Sunday, January 30, 2011

Political Posturing: Misdirection with Numbers

I've written a lot about misdirection with numbers in consumer advertising. But, the political posturing seen in Congress over the past two months takes misdirection with irrelevant numbers to a whole other level.

Consider all the indignation mustered on the Senate floor last month over the $8 billion in earmarks in a proposed bill. Let's put that number into perspective. The federal budget deficit hit a record $1.4 trillion last year. Eliminating the $8 billion in earmarks trims the deficit by 0.6%. While earmarks might be an unseemly practice, the dollar amounts are insignificant.

President Obama's federal pay freeze will save $60 billion. It's great political theater to require federal workers to tighten their belts along with the rest of the citizenry. But, that number is only 4.3% of the deficit.

In the mean time, Congress reached a painful "compromise" with a bill in which each side got what they wanted and no one had to pay. Republicans got their tax cuts while Democrats got their spending programs. In other words, voters have a choice between tax-and-spend Democrats or borrow-and-spend Republicans. It is no wonder that voters are angry. Most of us think that the word "compromise" means that each side has to give up something. This isn't a compromise at all.

To solve the government's fiscal problems will require looking at the numbers that matter, in particular the large numbers. As large it might sound, $10 billion is no longer a large amount of money in Washington. In fact $100 billion is no longer that large an amount. The significant amounts are measured in trillions of dollars and saving that kind of money requires overhauling programs that no one wants to touch.

The Bowles-Simpson commission made a sincere effort to propose significant deficit reduction, and few politicians of either party have embraced their proposals. Notice that their proposal will not eliminate deficits, just stabilize the problem. Their recommendations include:

* Reducing the yearly increases in Social Security
* Increase the retirement age
* Raise the Social Security contribution ceiling
* Eliminate the home mortgage interest deduction
* Raise the federal gas tax
* Increase Medicaid co-pays

These are just a few examples from a long list of recommendations, but what they all have in common is that no politician would ever dare support any of these actions. Unfortunately, these are the programs that soak up most of federal expenditures. I think Peter R. Fisher said it best in a 2002 speech when he was Under Secretary of the Treasury.

"Think of the federal government as a gigantic insurance company (with a side line business in national defense and homeland security) which only does its accounting on a cash basis - only counting premiums and payouts as they go in and out the door. An insurance company with cash accounting is not really an insurance company at all. It is an accident waiting to happen."

-Peter R. Fisher
Under Secretary of the Treasury
Remarks to the Columbus Council on World Affairs
Columbus, Ohio
November 14, 2002

Meaningful deficit reduction can only occur if we make an honest appraisal of where the bulk of the money actually goes. It isn't spent on the programs that Congressmen complain loudest about. In Peter Peterson's book Running on Empty: How the Democratic and Republican Parties Are Bankrupting Our Future and What Americans Can Do About It, he wrote: that the parties have mortgaged our future "with reckless tax cuts, out-of-control spending, and Enron-style accounting." He wrote that warning in 2004- six years ago-and the problem has only gotten worse.

In Peterson's moral structure, it is unconscionable to leave this enormous debt to our children. Each generation should pay for its own expenses and excesses. Actually, I find it the height of hypocrisy that the attitude of our political leaders towards money goes against everything financial principle we seek to instill in our children. Lessons on delaying gratification in order to save and invest, so that resources will be available for unforeseen problems, are apparently lost on politicians.

The real problem is the constant framing of political debate in terms of absolutes. In today's hyper-partisan climate you are either for or against Social Security, for or against Medicaid, for or against taxes. Actually you can be for and against all of these things. There is no reason that we can't have Social Security, Medicaid, and taxation, as long as all the costs are within reason. In other words, we need to make real compromises, not fake compromises for the sole purpose of political theater.

Joseph Ganem is a physicist and author of the award-winning The Two Headed Quarter: How to See Through Deceptive Numbers and Save Money on Everything You Buy