Waste and Fraud Are the Real Causes of the Deficit
With sequestration set to go into effect in a few days, everyone is talking about it (via Google trends):
Sequestration means across-the-board cuts in government spending, split 50%-50% between the military and domestic spending.
As this post will show, the hypocrisy surrounding the sequestration debate is stunning.
And Dems obviously want to slash military spending and protect domestic programs, while the GOP wants to slash entitlements and leave military spending as is.
But the whole sequestration debate misses the bigger picture: Tremendous savings can be wrung out of both military and domestic spending without reducing services to either.
Military Wasting Bucketloads of Money on Non-Defense Costs
BusinessWeek and Bloomberg point out that we could slash military spending without harming our national security. Specifically, we could slash boondoggles that even the generals don’t want:
A devastating series by our colleagues at Bloomberg News shows that “the defense budget contains hundreds of billions of dollars for new generations of aircraft carriers and stealth fighters, tanks that even the Army says it doesn’t need and combat vehicles too heavy to maneuver in desert sands or cross most bridges in Asia, Africa, or the Middle East.”
BusinessWeek also notes that redundancy wastes a lot of money:
“One need only spend 10 minutes walking around the Pentagon or any major military headquarters to see excess and redundancy,” former Defense Secretary Robert Gates said in September at an event organized by the Center for Strategic & International Studies in Washington. He should know. As defense chief in 2009, he culled 20 weapons systems he thought unnecessary or too expensive, including the F-22 fighter. One place to start thinning the bureaucracy: the staff of the Joint Chiefs of Staff. That office has more than tripled in manpower, to 4,244 in 2012 from 1,313 in 2010, according to the Pentagon’s annual manpower report. (Fewer bureaucrats means fewer memos and fewer meetings. Win-win-win.)
BusinessWeek provides a list of cost-cutting measures which will not undermine national security. American Conservative does the same.
So why doesn’t Congress trim the fat? Because politicians want to bring home the pork. As BusinessWeek notes:
Why is sensible military budgeting so difficult? Because lawmakers, including small-government Republicans, protect defense business in their home states with the ferocity of Spartans. Even if the Pentagon offered up the cuts we’ve outlined here, Congress would almost certainly reject them. The senators and representatives don’t have the political courage to face voters and tell them that the republic simply does not need the weapon under construction in their hometown.
American Conservative reports:
The cuts to the Pentagon budget will be only 7% or some $40+ billion, not the $500 billion they bandy about! Anyone who confuses the (unlikely) ten year cut with next year’s cut is just promoting lies. A good example is the Wall Street Journal editorial, “The Coming Defense Crackup,” warning that the cuts would create the smallest navy since 1914. It intentionally confuses next year’s cut with the consequences of 10 year cuts. [In reality, the size of the proposed sequestration cuts aren't really that big.]
Ok, but when every smart bomb and missile hits its target, why does one need as many shells as the old battleships where most shots missed? During the Korean war the Air Force tried futilely for months to bomb a bridge over the Yalu River. Today destroying a bridge takes one cruise missile from a hundred miles away. In Washington we find all the big media opposed to cutting defense spending, waste and all, even the Washington Post. Politico, usually a leftist paper, publishes articles also intentionally confusing 10 years of cuts with a one year cut. Today’s congressmen can’t oblige future congresses on what they will spend; defense apologists use the 10-year number to try to stop the sequestration for one year, 2013. All the big Washington newspapers are full of costly ads from defense contractors.
Of course, this just scratches the surface.
The Secretary of Defense acknowledged in May 2012 that the DOD “is the only major federal agency that cannot pass an audit today.” The Pentagon will not be ready for an audit for another five years, according to Panetta.
Republican Senator Tom Coburn also notes that the Department of Defense can reduce $67.9 billion over 10 years by eliminating the non-defense programs that have found their way into the budget for the Department of Defense.
And Coburn documents abusive wastes of taxpayer dollars, including:
- A $100,000 Defense Advanced Research Projects Agency strategy planning workshop including a session entitled “Did Jesus die for Klingons too?” that entailed a panel debating the implications for Christian philosophy should life be found on other planets
- A DOD and Department of Agriculture co-produced reality cooking show called “Grill It Safe”
- DOD-run microbreweries
In addition, the defense department spends huge sums securing our access to oil. In 1991, the Government Accountability Office estimated that – between 1980 and 1990 – the US spent $366 billion to defend oil supplies in the Middle East. America was not fighting any major wars – in the Middle East or elsewhere – at the time.
George W. Bush, John McCain, Sarah Palin, a high-level National Security Council officer, Alan Greenspan and others all say that the Iraq war was really about oil. Nobel prize winning economist Joe Stiglitz says that we’ll end up spending $3-5 trillion spent on the Iraq war alone. See this, this and this.
Indeed, most of our wars are fought for petroleum resources.
Security experts – including both hawks and doves – agree that waging war against Iraq and in other Middle Eastern countries weakens national security and increases terrorism. See this, this, this, this, this, this, this and this.
American Conservative reports:
[The war-monger's] big government program is unending wars, imperialist foreign policy, and ever expanding Homeland Security.
The money is not all for defense. At least half is for attacking other nations, as Ron Paul called it the defense/militarism budget. Roughly half goes for defense, the rest is for military adventures abroad, most of them quite unnecessary, indeed counterproductive as they just create more enemies for America. Look at Turkey where 90% of the population used to support America; now 85% oppose us. Obviously if we attacked fewer foreigners we could do with much less spending. Firing 250,000 bullets for each dead guerilla can get expensive. As also paying $400 per gallon to get fuel to the front lines.
Any lingering doubts about whether we can cut defense costs without undermining our national security can be dispatched with a few facts:
(Remember, if there aren’t scary enough enemies in real life, we’ve got to create them. Oops … did I say that out loud?)
Congress members – part of the super-elite which has made money hand over fist during this economic downturn – are heavily invested in the war industry, and routinely trade on inside information … perhaps even including planned military actions.
No wonder the American government is making the state of war permanent, and planning to unleash new, widespread wars in the near future.
Government Squandering Taxpayer Money on Unnecessary Domestic Expenses
Instead, the government has thrown trillions at the big banks to artificially make them appear profitable.
Indeed, the government chose the big banks over Main Street, the average American … or the economy as a whole. And see this and this.
As such, the government has sucked trillions out of the real economy by pushing policies which destroy jobs (sorry … Obama doesn’t care), redistributed wealth upwards from the broad economy to a handful of the very richest (which trashes the economy .. and Obama is even worse than Bush), and destroyed savers and Main Street.
In other words, we have thrown many trillions of dollars at the banks, and then sucked trillions more out of the real economy.
As we noted recently:
The central banks’ central bank – the Bank for International Settlements- warned in 2008 that bailouts of the big banks would create sovereign debt crises … which could bankrupt nations.
That is exactly what has happened.
The big banks went bust, and so did the debtors. But the government chose to save the big banks instead of the little guy, thus allowing the banks to continue to try to wring every penny of debt out of debtors.
The bailout money is just going to line the pockets of the wealthy, instead of helping to stabilize the economy or even the companies receiving the bailouts:
- Bailout money is being used to subsidize companies run by horrible business men, allowing the bankers to receive fat bonuses, to redecorate their offices, and to buy gold toilets and prostitutes
- A lot of the bailout money is going to the failing companies’ shareholders
- Indeed, a leading progressive economist says that the true purpose of the bank rescue plans is “a massive redistribution of wealth to the bank shareholders and their top executives”
- The Treasury Department encouraged banks to use the bailout money to buy their competitors, and pushed through an amendment to the tax laws which rewards mergers in the banking industry (this has caused a lot of companies to bite off more than they can chew, destabilizing the acquiring companies)
And as the New York Times notes, “Tens of billions of [bailout] dollars have merely passed through A.I.G. to its derivatives trading partners”.
In other words, through a little game-playing by the Fed, taxpayer money is going straight into the pockets of investors in AIG’s credit default swaps and is not even really stabilizing AIG.
Moreover, a large percentage of the bailouts went to foreign banks (and see this). And so did a huge portion of the money from quantitative easing. Indeed, the Fed bailed out Gaddafi’s Bank of Libya, hedge fund billionaires, and big companies, but turned its back on the little guy.
A study of 124 banking crises by the International Monetary Fund found that propping up banks which are only pretending to be solvent often leads to austerity:
Existing empirical research has shown that providing assistance to banks and their borrowers can be counterproductive, resulting in increased losses to banks, which often abuse forbearance to take unproductive risks at government expense. The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance.
Cross-country analysis to date also shows that accommodative policy measures (such as substantial liquidity support, explicit government guarantee on financial institutions’ liabilities and forbearance from prudential regulations) tend to be fiscally costly and that these particular policies do not necessarily accelerate the speed of economic recovery.
All too often, central banks privilege stability over cost in the heat of the containment phase: if so, they may too liberally extend loans to an illiquid bank which is almost certain to prove insolvent anyway. Also, closure of a nonviable bank is often delayed for too long, even when there are clear signs of insolvency (Lindgren, 2003). Since bank closures face many obstacles, there is a tendency to rely instead on blanket government guarantees which, if the government’s fiscal and political position makes them credible, can work albeit at the cost of placing the burden on the budget, typically squeezing future provision of needed public services.
In other words, the “stimulus” to the banks blows up the budget, “squeezing” public services through austerity.
Numerous top economists say that the bank bailouts are the largest robbery and redistribution of wealth in history.
Why was this illegal? Well, the top white collar fraud expert in the country says that the Bush and Obama administrations broke the law by failing to break up insolvent banks … instead of propping them up by bailing them out.
And the Special Inspector General of the Tarp bailout program said that the Treasury Secretary lied to Congress regarding some fundamental aspects of Tarp – like pretending that the banks were healthy, when they were totally insolvent. The Secretary also falsely told Congress that the bailouts would be used to dispose of toxic assets … but then used the money for something else entirely. Making false statements to a federal official is illegal, pursuant to 18 United States Code Section 1001.
Given the above – and the fact that we no longer prosecute the big white collar criminals – we no longer have a free market economy … we have fascism, communist style socialism, kleptocracy, oligarchy or banana republic style corruption. As such, the machinery of capitalism – which could generate enough prosperity to dig us out of this budget deficit – has been broken.
Indeed, fraud caused the Great Depression and the current financial crisis. The government could easily close the budget deficit by clawing back bonuses and ill-gotten gains from every Wall Streeter who committed fraud.
Moreover, the government has encouraged American companies to move their facilities, resources and paychecks abroad. And some of the biggest companies in America have a negative tax rate… that is, not only do they pay no taxes, but they actually get tax refunds. If we want to stop the budget deficit from spiraling out of control, we should stop the “giant sucking sound” which is shipping prosperity abroad. (And a large percentage of the bailouts went to foreign banks (and see this). And so did a huge portion of the money from quantitative easing. More here and here.)
Finally, the current banking system is set up so that the government has to pay trillions of dollars in unnecessary interest costs to the big banks to “create money” and expand the money supply. To understand this crazy system, read this.
The Bottom Line
The bottom line is that the entire “sequestration” debate misses the real issues and the true sources of our budget deficit:
- Unnecessary military projects
- Redundancy in arms and personnel
- Costs which have nothing to do with defense
- Waste and fraud in military spending
- Wars for oil
- War profiteering
- Endless bailouts for the big banks
- Economic policies which are destroying the real economy
- Crony capitalism
- Failure to enforce the rule of law, including clawing back ill-gotten gains
- Shipping jobs and prosperity abroad
- Paying trillions in unnecessary interest costs due to a faulty banking system
Note: Time Magazine noted last December in an article entitled “The Best Way to Cut Government Spending: Get Really Tough on Fraud”:
Fortunately, there is a way to begin reining in spending that would be painless: Get really tough on fraud.
The challenge on the spending side becomes clear if you consider the consternation caused by the so-called sequester….
It certainly makes sense to go after fraud aggressively before contemplating cuts that would do real harm to national security and the general welfare.