Another View On How To Reduce Spending By Trillions Of Dollars

Earlier this month we did a detailed post that showed how easy it is to reduce Federal government spending by over $6 TRILLION in the next ten years. We did it in such a way that poor children do not go hungry, needy Social Security recipients do not suffer, and the nation's defense is not denigrated. We used the output from several nonpartisan sources who had already done a lot of the detailed research and analyses and estimated other expense savings using some relatively simple math assumptions and calculations.

Today, we will take a different approach but basically come to the same conclusions: there are so many ways to cut wasteful spending without undue hardship that it will be remarkable if the political class in the United States cannot come up with a plan to do likewise. Let's start with two large expense components, national defense and Social Security. In our earlier analysis, we identified ten years of Defense Department savings that could be taken without harming our national defense. We also identified $60 billion in Social Security savings over ten years if we raised the retirement age to 70, with a hardship exception, and stopped payments to Americans whose net worth was over $3 million.

Let's start this different approach with Pentagon spending. The approach is based on an interview of David Stockman that appeared in the August 8, 2011 issue of Business Week magazine. Mr. Stockman is a far better budget analyst than myself, having served as the director of the Office Of Management and Budget under President Reagan. I am assuming that his insights and knowledge can provide better estimates than some of mine.

In the interview, Mr. Stockman asserts that we live in a different world today but have a defense strategy and set of resources that are aligned with historical, obsolete situations, a conclusion we have supported many times in this blog.

He poses the following question in the interview: "Why do we have a defense budget at roughly $800 billion - bigger in real terms by 35% than it was when Ronald Reagan was fighting the Evil Empire and they had 8,000 (nuclear) warheads pointed at us?" He also discusses the reality that we don't have the same type of "industrial enemies" of the past and "we have been fired as the world's policeman."

Given these realities, why shouldn't the Defense Department and the resources associated with it 1) be cut back and 2) repurposed to fight today's non-traditional threats. If we take Mr. Stockman's assertions as fact, how much money could we save:

• Cut defense spending by his full 35% to be in line with Reagan era spending ratios and phase that in over a four year period: 10 year savings = $2.4 TRILLION
• Cut defense spending by half of his 35%  and phase that in over a four year period: 10 year savings = $1.2 TRILLION
• Cut defense spending by a third of his 35% and phase that in over a four year period: 10 year savings = $793 billion.

Thus, depending on how aggressive the political class wanted to be and how stubborn the military establishment wanted to be to protect its empire, the Federal government could safely cut over a TRILLION dollars, and possibly over two TRILLION dollars, from its spending without harming our national defense if you use the Reagan era budgets as a guide. These estimates are roughly consistent with the $1.4 TRILLION estimate we came up with earlier in August. But this approach also shows how much  more potential upside there is.

Stockman also discusses Social Security and his views are also consistent with our recommendations, namely raise the retirement age and stopping paying out Social Security checks to wealthier Americans, Steps 11 and 12 from "Love My Country, Loathe My Government," in order to preserve the program for those Americans that truly need the help in retirement.  In the interview, Mr. Stockman claims that we currently have 55 million people in the Social Security program, of which 40 million basically have no other source of income. That leaves up to 15 million Americans today who are more affluent and who could possibly afford to continue their life style without receiving a Social Security check.

Mr. Stockman does not talk specifics in this area but mentions that there "are 2, 5, 10 million people at the top who are quite affluent, who need to be means tested or have their benefits eliminated entirely." I would have preferred a little more specificity but lets run with these three scenarios:

• Assume ten million of these 55 million Americans are affluent enough to live without a Social Security check: ten year savings to the Federal government's budget = $1.3 TRILLION
• Assume five million of these 55 million Americans are affluent enough to live without a Social Security check: ten year savings to the Federal government's budget = $660 billion.
• Assume two million of these 55 million Americans are affluent enough to live without a Social Security check: ten year savings to the Federal government's budget = $264 billion.

Thus, if Stockman is right, the amount of savings from Social Security changes that do not impose an undue hardship on needy Americans is orders of magnitudes higher than what we estimated in the other post. If you take the two middle scenarios we calculated above for defense spending and Social Security, using Stockman's interview, you come up with expense and spending reductions of  close to $1.9 TRILLION. This is more than the $1.4 TRILLION we estimated previously.

Who would be upset about these changes? First and foremost would be the military contractors that have made themselves rich off of this unnecessary defense spending. Unfortunately, these contractors probably have great influence over the sitting politicians from a lobbying and election campaign perspective. That is where the challenge will be, are our politicians courageous enough to cut off their own money funnels to do what is right for the country? If history is any indication, that could be a tough sell.

The second obstacle would be the military themselves. As we discussed in earlier posts, the amount of bureaucracy and management layers in the Pentagon has exploded over the past few decades. We have more generals, admirals, and deputy assistant secretaries of defense than we have ever had. Dislodging any embedded bureaucracy is always difficult, especially a government bureaucracy, but it is unneeded spending that serves no purpose in defending the country.

I would have wished that Stockman had provided more insights on how to more finely tune the needed spending cuts with the least amount of angst. But his type of thinking and knowledge is what is needed to make the real cuts to real expenses and we know that there are many other Americans that have already done the heavy lifting, including the President's own Presidential commission on debt reduction.

In additional to the Stockman interview, I came across another short article that confirms my belief that the Federal government's useless, wasteful, and expensive ($107 billion a year)  Department of Education needs to be terminated. In the most recent monthly issue of AARP Magazine, an article reviewed the findings of a new Federal report on civics education in this country. According to the article, only 7% of 8th graders in this country can describe the three branches of government and only 27% of 4th graders, 22% of 8th graders, and 24% of 12th graders are proficient in civics. A disgrace.

Combine these stats with the results we have discussed in the past on public education: U.S. kids usually trail dozens of other country's test scores on standardized tests, almost 25% of those applying for enrollment in our military pass cannot pass basic reading and math tests, and about 40% of students entering community colleges in this country require remedial math and English courses before they can start their college work. There was no doubt in my mind, and these latest Federal findings just reinforce it, that the Department of Education has been an utter waste of time and money when it comes to educating our kids.

Using the approach we discussed in our first budget post, our plan would provide money and resources to the states to fix their education processes (teacher enhancement and certification, technology improvement, curriculum enhancements, etc.) over a four year period, using the annual Department of Education budget to fund the state level effort. After four years the funding would stop and the Federal government would save about $900 billion over the next ten years without negatively affecting national education. Combine these savings with the Stockman savings we calculated above and you have almost $3 TRILLION in government expense cuts from just three departments.

It's not hard Washington, no matter how you cut it, there are many, many ways to get spending under control. Just takes a little bit of insight, a little bit of math, and a whole lot of courage to stand up for what is right for the country, not what is right for your political career.






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