Where's the Money Going

I don't think you can get spending under control until you know where the money is going.  I went to the 2012 Statistical Abstract published by the federal government.  The outlays in billions of dollars are depicted in the bar graph below.

This graph makes several things apparent:

• Comparing the decades, the outlays rose by 43% from 1990-2000 and 93% from 2000-2010. 
• The rate of growth in spending is accelerating, especially starting in 2009.  Note the steady rate of growth 2000-2008, whereas there was a marked jump in 2009.
• The biggest areas of the budget, accounting for almost 85% of the outlays, are National Defense, Social Security, Income Security, Medicare, Health, and Net Interest.
• Net Interest has not grown noticeably as the national debt has doubled over the past four years.  This is the result of the rock bottom interest rates due to low demand for credit in the slow economy.  (If we end up with a bout of high inflation driven by the heavy doses of quantitative easing, the interest rates will rise substantially, and the Net Interest will grow substantially.  It wouldn't take much for this to become the largest segment of the outlays.)
• Income security has grown substantially as the unemployment rate has remained high since late 2008.
• Medicare and Health costs have risen steadily from what looks like a small amount in 1990.

The government must get a handle on the spending, or this MessAPolitico will get totally out of control.  So much of the spending is done on "auto pilot."

Social Security is based on a formula that is driven by the cost of living.  Unless the formula is changed, the cost will just keep on growing.  Should we reduce the payout, especially for more affluent retirees?  Social Security was sold as an insurance plan, and it only insures the first $113,700 of your salary and wage income.  Consequently, high income tax payers don't pay much more than the average people.  Can you deny benefits to a rich person that has paid premiums throughout their working life?  Should they be denied these benefits?  It really isn't an insurance policy; it's a tax.  OK, if we accept that, then we could give benefits to only the poor like a sort of welfare program.  Should we?  Most people don't think so.  I don't think so.  I do think that we have a choice of increasing the premiums for Social Security or reducing the payouts to the recipients.  This is a decision that's going to become a necessity soon.  The sooner the politicians "bite the bullet," the sooner we can fix this MessAPolitico.

Medicare and Health costs are expected to continue growing out of control with Obamacare in the offing.  With more people getting more health care services at no charge, the demand for these services will grow.  That must drive the prices up.  The supply of health care services needs to grow in response to the increasing demand, but providers are expected to make less money with Obamacare cost controls.  I'm not sure how this story ends, but the price of health care almost inevitably will rise one way or another.  I find it very hard to believe that government intervention will lead to a more efficient health care system.

Interest costs will do what they do as driven by the money markets.  The Federal Reserve is forced to print money under the guise of quantitative easing to finance the huge budget deficits.  At some point, the economy is going to take off.  With all of the cash out there that will eventually be lent to home and car buyers, inflation is a real possibility.  The federal reserve has certain levers at its disposal to keep a balance between high unemployment and high inflation.  Interest rates are the most powerful tools in the arsenal.  Today, interest rates are as low as they can go.  I just refinanced my home for less than 3% APR.  When I bought my first home in the early 1980's, I had an adjustable rate loan with a 13.5% APR.  What would happen to the Net Interest cost if the interest rates were 4 or 5 times as high?  You guessed it.  The interest cost would more than quadruple.  (By the way, what would happen to the market value of the bonds you own with much higher interest rates?  Yep, their value would drop precipitously if the maturity is a ways away.)

The MessAPolitico is killing our economy.  We need the cost of energy to be driven down by easy availability of cheap resources.  That has to be used to bring manufacturing back to the USA.  The unemployment rate must be cut in half.  That will bring tax revenues up and income security costs down.  Profits will also increase, and businesses and dividend recipients will pay more taxes.  Please politicians, take steps now to turn this thing around.  Get the budget balanced.  Don't choose tree hugging over jobs.  It will be too late soon.