be better than our status quo.

Andrew' February 3, 2013 at 12:07 pm

I think you don’t actually know that. Give me some of your half dozen that you think are “controlling costs” are “low cost” or whatever you’d describe them as.

john personna February 3, 2013 at 12:27 pm

I know that many other wealthy market democracies have lower costs. I know that people who should favor cost reductions sometimes resort to a “we’re special” argument in an attempt to justify our levels. It’s a short-bus kind of special.

TMC February 3, 2013 at 2:58 pm

I agree with you on the ‘“we’re special” argument’. Why do some many people think that medical care is different from everything else, an that a market approach would not bring the most efficient outcome?

john personna February 3, 2013 at 4:39 pm

That might be an important and common error, TMC. Markets excel at allocating scarce resources. They make no guarantee that scarce resources will be cheap or common. Or, where’s my $1 gold?

Andrew' February 4, 2013 at 5:15 am

Doctors here are just more expensive. So, you don’t know that if we shoehorn their system in here we’ll maintain quality and lower cost.

That is partly tautological because we haven’t done it here. But we also have- we are much more socialized on a percentage and absolute basis than most of those countries.

prior_approval February 3, 2013 at 10:47 am

‘I suspect the liberals would be happy to jump to a lower cost national health system.*

‘Yes, Singapore.’

Actually, all of them – the U.S. is much more expensive than all other models (Swiss, German, French – all private, by the way, the British NHS, Canada’s, Japan’s, etc.). And strangely, ‘liberals’ have been talking about the desirability about implementing such models in the U.S. for my entire life.

To no avail – but not because somehow it is ‘liberals’ who are determined to keep American health care costs so high.

john personna February 3, 2013 at 11:35 am

Republicans, as a slice of conservative America, certainly have to wear their “death panel” defense. It was a “be the craziest person in the room” strategy, in an attempt to block any action.

derek February 3, 2013 at 11:37 am

I vaguely remember not too long ago someone making a huge fuss about government covering the $3000 per year cost of contraception. Seems to me to be extraordinarily high and if I remember correctly it was a Liberal. You would almost think that they were a under the table paid lobbyist for someone.

Don’t flatter yourself. The Liberal plan for health care is going to cost alot of people substantially more than what they were paying.

Maybe you can justify the doc fix that came out of the Democrat senate on January.

prior_approval February 3, 2013 at 11:53 am

‘The Liberal plan for health care is going to cost alot of people substantially more than what they were paying.’

First, do note that I put the term ‘liberal’ in quotes, in contrast to ‘conservative,’ each representing certain perspectives, without particular regard to details or party. And as pointed out above, every single health care system on the planet in an economy similar to America’s (Sweden or Australia, to add to the that list) spends much less money for comparable results.

It has not been ‘liberals’ blocking changing the U.S. health care system for my entire – or Prof. Cowen’s, as we are about the same age – life. I have no idea about a ‘Liberal’ plan for health care – everything that comes from the U.S. in this regard is so exceptional at this point that anyone living in a modern industrial society which is not the U.S. no longer comprehends how Americans have so completely managed to have the most expensive system with results that are inferior to what they experience in their daily lives in their own country.

And how Americans are utterly incapable of changing it to make it work with results and costs which every other advanced country considers reasonable.

It makes no difference if the dysfunction can be laid at the feet of Democrats or Republicans – it is truly a hallmark of what America is these days.

john personna February 3, 2013 at 12:31 pm

So Derek, we should never reform our health care system because we can always cherry pick a liberal who wants to spend more? Brilliant!

derek February 3, 2013 at 1:33 pm

I must be losing my memory or getting confused. I could have sworn that this was one of the major planks of the Democrats last election. i must be mistaken, I really didn’t read something last week about how the HHS is trying to force organizations to pay for these things that would rather not. Please.

The US has very high medical costs because people want them and up till recently the vigorous economy has permitted people and government to pay for them. Over the years the difference in per capita income between the US and Canada has been more than the cost of really good health insurance. This issue is a debate now because the US is losing ground, Canada has almost the same per capita income as the US.

Again, using Canada as an example, we were forced to severely cut health care services because the Federal Government and Provinces were forced to not borrow money. So essentially we got the health care we could afford; 3 years wait for hip replacement, anything ‘elective’ meant waiting around a year. When the economy started getting more prosperous the various levels of government increased health spending 8-10% a year, and there was a noticeable difference in the levels of service.

The same dynamic is taking place in the US. Health care costs are totally detached from ability to pay, and right now the Federal government in the US is able to bend the yield curve on their debt, allowing unnaturally low borrowing costs. So we have both parties, one implementing a major increase in spending by Medicare part D, the other by the ACA.

I would guarantee something; there will be no limit in health care spending, in reality, until the US government cannot borrow money like they can right now. Neither party will do anything meaningful. Both sides will demagogue the issue vigorously.

An anecdote. The Canadian system does not include dental. Dental coverage is often a benefit of employment, and in one of my iterations I had dental coverage for the family. It was remarkable how bad our teeth became, all kinds of reconstruction and the like was necessary. The job disappeared along with dental insurance, and oddly enough, the serious problems went away as well. Spontaneous remission I would suppose.

TMC February 3, 2013 at 3:02 pm

John, so by cherry picking you mean 52% of the electorate?

john personna February 3, 2013 at 4:41 pm

No one has shown that contraception has a standard or average cost of $3000, and that price was certainly not put before voters.

john personna February 3, 2013 at 4:43 pm

(so I think $3000 one cherry pick, some guy that supported it at that price was another.)

Andrew' February 3, 2013 at 12:03 pm

You don’t actually mean lower cost alternatives, you mean lower cost growth alternatives, and there may not be any.

Andrew' February 3, 2013 at 12:08 pm

“Republicans, as a slice of conservative America, certainly have to wear their “death panel” defense. It was a “be the craziest person in the room” strategy, in an attempt to block any action.”

Nope. Liberals are now talking openly about death panels with only a withering amount of irony.

john personna February 3, 2013 at 12:30 pm

I think “their costs, which are lower, can’t be lower, because they too have a growth rate” is a silly argument.

Andrew' February 4, 2013 at 5:17 am

No, it’s not. It’s pretty simple. They are starting from a lower base. They are not controlling costs. They are probably not even lower if you correct for peculiarities of the US, such as the opportunity cost of being a doctor in the US. So, if other countries have rising costs, and are not reducing their costs, how would adopting their system reduce our costs?

lxm February 3, 2013 at 7:00 pm

I haven’t seen any ‘modern conservatives’(oxymoron?) sitting at that table either. But I agree there are lots of ways to improve health/defense services and save money at the same time. But no one is willing to sit down and have that serious conversation. The special interests are winning and the American public is losing. Even the fiscal cliff legislation contained special gifts for private interests. It could be that stupid legislation like the sequester is the only way to get anything done. So I’m in favor of the sequestration taking effect. It might be better than any alternative our leaders can come up with.

Ricardo February 4, 2013 at 2:43 am

If you think “modern liberals” are the major obstacle to Singapore-style health care, I wonder if you have actually followed the health care debates in the U.S. and you understand what, exactly, Singapore’s system entails. For one, private primary health insurance is effectively illegal (private supplemental insurance exists; you must be enrolled in a government plan first to qualify) and the largest health insurer is the government. The government also runs several public hospitals and provides subsidized care on a means-tested basis. Can you point to any prominent Republicans who have advocated these policies?

mpowell February 27, 2013 at 2:44 pm

But, but… mandated savings plans!

Miley Cyrax February 3, 2013 at 12:54 pm

‘Ultimately, the liberals like to scream at those wanting to cut entitlements that the “economy isn’t zero-sum”‘

They’re right; government involvement in allocating and redistributing the resources of citizens is mostly negative sum.

lxm February 3, 2013 at 7:04 pm

Making government work reasonably well is difficult work. It’s especially difficult when you have a political party dedicated to making it not work.

Orange14 February 3, 2013 at 8:18 am

The column made for interesting reading as I was eating my customary Sunday blueberry pancakes. Surprisingly (for a liberal D) I agree with most of your points. I’m not as pessimistic on the MD shortage as nurse practitioners can take up 90% of the shortage as much of the diagnostic work really does not require an MD at all. Where I am pessimistic is on the ability of Congress to do anything meaningful. They will continue to be captive to all of the lobbyists seeking preservation of pet projects. As one who has written on the Great Stagnation, you were rather silent on Federal funding for STEM. There will be a lot of pain and suffering if the Sequestration holds and the major funding agencies get slashed.

john personna February 3, 2013 at 10:26 am

As I understand it, genuine research is cheap, while production subsidies are expensive. Sadly, as I understand it, we’ve been cutting research at a higher rate than subsidies. It is some unfortunate confluence of lobbying and mistrust of science.

Ed February 3, 2013 at 8:19 am

I agree that the “defense” budget is a big, fat, target for cuts, and the sheer scale of the spending here means that cuts will cause less real pain than cuts in other areas. The federal government is probably underspending in areas outside of Defense, Medicaid, and Social Security (and Social Security is pretty cost-effective for what it does, while I really don’t want another discussion of the U.S. health care system; fixing the Pentagon will be easier).

However, that said, one thing about the defense budget and defense contracting is that there is so much money there that lots of employment and even entire industries have become dependent on it. It contains what there is of U.S. industrial policy/ industrial subsidies,and some of the last remaining blue collar and even middle managerial jobs. For what its worth, if you include veterans’ benefits, you also get the portion of the health care system directly administered by the government.

Its sort of like a French king coming in during the 18th century and deciding (before they were forced to) to abandon Versailles for a much simpler residence. You get alot of jewelers, dress-makers, and other craftsmen thrown out of work, with nothing on hand in the near future to replace that economic sector.

I think it would have been much better for the cuts to have been phased in, but its probably too late for that.

Rich Berger February 3, 2013 at 8:25 am

So this is a $110 BN cut out of a budget which was around $3.8 TN in FY12 – that’s a 3% cut. We were spending $2.7TN in FY 2007. I do not see how this is an extreme cut – it’s only a start. Gotta start somewhere and keep cutting.

Roger Sweeny February 3, 2013 at 8:49 am

You suggest two areas for cuts, defense “because most military spending does not provide us with direct private consumption,” and medical care “because America has had significant health care cost inflation for decades.”

Interesting that you didn’t suggest an industry for which both of those things are true: education.

RZ0 February 3, 2013 at 9:36 am

+1 – specifically, higher education.

TMC February 3, 2013 at 3:08 pm

Check out MRUniversity. I think Tyler has done more than most in this regard.

Orange14 February 3, 2013 at 5:08 pm

I don’t think MRU confers diplomas or leads to reliable employment options.

Andrew' February 4, 2013 at 5:18 am

Well, at least formal universities confer degrees. Let’s give MRU another year to compete with them that have been at it 500.

Andrew' February 4, 2013 at 8:07 am

Btw, MRU also doesn’t extract significant GDP or overcharge taxpayers (ceteris paribis) or put poor people into un-disposable debts, or reinforce the tournament aspects of education. When did liberals get so conservative?

foosion February 3, 2013 at 9:03 am

We’re clearly spending too much on defense and healthcare. The problem with many proposed cuts to healthcare is they don’t distinguish between cutting spending (making healthcare cheaper and more efficient) and cutting government spending (shifting costs to individuals and raising spending).

Please explain how this country is going to prosper without an educated workforce and necessary infrastructure? Private schools are not affordable by many. Infrastructure is mainly a public good that is best built by government. Isn’t it better to spend when costs are low (high unemployment, low interest rates) than to wait for costs to be higher?

Dan Keshet February 3, 2013 at 10:11 am

When most institutions shut programs down, isn’t there a temporary surge in spending, as they have to spend resources on dismantling it?

RZ0 February 3, 2013 at 10:15 am

Interesting thoughts, but I think you lost almost every politician in the country at “lower military spending would lower gross domestic product.”

The rest hopped off at “erosion of the nation’s long-term global influence.”

These seem to be precisely the arguments taken by people who want defense spending to remain high.

Bill February 3, 2013 at 10:20 am

Defense spending is spent abroad, so maybe we can export a little austerity to Europe and Afghanistan, and maybe Japan too. We also need to examine where we have military bases and the roles of other industrialized countries picking up some of the slack, eg, Germany Japan and Korea. We’ll gladly accept donations, but I doubt they will be forthcoming.

As for ag price supports, there is no justification whatsoever in protecting businesses. We already support agriculture in different ways already that are untouched by cutting price supports: quotas on sugar, seasonal vegetables, water subsidies and non-market water allocation, and below market grazing rights in the West. Since the Ag bill is up for only one year, rather than a 5 year bill, now is the time to act. Don’t expect it from the House–peanuts, rice, corn.

prior_approval February 3, 2013 at 10:57 am

‘We also need to examine where we have military bases and the roles of other industrialized countries picking up some of the slack, eg, Germany Japan and Korea.’

The U.S. is pretty gone from Germany. And it was the Germans that paid for the bases themselves – which is why when the U.S. leaves, the property and buildings revert to Germany automatically, since they were already German. There is a reason the U.S. was happy to use German bases – they cost less than American ones. Until the second Iraq War – as that could have been considered an example of the sort of offensive war for which German leaders had been hung for after WWII, there was a fear that a SPD/Green government – with majority support of the German population – would not participate in shipping American military supplies to support an invasion of another country.

A fear which proved unfounded in the specific case of the second Iraq War. And considering just how much equipment was squandered in the desert, there simply wasn’t much of a reason to re-use German facilities.

There is very little American military left in Germany – but much like the perception that foreign aid is a major part of the U.S. budget, many Americans seem to believe that massive military forces are stationed in Germany at the expense of the U.S. taxpayer. A belief which was never very accurate, but which is no longer true in any sense at this point.

Bill February 3, 2013 at 1:57 pm

Prior, Check your facts.

From Kiplinger:
“Pressure to cut the deficit and trim the $550-billion annual defense budget will spur a consolidation of possibly several dozen military installations in far-flung places during the next three to five years. Savings, which will take a few years to realize because of cleanup and closing costs, could be $10 billion to $20 billion annually, depending on the number and size of installations ultimately cut.

The U.S. maintains 702 foreign military installations in 63 countries, although the bulk of the personnel and equipment stationed abroad are in Germany and South Korea. Overseas bases run the gamut, from the heavily used Army base in Wiesbaden, Germany, to little-used chemical storage yards in Italy.

In total, there are 44,900 buildings on overseas installations and about 190,000 active duty personnel plus thousands of spouses, dependents, civilian defense workers and contractors. Much of the maintenance at bases is contracted out, and even some smaller bases can be business jewels for international suppliers of required food and services

Read more at http://www.kiplinger.com/article/business/T043-C012-S001-overseas-bases-in-budget-crosshairs.html#ACWFHbFQO6wBwtVE.99

Bill February 3, 2013 at 2:03 pm

Prior, the article specifically addresses bases and facilities in Germany defense experts and others believe could be closed:

“Defense experts point to some bases as likely candidates for closing or significant paring back: Kadena Air Base, Camp Butler Marine Corps Base and Torii Army Station, all in Okinawa, Japan; a joint U.S. Navy and Air Force facility in St. Mawgan, Cornwall, England; an Army airfield in Heidelberg, Germany, and Army stations in Stuttgart and Schweinfurt, Germany. Also, a large Army garrison in Schinnen, the Netherlands, the U.S. Naval Support Activity Souda Bay in Crete, Greece, and an Air Force base in Aviano, Italy.
Read more at http://www.kiplinger.com/article/business/T043-C012-S001-overseas-bases-in-budget-crosshairs.html#EfEZUDuFX1iVrx7W.99

prior_approval February 3, 2013 at 2:45 pm

‘In total, there are 44,900 buildings on overseas installations’

And in Germany, they all (with possible exceptions, such as officially undeclared nuclear or chemical weapon storage bunkers) belong to the Federal Republic of Germany. This includes the roads, the power/water/sewage lines – and their upkeep.

The same applied to the Canadian and French bases in this region, by the way. Yes, there was a single Canadian base in Germany – they shut down flight operations a couple of years before we moved to where we live now, but apparently, their F-18s were impressively loud when flying close to the ground – with afterburners.

That Germany owned and maintained the base facilities was equally clear when we looked into buying a house at a former base. (A bit too expensive – and as it turned out, the houses and former barracks didn’t meet current German standards – the military used pesticides over years that were not allowed in German housing. Which meant that the purchasers ended up living in hotels for more than 6 months – like a co-worker, who had bought an apartment – while the oak cabinetry and flooring was ripped out, then replaced – no cost for the purchaser, it must be said.)

Keep in mind that Germany was an occupied country – the arrangements made by the Allies were not a matter of diplomacy. And once the Cold War started, it was in Germany’s own interest.

Of course there are costs in basing soldiers overseas. However, in Germany, those costs were pretty much equivalent as basing them in the U.S. (obviously, not including transportation, which is an expense, of course).

A bit of German info, though do note that the numbers are European, and not exclusive to Germany –

‘The American cutbacks are just the latest in a long drawdown since the end of the Cold War, when 277,000 soldiers were posted to Europe as a defense against a land war with the Soviet Union. Thousands of Americans poured into Germany in the years after World War II, spreading more than military might — culture, cars and music came, too. After the latest cuts, the Army will have about 30,000 soldiers on the continent. Other military branches will have an additional 40,000 people.

The Army estimates that the changes, which will eliminate two of the remaining four combat brigades in Europe, a plan similar to one in 2004 under President George W. Bush that was shelved, will save money at a time when the Defense Department is under increased budget pressure and U.S. commitments to the wars in Iraq and Afghanistan are winding down. The European cuts are part of a larger Pentagon effort to trim $487 billion in projected spending over next decade. ‘

http://articles.washingtonpost.com/2012-03-27/world/35447843_1_german-cities-towns-hahn-air-base

And if you are interested, here is a further link – and note the wave of actual and planned closings, mainly based around Mannheim, which used to be a central logistics hub, but which is now a ghost town. (Though there is still a residual force – whether this has anything to do with the long rumored chemical weapons storage in Käfertal is completely unconfirmed, of course.) – http://en.wikipedia.org/wiki/List_of_United_States_Army_installations_in_Germany

Bill February 3, 2013 at 3:40 pm

Pror, I read you cites, and I encourage others to read them too, because they proove my point: this is wasted money, the Germans view our expenditures in these communities as entitlements, and there is excess capacity. Please read Prior’s cites, and read the one’s I cited below.

Bill February 3, 2013 at 2:00 pm

Prior, specifically about Germany, the article lists bases there that could be closed and trimmed:

“Defense experts point to some bases as likely candidates for closing or significant paring back: Kadena Air Base, Camp Butler Marine Corps Base and Torii Army Station, all in Okinawa, Japan; a joint U.S. Navy and Air Force facility in St. Mawgan, Cornwall, England; an Army airfield in Heidelberg, Germany, and Army stations in Stuttgart and Schweinfurt, Germany. Also, a large Army garrison in Schinnen, the Netherlands, the U.S. Naval Support Activity Souda Bay in Crete, Greece, and an Air Force base in Aviano, Italy.
Read more at http://www.kiplinger.com/article/business/T043-C012-S001-overseas-bases-in-budget-crosshairs.html#EfEZUDuFX1iVrx7W.99

Bill February 3, 2013 at 2:02 pm

Prior, the article specifically addresses bases and facilities in Germany defense experts and others believe could be closed:

“Defense experts point to some bases as likely candidates for closing or significant paring back: Kadena Air Base, Camp Butler Marine Corps Base and Torii Army Station, all in Okinawa, Japan; a joint U.S. Navy and Air Force facility in St. Mawgan, Cornwall, England; an Army airfield in Heidelberg, Germany, and Army stations in Stuttgart and Schweinfurt, Germany. Also, a large Army garrison in Schinnen, the Netherlands, the U.S. Naval Support Activity Souda Bay in Crete, Greece, and an Air Force base in Aviano, Italy.
Read more at http://www.kiplinger.com/article/business/T043-C012-S001-overseas-bases-in-budget-crosshairs.html#EfEZUDuFX1iVrx7W.99

Bill February 3, 2013 at 2:15 pm

Prior, Germany has several bases defense experts would cut.

From the same article:

“Defense experts point to some bases as likely candidates for closing or significant paring back: Kadena Air Base, Camp Butler Marine Corps Base and Torii Army Station, all in Okinawa, Japan; a joint U.S. Navy and Air Force facility in St. Mawgan, Cornwall, England; an Army airfield in Heidelberg, Germany, and Army stations in Stuttgart and Schweinfurt, Germany. Also, a large Army garrison in Schinnen, the Netherlands, the U.S. Naval Support Activity Souda Bay in Crete, Greece, and an Air Force base in Aviano, Italy.
Read more at http://www.kiplinger.com/article/business/T043-C012-S001-overseas-bases-in-budget-crosshairs.html#EfEZUDuFX1iVrx7W.99

john personna February 3, 2013 at 10:24 am

Um. Isn’t the Great Stagnation about GDP (fetish) rather than something with a spiritual or emotional component?

bw February 3, 2013 at 12:39 pm

Do note that the U.S.A.’s capacity for innovation is largely a function of government spending on research (In a first cause sense, Apple’s success has nothing to do with the brilliance of Steve Jobs, it has everything to do with the brilliance of Doug Englebart.), and accordingly, DOD spending on R&D is the largest part of this government spending. The private sector, however, is adverse to solving hard technical problems, and accordingly, is merely a rip-off mechanism for the innovation that already took place at places like Livermore or SRI.

john personna February 3, 2013 at 12:43 pm

The Xerox PARC storyline fits in there too …

Rich Berger February 3, 2013 at 3:17 pm

Got any data to back that up?

bw February 3, 2013 at 12:42 pm

One other item. Regarding healthcare, move from fee-for-service mechanism to fee-per-person mechanism and all of our fiscal issues will be solved. This is not even arguable. It really is that easy. All other discussion is pointless.

msgkings February 3, 2013 at 1:16 pm

This is mostly true, but another way of saying it is US doctors have to make less money, like they do in other advanced economies. This is easy to suggest when you are not a doctor. The AMA is a very powerful lobby for a wealthy group of Americans. This won’t be easy.

Merijn Knibbe February 3, 2013 at 1:07 pm

Tyler, a concise introduction into national accounting can be found here, http://peemconference2013.worldeconomicsassociation.org/?paper=meaning-and-measurement-of-national-accounts-statistics

Reading it might enable you to spot the mistakes of Veronique de Rugy: wages are always part of the national accounts, no matter if they are paid by the government or by private companies. She forgets about the income account.

(Claudia, capital gains are not in the income accounts as the national accounts only consider the production of new stuff (goods, services) to add to production and income. Capital gains are only increases in the price of existing stuff – such price increases might make an individual richer but do not add to the total stock of real capital – society as a whole does not get richer. They may add to individual wealth – but do not add to total income (for wonks: the modern national accounts indeed make a difference between labour, physical capital and land, land (including natural resources and land below buildings) is not included in fysical capital). However – total disposable (!) income is lowered when the IRS takes away part of individual INCOMES because WEALTH has increased. The capital gains tax is in fact a kind of topsy turvy asset-inflation tax.)

Claudia February 3, 2013 at 3:42 pm

Thanks, Merijn, I was giving the capital gains treatment as an example, but what you said accords with what I had learned about it. National accounting, just like regular accounting, is not always intuitive or without controversial assumptions in its many details, but I don’t like to see it misused. GDP/GDI is certainly not the only valid metric of economic health and should not be oversold, but it gives a useful glimpse of aggregate economic activity.

Rich Berger February 3, 2013 at 9:05 pm

You must not have read the article, including the link to Garrett Jones, who addressed your objections.

Claudia February 3, 2013 at 9:30 pm

Actually the end of Garrett’s post sums up his view well: “let’s keep GDP as a measure of genuine arms-length, market-test-passing purchases of goods and service.” Well PDFP is not a bad start and the BEA tells you enough to pull out imputations if you’re so inclined. But some of these imputations do economists a huge favor…I as an economist should care more about flow utility than expenditures. Housing services is more helpful in that regard relative to consumer durable expenditures. National accounts are not some scheme to make govt look good. Also why is the implicit assumption that govt spending is less value the private spending maybe it has MORE social value. It is perfectly fine to prefer the market to the govt, but why beat on the NIPAs to make your point?

Rich Berger February 4, 2013 at 11:47 am

Garrett points out that compensation paid to government employees is counted as GDP in the income accounts, no matter what the value, whereas compensation that is paid to a private sector worker who produces nothing reduces profits so there is no contribution to GDP.

How do you measure social value? The same way that ROI on government “investment” is calculated?

Handworn February 3, 2013 at 1:14 pm

I’ve often wondered why the Republicans haven’t realized the main reason from their perspective for smaller military budgets– that such a massive military is partly a concealed form of foreign aid. Semi-communal military expenditures, which is what NATO amounts to, are disproportionately beneficial for smaller countries. The more they have to defend themselves, the less they can spend on the social safety nets that make the U.S.’s look bad by comparison.

prior_approval February 3, 2013 at 1:49 pm

‘The more they have to defend themselves’

And in all honesty, who are the Dutch currently defending themselves against? Or Spain?

The world has changed more than a bit in the last couple of decades – though one country, now spending half of the world’s money on ‘defense’ (ever ask yourself from who?), doesn’t seem to realize what has happened.

Chaboard February 3, 2013 at 3:19 pm

‘And in all honesty, who are the Dutch currently defending themselves against? Or Spain?’

Or, for that matter…….us.

Ryan February 3, 2013 at 1:24 pm

The domestic sequester cannot be concentrated on Ag subsidies and Medicare reimbursement because (1) the sequester applies evenly across the board and (2) Medicare is not part of domestic discretionary spending.

Bill February 3, 2013 at 3:42 pm

Ryan, Ag budget, instead of being on a 5 year budget, is set for a one year budget this year. Anything is now possible.

Ryan February 3, 2013 at 1:32 pm

I’m also curious about why you don’t think we can restrain spending. We did it in the 90s and we’re doing it again now. I’d say we’re doing too much now. It would be better to wait until government borrowing and spending is crowding out more productive private activity rather than when we have so many people unnecessarily in the low-productivity unemployed sector.

Jim February 3, 2013 at 6:24 pm

“Or sometimes I read or hear the argument: ‘let’s not do this, it is only a small nick in the budget deficit.’ That attitude is exactly the problem. The point remains that the laws of opportunity cost still apply.”

Ah, yes, but it also detracts from efforts to cut from the most problematic areas like health care. The opportunity cost of squabbling over a nick in the budget deficit is the chance to use political capital for substantial health care reform instead.

As Blinder notes in his new book After the Music Stopped “the cost of everything on which the federal government spends money except health care and interest–and that includes Social Security, defense, you name it–are projected to fall over time as a share of GDP…America doesn’t have a generalized spending problem that requires severe cuts across the board. We have, instead, a massive problem of exploding health care costs.” At any rate, I’d highly recommend his book–lots of good insight on the debt crisis (there’s a good preview on the fb page: http://facebook.com/afterthemusicstopped).

Andrew' February 4, 2013 at 8:12 am

Basing defense spending on what is spent is stupid and indicates that the government is bankrupt and in self-preservation mode (which also has implications for T-bills, etc.)

Defense spending should be based on threats. It just so happens that we have none that are being addressed effectively by the current makeup of defense spending. For instance, giving other people our drones may be the worst idea in history…thus far…hopefully we’ll live long enough for our government to make even more boneheaded moves.

So, as an aside, after seeing ZD30, it occurred to me. Torture doesn’t really work. It’s at best a weak complement to actual spook work, which they didn’t do, which is why they felt they needed the torture and the motivation boost that they felt with it (“hey, if I’m doing something evil, I must be really trying hard”) to make up for their failure to prevent 9/11 (or anything really).

Rich February 8, 2013 at 1:25 pm

As someone studying IR/Defense issues at the grad level, from what I’ve learned there is plenty of bureaucratic and wasteful defense spending that can be cut. Sequestration is not necessarily the worst thing for defense spending because after the willy-nilly buy anything years of the wars it forces the Pentagon (and Congress) to start making more real choices. Also, while of course defense spending should logically be set at what we want for supporting our defense needs and foreign policy positions that’s not how it operates now, in large part because the Pentagon and contractors shape things for how to make sure Congress approves and keeps them. That’s how one development missile gets attached to Apache, so that missile funding isn’t cut vs. using a reliable existing model, then the newer missile requires supplemental things like a chin gun and you’re off to the races. The alternative is something like Apache A, then B, then C, and upgrade as needed. So my point past this rambling is the sequestration can force the Pentagon and Congress to start thinking seriously again about what is actually necessary with Defense issues and what we really need to spend to accomplish those goals. It forces people to start thinking about real choices, which they haven’t in a long while.

The downside is sequestration is across the board within defense, so they can’t even allocate it optimally. So you get plans to severely cut down squadron strength and flight practice time, real national security dangers. Meanwhile the President prevented any uniform soldiers from being let go b/c of sequestration, even though reducing the land forces is generally a good way to reduce spending and a normal thing to do after wars. The point is sequestration doesn’t allow optimal cutting, even if you cut by the same amount. it’s not targeted, which is stupid.

Comments on this entry are closed.

Previous post:

Next post: