An Insurance Company with an Army

Tax month is a good time to revisit where our money goes. Some goes to your state and local governments, of course. But the bulk probably goes to your national government. As the below chart from the Pew Research Center shows, the U.S. Government spends nearly $4 trillion annually. On what? Here’s the breakdown:

What the chart shows is that the U.S. Government is first and foremost an insurance provider. Nearly 70 percent of expenditures go towards income security (Social Security payments, etc.) and civilian health and welfare programs such as Medicare and Medicaid. Twenty percent of the expenditures go towards the military and veterans. In sum, our government is akin to an insurance company with an army.

Looking down the road, it’s hard not to see the Social Security and Medicare expenditures escalating rapidly as more of the baby boom generation retires and, later, as they enter their mid-70s, when medical issues really start to dominate. Either the Government will have to i) cut back on benefits, ii) increase taxes, or iii) borrow even more money to finance these programs. It will be interesting to see how this plays out in the next couple of decades.

What strikes me the most when looking at the national budget is how it’s weighted in favor of old people. We spend relatively little on our nation’s youth, allow our children to run up $4 trillion of student-loan debt, and accept the fact that roughly one in five kids lives in poverty. Yet we aren’t at all timid about programs for seniors.

Which isn’t surprising. Seniors vote, kids don’t. And politicians aren’t fools (well, not entirely).

The budget is a reflection of our national priorities and is a product of the dynamics of power at work. The budget shows various things, including a massive transfer of wealth from workers to retirees. The budget also shows the U.S. spends an enormous amount on its military — indeed, far more than any other country.

We can spend nearly $4 trillion a year, not because we collect that much in taxes but because others (including China and Japan) are willing to lend our government the money. If the supply of willing borrowers ever dries up, look out! We’ll be in a s***load of trouble then. Of course, that’s one of the reasons we spend so much on our army: to help ensure the supply of willing borrowers never dries up.

Is this a sustainable strategy? Some say yes, some say no. Which is one of the reasons we have elections. Make sure you know what’s going on in the world, Vera, so you’ll be able to exercise your vote intelligently.

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